-----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, LNjciJGOwZamxJIb3esS/83eqt/8qkNcc2sOcgat20Zas72j1SCkwjRcg+ivazA4 mp82nGXmQ9kYThcZz6PAIw== 0001021408-02-010011.txt : 20020731 0001021408-02-010011.hdr.sgml : 20020731 20020731141422 ACCESSION NUMBER: 0001021408-02-010011 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 35 FILED AS OF DATE: 20020731 EFFECTIVENESS DATE: 20020731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUNDS TRUST CENTRAL INDEX KEY: 0001097519 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-89661 FILM NUMBER: 02715849 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 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09645 FILM NUMBER: 02715850 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 d485bpos.txt NATIONS FUNDS TRUST As filed with the Securities and Exchange Commission on July 31, 2002 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. 26 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Amendment No. 27 [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 (____________) pursuant to Rule 485(b), or to Rule 485(b), or [_] 60 days after filing pursuant [_] on (____________) 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. 26 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
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] Prospectus - ---------------- Primary A Shares August 1, 2002 STOCK FUNDS Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Classic Value Fund Nations Value Fund Nations LargeCap Value Fund Nations MidCap Value Fund Nations Strategic Growth Fund Nations Marsico Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations SmallCap Value 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 [LOGO] 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 206. 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. Subject to certain limited exceptions, Nations International Value Fund is no longer accepting new investments from current or prospective investors. Please see the Fund's description for more information. ABOUT THE FUNDS Each type of Fund has a different investment focus: .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. .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. .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. .Government & Corporate Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. .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. 2 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, International/Global Stock and Index Funds generally focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities, including foreign securities .you have short-term investment goals .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: .you're looking for income .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: .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 168. [Graphic] About the Funds NATIONS CONVERTIBLE SECU RITIES FUND 7 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS ASSET ALLOCATION FUND 11 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS CLASSIC VALUE FUND 16 Sub-adviser: Brandes Investment Partners, L.P. -------------------------------------------------------- NATIONS VALUE FUND 19 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS LARGECAP VALUE FUND 24 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MIDCAP VALUE FUND 27 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS STRATEGIC GROWTH FUND 30 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO GROWTH FUND 35 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS CAPITAL GROWTH FUND 40 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO FOCUSED EQUITIES FUND 45 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS MIDCAP GROWTH FUND 50 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO 21ST CENTURY FUND 55 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS SMALLCAP VALUE FUND 59 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS SMALL COMPANY FUND 63 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS FINANCIAL SERVICES FUND 68 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS GLOBAL VALUE FUND 72 Sub-adviser: Brandes Investment Partners, L.P. --------------------------------------------------------
4 NATIONS INTERNATIONAL VALUE FUND 76 Sub-adviser: Brandes Investment Partners, L.P. ------------------------------------------------------------------- NATIONS INTERNATIONAL EQUITY FUND 81 Sub-advisers: Marsico Capital Management, LLC, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management, LLC ------------------------------------------------------------------- NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND 86 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- NATIONS EMERGING MARKETS FUND 92 Sub-adviser: Gartmore Global Partners ------------------------------------------------------------------- NATIONS LARGECAP INDEX FUND 97 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS MIDCAP INDEX FUND 102 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS SMALLCAP INDEX FUND 106 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS MANAGED INDEX FUND 111 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS SHORT-TERM INCOME FUND 116 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND 121 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS GOVERNMENT SECURITIES FUND 125 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS INTERMEDIATE BOND FUND 131 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS BOND FUND 136 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS STRATEGIC INCOME FUND 141 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS HIGH YIELD BOND FUND 147 Sub-adviser: MacKay Shields LLC ------------------------------------------------------------------- NATIONS SHORT-TERM MUNICIPAL INCOME FUND 151 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS INTERMEDIATE MUNICIPAL BOND FUND 156 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- NATIONS MUNICIPAL INCOME FUND 161 Sub-adviser: Banc of America Capital Management, LLC ------------------------------------------------------------------- OTHER IMPORTANT INFORMATION 166 ------------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 168
5 About your investment [Graphic] INFORMATION FOR INVESTORS Buying, selling and exchanging shares 179 Redemption fees 180 Distributions and taxes 184 -------------------------------------------------- FINANCIAL HIGHLIGHTS 188 -------------------------------------------------- TERMS USED IN THIS PROSPECTUS 206 -------------------------------------------------- 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 171. [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: .HAVE HIGHER INCOME POTENTIAL THAN THE UNDERLYING COMMON STOCK .ARE AFFECTED LESS BY CHANGES IN THE STOCK MARKET THAN THE UNDERLYING COMMON STOCK .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 Under normal circumstances, the Fund will invest at least 80% of its assets in convertible securities. Most convertible securities are 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: .the issuer's financial strength and revenue outlook .earnings trends, including changes in earnings estimates .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: .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. .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. .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. .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] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES 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. [CHART] 2000 2001 ------ ------- 15.21% (7.66%) *Year-to-date return as of June 30, 2002: -2.90% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2000: 13.55% Worst: 1st quarter 2001: -8.92%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the 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, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -7.66% 9.47% Primary A Shares Returns After Taxes on Distributions -8.97% 4.46% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -4.62% 5.64% CSFB Convertible Securities Index (reflects no deductions for fees, expenses or taxes) -6.41% 5.42%
*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] 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. [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% ---- 1.00% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES 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 STARTING ON PAGE 171. [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 which are often referred to as "junk bonds." 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 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: .. the growth prospects of the company's industry .. 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. 11 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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 sell a security when the Fund's asset allocation changes, if there is a deterioration in the issuer's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .. may limit the number of buy and sell transactions it makes .. may try to sell shares that have the lowest tax burden on shareholders .. may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Asset Allocation Fund has the following risks: .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. .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. .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. .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. 12 .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. .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. .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. 13 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. EFFECTIVE JANUARY 1, 2002, BACAP REPLACED CHICAGO EQUITY PARTNERS, LLC (CHICAGO EQUITY) AS INVESTMENT SUB-ADVISER FOR THE EQUITY PORTION OF THE FUND. BACAP HAS A DIFFERENT EQUITY INVESTMENT STYLE THAN CHICAGO EQUITY. [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES 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. [CHART] 2000 2001 ------- ------- (0.50)% (6.33)% *Year-to-date return as of June 30, 2002: -9.29% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 6.32% Worst: 3rd quarter 2001: -8.40%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -6.33% 0.37% Primary A Shares Returns After Taxes on Distributions -7.17% -1.24% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -3.83% -0.18% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% -3.56% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.77%
*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] 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. [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 0.38% ---- 1.03% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $105 $328 $569 $1,259
15 [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 173. [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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or 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] 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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE INDUSTRY, OR .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] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER STOCK ACCOUNTS MANAGED BY BRANDES, SEE How the Funds are managed. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Classic Value Fund has the following risks: .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. .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] 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. 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. [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. [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// 0.39% ---- 1.04% Total annual Fund operating expenses/2/ ====
/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 limit total annual operating expenses to 1.13% until July 31, 2003. There is no guarantee that this limitation will continue. Because this limitation is higher than the current total annual Fund operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $106 $331 $574 $1,271
18 [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 171. [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. 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 80% 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 19 [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: .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. .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. 20 [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ---- ---- ----- 7.30% 16.36% (2.99)% 36.09% 21.12% 26.66% 17.34% 1.25% 3.94% (7.09)%
*Year-to-date return as of June 30, 2002: -5.51% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 19.69% Worst: 3rd quarter 1998: -12.48%
21 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to August 1, 2002, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Value Index is considered a more appropriate comparison. These indices are weighted by market capitalization and are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes -7.09% 7.76% 11.24% 11.50% Primary A Shares Returns After Taxes on Distributions -9.01% 4.10% 8.16% 8.80% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -2.91% 5.94% 8.65% 9.06% Russell 1000 Value Index (reflects no deductions for fees, expenses or taxes) -5.59% 11.13% 14.13% 12.60% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 12.93% 12.75%
*The inception date of Primary A Shares is September 19, 1989. The returns for the indices shown are from that date. 22 [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] 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. [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 0.30% ---- 0.95% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $97 $303 $525 $1,166
23 [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 171. [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. NATIONS LARGECAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 1000 Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 24 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [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] RISKS AND OTHER THINGS TO CONSIDER Nations LargeCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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 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/ 0.42% ----- Total annual Fund operating expenses/2/ 1.07% =====
/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, 2003. There is no guarantee that this limitation will continue. Because this limitation equals the estimate of total annual Fund operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $109 $340
26 [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 171. [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. NATIONS MIDCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 27 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [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] RISKS AND OTHER THINGS TO CONSIDER Nations MidCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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 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/ 0.50% ----- Total annual Fund operating expenses/2/ 1.25% =====
/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, 2003. There is no guarantee that this limitation will continue. Because this limitation equals the estimate of total annual Fund operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $127 $397
29 [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. BACAP IS THE MASTER PORTFOLIO'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 171. [Graphic] MINIMIZING TAXES THE MASTER PORTFOLIO'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 growth of capital. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations Strategic Growth 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 companies that it selects from most major industry sectors. The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. 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 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: .the growth prospects of the company's industry .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 sell a security when it believes that the profitability of the company's industry is beginning to decline, if 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, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: .will focus on long-term investments to try to limit the number of buy and sell transactions .may try to sell securities that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss .invests primarily in securities with lower dividend yields .may use options, instead of selling securities While the Master Portfolio may try 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. 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 Strategic Growth Fund has the following risks: .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. .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. .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. .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. 31 [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. [CHART] 1999 2000 2001 ------ ------ ------ 28.08% (12.52)% (12.36)% *Year-to-date return as of June 30, 2002: -16.25% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 20.52% Worst: 3rd quarter 2001: -15.93%
32 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -12.26% 7.54% Primary A Shares Returns After Taxes on Distributions -12.31% 7.41% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.47% 6.13% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.11%
*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] 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. [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 0.29% ---- 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./ / /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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 172. [Graphic] WHY INVEST IN 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. 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 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 Growth 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 generally holds 35 to 50 securities. It may hold 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Fund has the following risks: .Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. .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. .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. .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. .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. [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. [CHART] 1998 1999 2000 2001 ------ ------ -------- -------- 38.22% 52.48% (15.23)% (19.60%) *Year-to-date return as of June 30, 2002: 0.21% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 35.30% Worst: 3rd quarter 2001: -17.27%
37 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -19.60% 9.47% Primary A Shares Returns After Taxes on Distributions -19.60% 9.36% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.94% 7.73% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*The inception date of Primary A Shares is December 31, 1997. 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. [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. [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 0.39% ----- Total annual Fund operating expenses 1.14% =====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $116 $362 $628 $1,386
39 [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 171. [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: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth 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. 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: .the growth prospects of the company's industry .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 1000 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 team may sell a security when its price reaches a target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 Capital Growth Fund has the following risks: .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. .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. .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. 41 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- 7.85% (1.24)% 28.72% 18.61% 30.52% 30.14% 23.93% (11.97)% (15.51)% *Year-to-date return as of June 30, 2002: -21.12% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 28.39% Worst: 3rd quarter 2001: -18.69%
42 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Russell 1000 Growth Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to October 1, 2001, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Growth Index is considered a more appropriate comparison. These indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -15.51% 9.38% 11.53% Primary A Shares Returns After Taxes on Distributions -15.96% 5.72% 8.21% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -8.90% 7.50% 9.01% Russell 1000 Growth Index (reflects no deductions for fees, expenses or taxes) -20.42% 8.27% 11.94% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.75%
*The inception date of Primary A Shares is September 30, 1992. The return for the indices shown are 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. [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. [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 0.32% ---- 0.97% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $99 $309 $536 $1,190
44 [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 172. [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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in equity securities. The investments will mostly consist of equity securities of large capitalization 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico Focused Equities Fund has the following risks: .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. .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. .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. . 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. .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. .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. 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 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. [CHART] 1998 1999 2000 2001 ------ ----- ------ ------ 49.64% 53.43% (17.09)% (18.89)% *Year-to-date return as of June 30, 2002: 1.25% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 33.16% Worst: 1st quarter 2001: -17.76%
47 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. [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. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -18.89% 11.47% Primary A Shares Returns After Taxes on Distributions -18.89% 11.29% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.50% 9.39% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*Theinception date of Primary A Shares is December 31, 1997. The return for the index shown is from that date. [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 0.36% ---- 1.11% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $113 $353 $612 $1,352
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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. companies whose market capitalizations are within the range of companies within the Russell MidCap Growth Index and that are believed to have the potential for long-term growth of capital. 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: .the growth prospects of the company's industry .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 MidCap 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 team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 MidCap Growth Fund has the following risks: .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. .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. .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. 51 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- 12.00% 0.65% 30.00% 18.63% 20.66% 3.47% 43.89% 14.76% (19.92)% * Year-to-date return as of June 30, 2002: -26.66% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 32.77% Worst: 3rd quarter 2001: -30.71%
52 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. [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. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Russell MidCap Growth Index, an unmanaged index which measures the performance of those Russell MidCap Index companies with lower price-to-book ratios and forecasted growth values. Prior to August 1, 2002, the Fund compared its performance to the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The Fund changed the index to which it compares its performance because the Russell MidCap Growth Index is considered a more appropriate comparison. The indices are weighted by market value, are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -19.92% 10.54% 12.74% Primary A Shares Returns After Taxes on Distributions -19.92% 8.14% 10.31% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -12.13% 8.36% 10.02% Russell MidCap Growth Index (reflects no deductions for fees, expenses or taxes) -20.15% 9.02% 11.50% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 16.11% 15.63%
*The inception date of Primary A Shares is December 4, 1992. The return for the indices shown are from that date. [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 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 0.32% ---- 0.97% Total annual Fund operating expenses ====
/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. 53 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $99 $309 $536 $1,190
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 172. [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 that Marsico Capital has 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 Marsico Capital 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, or 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: .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. .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. .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. .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. .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. .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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. [Graphic] A LOOK AT THE FUND'S PERFORMANCE The following bart 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. [CHART] 2001 - -------- (18.48)% * Year-to-date return as of June 30, 2002: 1.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 16.95% Worst: 3rd quarter 2001: -18.91%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -18.48% -18.87% Primary A Shares Returns After Taxes on Distributions -18.48% -18.87% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.25% -14.86% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% -13.04%
*Theinception date of Primary A Shares is April 10, 2000. The return for the index shown is from that date. 57 [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] 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. [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 0.62% ---- 1.37% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $139 $434 $750 $1,646
58 [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 VALUE STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 171. [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. NATIONS SMALLCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing in companies believed to be undervalued. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations SmallCap Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital. The Master Portfolio may also invest in real estate investment trusts. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow, price to earnings, price to sales and price to book. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss 59 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations SmallCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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. .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. .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. .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] 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. 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 (Expenses that are deducted from the Fund's assets)/1/ Management fees 0.90% Other expenses/2/ 0.48% ----- Total annual Fund operating expenses 1.38% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/3/ 1.30% =====
/1/ These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the Master Portfolio. /2/ Other expenses are based on estimates for the current fiscal year. /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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 61 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example 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 $429
62 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% 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: .company meetings/conferences .independent industry analysis .quantitative analysis .Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: .gaining an in-depth understanding of the company's business .evaluating the company's growth potential, risks and competitive strengths .discussing its growth strategy with company management .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 sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 63 [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: .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. .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. .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. .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. 64 [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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ----- ------ ------- -------- 20.59% 19.84% 1.53% 54.88% (1.60)% (12.00)% * Year-to-date return as of June 30, 2002: -12.37% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 43.13% Worst: 3rd quarter 1998: -25.76%
65 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not revelant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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. The index is unmanaged, weighted by market capitalization, is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -12.00% 10.29% 11.60% Primary A Shares Returns After Taxes on Distributions -12.00% 8.98% 10.40% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.31% 8.26% 9.44% Russell 2000 Growth Index (reflects no deductions for fees, expenses or taxes) -9.23% 2.87% 4.54%
* The inception date of Primary A Shares is December 12, 1995. The returns for the indices shown are from that date. 66 [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] 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. [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 0.32% ---- Total annual Fund operating expenses 1.22% Fee waivers and/or reimbursements (0.07)% ---- 1.15% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $380 $664 $1,471
67 [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 171. [Graphic] WHAT DOES A FINANCIAL SERVICESg 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: .are increasing their revenues along with their earnings .can grow their revenues and earnings in a variety of interest rate environments .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, or for other reasons. 68 [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: .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. .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. .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. .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. .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. 69 [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] 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 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 0.75% Other expenses// 3.02% ----- Total annual Fund operating expenses 3.77% ----- Fee waivers and/or reimbursements (2.47)% ------- Total net expenses/2/ 1.30% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 70 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above . the waivers and/or reimbursements shown above expire July 31, 2003 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 $132 $924 $1,735 $3,852
71 [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 173. [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 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. 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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or 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] 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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR .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). .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: .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. .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. .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. .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. 73 [Graphic] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER GLOBAL STOCK ACCOUNTS MANAGED BY BRANDES, SEE How the Funds are managed. [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] 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 Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge none Redemption fee (as a percentage of total redemption proceeds)/1/ 2.00% ANNUAL FUND OPERATING EXPENSES/2/ (Expenses that are deducted from the Fund's assets) Management fees 0.90% Other expenses 0.73% ----- 1.63% Total annual Fund operating expenses ----- Fee waivers and/or reimbursements (0.23)% ------- 1.40% Total net expenses/3/ =====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. /2/ 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. /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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $143 $492 $865 $1,914
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 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 173. [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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 76 [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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR .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). .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 Subject to certain limited exceptions discussed below, Nations International Value Fund is no longer accepting new investments from current or prospective investors. Shares of Nations International Value Fund currently may only be purchased through reinvestment of distributions, by certain qualified retirement plans on behalf of plan participants, by investors who purchase shares through accounts established with certain investment advisers or financial planners, including certain wrap fee accounts, and by investors who purchase shares through an account established with a selling agent that has available purchasing capacity based on policies established by the Fund. Nations International Value Fund has the following risks: .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. .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. .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. .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. .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 77 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. 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 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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ----- -------- 15.35% 21.01% 11.60% 52.65% 3.20% (11.77)% *Year-to-date returns as of June 30, 2002: -2.52% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 24.31% Worst: 3rd quarter 1998: -16.57%
78 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -11.77% 13.43% 13.62% Primary A Shares Returns After Taxes on Distributions -12.66% 11.34% 11.82% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -6.86% 10.27% 10.65% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% 0.89% 1.74%
*The inception date of Primary A Shares is December 27, 1995. The return for the index shown is from that date. 79 [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] 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. [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 Redemption fee (as a percentage of total redemption proceeds)/1/ 2.00% ANNUAL FUND OPERATING EXPENSES/2/ (Expenses that are deducted from the Fund's assets)/3/ Management fees 0.90% Other expenses 0.33% ----- Total annual Fund operating expenses 1.23% =====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. /2/ 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. /3/ 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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
80 [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. MARSICO CAPITAL, 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. JAMES G. GENDELMAN OF MARSICO CAPITAL, 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 MARSICO CAPITAL AND MR. GENDELMAN ON PAGE 172, INVESCO ON PAGE 176 AND PUTNAM ON PAGE 177. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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: .Marsico Capital combines "top-down" allocation among sectors and regions around the world with a "bottom-up" analysis that focuses on investing in securities with earnings growth potential that may not be realized by other investors. .INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. .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 a target set by the manager, when the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, or for other reasons. 81 [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: .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. .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. .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. .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. .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. 82 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. EFFECTIVE JANUARY 15, 2002, MARSICO CAPITAL REPLACED GARTMORE GLOBAL PARTNERS (GARTMORE) AS CO-INVESTMENT SUB-ADVISER FOR A PORTION OF THE MASTER PORTFOLIO'S ASSETS. MARSICO CAPITAL HAS A DIFFERENT INVESTMENT STYLE THAN GARTMORE. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------- ------ ------ ------ ----- ------ ------ ------- -------- (8.57)% 27.21% 2.60% 8.45% 8.47% 1.27% 16.46% 39.49% (15.13)% (20.66)% *Year-to-date return as of June 30, 2002: 0.63% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 28.59% Worst: 3rd quarter 2001: -14.03%
83 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes -20.66% 2.07% 4.52% 4.90% Primary A Shares Returns After Taxes on Distributions -20.67% 0.00% 3.16% 3.56% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -12.58% 1.22% 3.37% 3.71% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% 0.89% 4.46% 4.95%
*The inception date of Primary A Shares is December 2, 1991. The return for the index shown is from that date. 84 [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] 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. [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 Redemption fee (as a percentage of total redemption proceeds)/1 / 2.00% ANNUAL FUND OPERATING EXPENSES/2 / (Expenses that are deducted from the Fund's assets)/3 / Management fees 0.80% Other expenses 0.36% ---- 1.16% Total annual Fund operating expenses ====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment--Buying, selling and exchanging shares--Redemption fees for details. /2/ 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. /3/ 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $118 $368 $638 $1,409
85 [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 G. 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 172. [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 that Marsico Capital has 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 Marsico Capital 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, or for other reasons. 86 [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: .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. .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. .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. .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. 87 [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. [CHART] 2001 -------- (14.51)% *Year-to-date return as of June 30, 2002: 6.12% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.11% Worst: 3rd quarter 2001: -18.18%
88 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -14.51% -14.47% Primary A Shares Returns After Taxes on Distributions -14.51% -14.47% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -8.84% -11.50% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% -19.64%
*Theinception date of Primary A Shares is August 1, 2000. The return for the index shown is from that date. 89 [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 Redemption fee (as a percentage of total redemption proceeds)/1/ 2.00% ANNUAL FUND OPERATING EXPENSES/2/ (Expenses that are deducted from the Fund's assets)/3/ Management fees 0.80% Other expenses 3.20% ---- Total annual Fund operating expenses 4.00% Fee waivers and/or reimbursements (2.50)% ---- 1.50% Total net expenses/4/ ====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment - Buying, selling and exchanging shares - Redemption fees for details. /2/ 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. /3/ 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. /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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 90 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $989 $1,842 $4,051
91 [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 176. [Graphic] WHAT'S AN EMERGING MARKET? THIS FUND CONSIDERS A COUNTRY TO BE AN EMERGING MARKET IF: .THE INTERNATIONAL FINANCE CORPORATION HAS DEFINED IT AS AN EMERGING MARKET, .IT HAS A LOW-TO-MIDDLE INCOME ECONOMY ACCORDING TO THE WORLD BANK, OR .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 Under normal circumstances, the Fund will invest at least 80% 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: .uses fundamental research to select stocks, looking at earnings growth, financial resources, marketability, and other factors .visits companies to confirm the corporate and industry factors that led to a stock's selection as a potential investment .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 a target set by the portfolio manager, if there is a deterioration in the growth prospects of the company or its industry, when the portfolio manager believes other investments are more attractive, or for other reasons. 92 [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: .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. .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. .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. .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. .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. 93 [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. [CHART] 1996 1997 1998 1999 2000 2001 ----- ------- -------- ------ -------- ------- 8.73% (2.99)% (25.58)% 96.74% (35.11)% (3.85)% *Year-to-date return as of June 30, 2002: 3.00% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 48.13% Worst: 3rd quarter 2001: -28.48%
94 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -3.85% -2.39% -0.90% Primary A Shares Returns After Taxes on Distributions -3.87% -2.51% -1.08% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -2.34% -1.93% -0.78% S&P/IFC Investables Index (reflects no deductions for fees, expenses or taxes) 1.51% -4.69% -2.44%
*The inception date of Primary A Shares is June 30, 1995. The return for the index shown is from that date. 95 [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] 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. [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 Redemption fee (as a percentage of total redemption proceeds)/1/ 2.00% ANNUAL FUND OPERATING EXPENSES/2/ (Expenses that are deducted from the Fund's assets) Management fees 1.00% Other expenses 1.04% ---- 2.04% Total annual Fund operating expenses/3/ ====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. /2/ 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. /3/ The Fund's investment adviser and/or some of its other service providers have voluntarily agreed to limit total annual operating expenses to 1.90%, as a percentage of the average daily net assets of the Fund. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $207 $640 $1,098 $2,369
96 [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 171. [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, or for other reasons. 97 [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: .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. .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. .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. 98 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------ ------ ------ ------ ------- -------- 0.99% 37.02% 22.63% 32.70% 28.39% 20.66% (9.37)% (12.20)% *Year-to-date return as of June 30, 2002: -13.31% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 21.13% Worst: 3rd quarter 2001: -14.75%
99 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -12.20% 10.34% 13.64% Primary A Shares Returns After Taxes on Distributions -12.56% 9.37% 12.51% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.43% 8.16% 11.07% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.98%
* The inception date of Primary A Shares is December 15, 1993. 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] 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. [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)% ---- 0.35% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
101 [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 171. [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, or 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 MidCap Index Fund has the following risks: .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. .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. .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. 103 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES 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. [CHART] 2001 ------ (0.92)% *Year-to-date return as of June 30, 2002: -3.53% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.96% Worst: 3rd quarter 2001: -16.69%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the S&P MidCap 400, an unmanaged index of 400 common stocks, weighted by market value. The S&P MidCap 400 is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -0.92% 1.73% Primary A Shares Returns After Taxes on Distributions -2.31% -0.60% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.59% 0.93% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 2.06%
*Theinception date of Primary A Shares is March 31, 2000. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.32% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.37)% ------- 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/ Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $193 $364 $860
105 [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 171. [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 with market capitalizations ranging from $500 million to $3 billion 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, or 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 SmallCap Index Fund has the following risks: .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. .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. .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. .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. 107 [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. [CHART] 1997 1998 1999 2000 2001 ----- ------- ----- ----- ----- 27.97% (1.65)% 5.47% 9.47% 6.06% *Year-to-date return as of June 30, 2002: -0.39% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 20.60% Worst: 3rd quarter 1998: -20.83%
108 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 6.06% 9.04% 9.31% Primary A Shares Returns After Taxes on Distributions 5.36% 8.45% 8.73% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.13% 7.18% 7.43% S&P SmallCap 600 (reflects no deductions for fees, expenses or taxes) 6.51% 10.65% 11.63%
*Theinception date of Primary A Shares is October 15, 1996. 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] 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. [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 0.36% ---- Total annual Fund operating expenses 0.76% Fee waivers and/or reimbursements (0.36)% ---- 0.40% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $207 $387 $909
110 [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 171. [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 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. 111 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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, or for other reasons. 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: .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 .may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Managed Index Fund has the following risks: .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. .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. .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. .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. 112 [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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ -------- -------- 33.46% 26.64% 17.70% (10.86)% (9.33)% *Year-to-date return as of June 30, 2002: -12.74% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 20.98% Worst: 3rd quarter 2001: -14.35%
113 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -9.33% 9.96% 12.37% Primary A Shares Returns After Taxes on Distributions -11.05% 8.43% 10.86% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -4.11% 8.07% 10.13% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.04%
* The inception date of Primary A Shares is July 31, 1996. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.35% ----- Total annual Fund operating expenses 0.75% Fee waivers and/or reimbursements (0.25)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $215 $392 $907
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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in income-producing securities. 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: .corporate debt securities, including bonds, notes and debentures .mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Short-Term Income Fund has the following risks: .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. .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. .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. .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. .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. .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 [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. .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] 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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------- ------ ----- ----- ----- ----- ----- ----- 7.55% (0.27)% 11.27% 4.89% 6.03% 6.30% 3.22% 7.17% 8.62% *Year-to-date return as of June 30, 2002: 2.14% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 3.49% Worst: 1st quarter 1994: -0.94%
118 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 8.62% 6.25% 5.81% Primary A Shares Returns After Taxes on Distributions 6.40% 3.88% 3.47% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.21% 3.81% 3.46% Merrill Lynch 1-3 Treasury Index (reflects no deductions for fees, expenses or taxes) 8.30% 6.59% 5.92%
*The inception date of Primary A Shares is September 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS. [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. [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 0.32% ----- Total annual Fund operating expenses 0.62% Fee waivers (0.10)% ------- 0.52% Total net expenses/2/ =====
/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 until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $53 $188 $336 $765
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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations and repurchase agreements secured by these securities. 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 121 [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: .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. .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. .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. .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. .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. .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. 122 [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, TAXES 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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ------- ------ ----- ----- ----- ----- ----- ----- 5.78% 8.02% (2.41)% 12.44% 3.19% 7.25% 6.60% 0.43% 9.56% 7.61%
*Year-to-date return as of June 30, 2002: 4.12% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2001: 4.68% Worst: 1st quarter 1994: -1.74%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes 7.61% 6.24% 5.76% 6.43% Primary A Shares Returns After Taxes on Distributions 5.56% 3.99% 3.46% 4.11% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.60% 3.87% 3.47% 4.03% Lehman Intermediate Government Bond Index (reflects no deductions for fees, expenses or taxes) 8.42% 7.06% 6.65% 7.22%
*The inception date of Primary A Shares is August 1, 1991. The return for the index shown is from that date. 123 [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] 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. [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 0.32% ---- 0.62% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $63 $199 $346 $774
124 [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 171. [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 Under normal circumstances, this Fund will invest at least 80% 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: .mortgage-backed securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities or municipal securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 125 [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: .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. .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. .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. .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. .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. .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. 126 .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. 127 [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ------- ------ ----- ----- ----- ------- ------ ----- 5.41% 7.67% (5.11)% 15.28% 2.53% 8.55% 8.43% (2.95)% 12.13% 6.68%
*Year-to-date return as of June 30, 2002: 4.09% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2001: 5.08% Worst: 1st quarter 1994: -3.01%
128 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes 6.68% 6.44% 5.69% 6.40% Primary A Shares Returns After Taxes on Distributions 4.60% 4.06% 3.24% 3.93% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.04% 3.96% 3.32% 3.93% Lehman Government Bond Index (reflects no deductions for fees, expenses or taxes) 7.23% 7.40% 7.14% 7.83%
* The inception date of Primary A Shares is April 11, 1991. The return for the index shown is from that date. 129 [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. [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. [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 0.38% ---- Total annual Fund operating expenses 0.88% Fee waivers (0.15)% ---- 0.73% Total net expenses/2/ ====
/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 until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $266 $473 $1,071
130 [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 171. [Graphic] INTERMEDIATE-TERM SECURITIES THE TEAM FOCUSES ON FIXED INCOME SECURITIES WITH INTERMEDIATE TERMS. WHILE THESE SECURITIES GENERALLY WON'T EARN MUCH INCOME AS SECURITIES WITH LONGER TERMS, THEY TEND TO BE 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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in bonds. 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows .tries to maintain a duration that is similar to the duration of the Master Portfolio's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 131 [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: .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. .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. .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. .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. .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. 132 .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. .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. .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. 133 [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, TAXES 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. [CHART] 2000 2001 ----- ------ 8.18% 8.41% *Year-to-date return as of June 30, 2002: 2.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2001: 4.12% Worst: 2nd quarter 2001: 0.10%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman Intermediate Government Credit Index (formerly called 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes 8.41% 6.45% Primary A Shares Returns After Taxes on Distributions 6.09% 3.93% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.08% 3.88% Lehman Intermediate Government Credit Index (reflects no deductions for fees, expenses or taxes) 8.96% 7.74%
*The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 134 [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] 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. [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 0.46% ----- 0.86% Total annual Fund operating expenses ----- Fee waivers and/or reimbursements (0.05)% ------- 0.81% Total net expenses/3/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $83 $269 $472 $1,056
135 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in bonds. 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: .corporate debt securities, including bonds, notes and debentures .U.S. government obligations .foreign debt securities denominated in U.S. dollars .mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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 .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 136 [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: .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. .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. .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. .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. .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. 137 .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. .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. 138 [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, TAXES 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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ------ ------ ------ ------- ------ ------ 10.78% (3.32)% 17.28% 2.12% 8.48% 7.16% (1.24)% 10.10% 7.87% *Year-to-date return as of June 30, 2002: 2.18% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 5.95% Worst: 1st quarter 1994: -2.81%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period of the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 7.87% 6.40% 6.46% Primary A Shares Returns After Taxes on Distributions 5.40% 3.83% 3.82% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.75% 3.84% 3.85% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.27%
*The inception date of Primary A Shares is October 30, 1992. The return for the index shown is from that date. 139 [Graphic] THERE ARE TWO KINDS OF FEES --SHAREHOLDERS FEES YOU PAY DIRECTLY, AND ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM A FUND'S ASSETS. [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. [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% ---- 0.68% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $69 $218 $379 $847
140 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in income-producing securities. The Fund normally invests at least 65% of its assets in investment grade debt securities. The Fund may invest in: .corporate debt securities .U.S. government obligations .foreign debt securities denominated in U.S. dollars or foreign currencies .mortgage-related securities issued by governments and non-government issuers .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 Service, 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 141 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Strategic Income Fund has the following risks: .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. .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. .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. .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. 142 .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. .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. .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. .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. .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. 143 [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. [CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 15.68% (2.52)% 20.91% 2.46% 8.59% 7.53% (2.59)% 8.03% 6.66%
*Year-to-date return as of June 30, 2002: 0.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 7.48% Worst: 1st quarter 1996: -3.18%
144 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman Aggregate Bond Index, and unmanaged index made up of Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices and not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 6.66% 5.56% 7.08% Primary A Shares Returns After Taxes on Distributions 4.05% 2.83% 4.14% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.03% 3.08% 4.22% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.27%
*The inception date of Primary A Shares is October 30, 1992. The return for the index shown is from that date. 145 [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. [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. [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 0.41% ---- Total annual Fund operating expenses 0.91% Fee waivers (0.10)% ---- 0.81% Total net expenses/2/ ====
/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 until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $83 $280 $494 $1,110
146 [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 177. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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 Investors Service, 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: .Domestic corporate high yield debt securities, including private placements .U.S. dollar-denominated foreign corporate high yield debt securities, including private placements .Zero-coupon bonds .U.S. government obligations .Equity securities (up to 20% 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: .focuses on individual security selection ("bottom-up" analysis) .uses fundamental credit analysis .emphasizes current income while attempting to minimize risk to principal .seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring .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 a 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, or for other reasons. 147 [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: .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. .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. .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. .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. .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. .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 wholding taxes, may also apply to some foreign investments. .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. 148 [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. FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER HIGH YIELD ACCOUNTS MANAGED BY MACKAY SHIELDS, SEE How the Funds are managed. [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES 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 THE 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 how would be lower if they did. [CHART] 2001 ----- 8.75% *Year-to-date return as of June 30, 2002: -0.78% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 7.50% Worst: 3rd quarter 2001: -3.79%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the CSFB Global High Yield Index, and unmanaged index that mirrors the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes 8.75% 3.83% Primary A Shares Returns After Taxes on Distributions 4.28% -0.43% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.25% 0.94% CSFB Global High Yield Index (reflects no deductions for fees, expenses or taxes) 6.76% 0.36%
* The inception dates of Primary A Shares is February 14, 2000. The return for the index shown is from that date. 149 [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] 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. [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 0.45% ---- Total annual Fund operating expenses 1.00% Fee waivers and/or reimbursements (0.07)% ---- 0.93% Total net expenses/3/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $311 $546 $1,218
150 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 151 [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: .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. .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. .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. .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. .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. .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. 152 [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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- 0.46% 8.26% 4.18% 4.73% 4.74% 2.43% 5.74% 5.27% *Year-to-date return as of June 30, 2002: 2.31% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 2.90% Worst: 1st quarter 1994: -0.91%
153 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 3-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four years and an equal blend of the Lehman 1-Year Municipal Bond Index, with maturities greater than one year and less than two years, and the Lehman 3-Year Municipal Bond Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 5.27% 4.57% 4.46% Primary A Shares Returns After Taxes on Distributions 5.27% 4.57% 4.46% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.80% 4.51% 4.42% Lehman 3-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 6.59% 5.08% 4.90% Blended Lehman 1-Year Municipal Bond and Lehman 3-Year Municipal Bond Indices (reflect no deductions for fees, expenses or taxes) 6.17% 4.88% 4.99%
*The inception date of Primary A Shares is October 7, 1993. The return for the indices shown are from that date. 154 [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] 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. [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 0.33% ---- Total annual Fund operating expenses 0.63% Fee waivers and/or reimbursements (0.23)% ---- 0.40% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $179 $328 $764
155 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 156 [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: .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. .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. .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. .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. .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. .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. 157 [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. ..Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (4.54)% 14.76% 4.04% 7.36% 5.45% (1.25)% 8.16% 4.83% *Year-to-date return as of June 30, 2002: 3.91% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 6.00% Worst: 1st quarter 1994: -4.02%
158 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. Prior to August 1, 2002, the Fund compared its performance to the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturity of seven to eight years. The Fund changed the index to which it compares its performance because the Lehman Quality Intermediate Municipal Index is considered to be a more appropriate comparison. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 4.83% 4.86% 5.00% Primary A Shares Returns After Taxes on Distributions 4.83% 4.80% 4.95% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.81% 4.83% 4.95% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% 5.47% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.60%
*The inception date of Primary A Shares is July 30, 1993. The returns for the indices shown are from that date. 159 [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] THIS IA 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. [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)% ---- 0.50% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
160 [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 171. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. 161 [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: .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. .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. .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. .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. .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. .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. 162 [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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------- ------ ----- ----- ----- ------- ------ ------ 8.32% 13.51% (7.44)% 19.51% 4.71% 9.56% 6.00% (4.09)% 10.03% 3.90% *Year-to-date return as of June 30, 2002: 3.91% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 8.01% Worst: 1st quarter 1994: -6.61%
163 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes 3.90% 4.95% 6.13% 6.61% Primary A Shares Returns After Taxes on Distributions 3.90% 4.91% 6.03% 6.51% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.40% 4.99% 5.99% 6.42% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.98% 6.63% 7.04%
*Theinception date of Primary A Shares is February 1, 1991. The return for the index shown is from that date. 164 [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] 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. [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)% ------- 0.60% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
165 [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: .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. .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. EachFund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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 166 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. .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. .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. .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 SmallCap Value Master Portfolio is expected to be no more than 100%. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 167 [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 70 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, 2003. 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. 168 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% 0.65% Nations Classic Value Fund 0.65% N/A Nations Value Fund 0.65% 0.65% Nations LargeCap Value Fund 0.65% N/A Nations MidCap Value Fund 0.75% N/A Nations Strategic Growth Fund/1/ 0.65% 0.65% Nations Marsico Growth Fund/1/ 0.75% 0.75% Nations Capital 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% 0.75% Nations SmallCap Value Fund/1/ 0.90% N/A Nations Small Company Fund 0.90% 0.83% Nations Financial Services Fund 0.75% 0.00% Nations Global Value Fund 0.90% N/A Nations International Value Fund/1/ 0.90% 0.87% Nations International Equity Fund/1/ 0.80% 0.80% Nations Marsico International Opportunities Fund/1/ 0.80% 0.00% Nations Emerging Markets Fund 1.00% 0.77% Nations LargeCap Index Fund 0.40% 0.07% Nations MidCap Index Fund 0.40% 0.03% Nations SmallCap Index Fund 0.40% 0.04% Nations Managed Index Fund 0.40% 0.15% 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% 0.32% Nations Bond Fund 0.40% 0.40% Nations Strategic Income Fund 0.50% 0.40% Nations High Yield Bond Fund/1/ 0.55% 0.48% Nations Short-Term Municipal Income Fund 0.30% 0.09% 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 Strategic Growth Master Portfolio, Nations Marsico Growth Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico 21st Century Master Portfolio, Nations SmallCap Value 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. 169 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 170 [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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Growth Strategies Team for the equity portion of the Fund Fixed Income Management Team for the fixed income and money market portions of the Fund Nations Value Fund Value Strategies Team Nations LargeCap Value Fund Value Strategies Team Nations MidCap Value Fund Value Strategies Team Nations Strategic Growth Fund/1/ Growth Strategies Team Nations Capital 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 Value Fund/1/ Value 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/ These Funds don't have their own investment sub-adviser because they invest in Nations Strategic Growth Master Portfolio, Nations SmallCap Value Master Portfolio and Nations Intermediate Bond Master Portfolio, respectively. BACAP is the investment sub-adviser to each Master Portfolio. 171 [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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Growth Master Portfolio .Nations Marsico Focused Equities Master Portfolio .Nations Marsico 21st Century Master Portfolio .Nations Marsico International Opportunities Master Portfolio Marsico Capital is a co-investment sub-adviser to: .Nations International Equity 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 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 and Marsico Capital's portion of Nations International Equity 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. 172 [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 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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 ACCOUNTS MANAGED BY BRANDES Nations Classic Value Fund and Nations Global Value Fund commenced their operations on April 16, 2001. 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. 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, 2002 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, 2002
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 21.49% 4.39% three years 14.09% 3.63% five years 13.17% 11.46% since inception (6/30/91) 15.60% 14.46%
173 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2001 16.09% (5.59)% 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. The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2002 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, 2002
Brandes Global Equity MSCI World Composite (%) Index (%) one year 5.49% (4.23)% three years 12.84% (4.39)% five years 15.25% 5.38% ten years 16.62% 9.02%
174 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes Global Equity MSCI World Composite (%) Index (%) 2001 (0.66)% (16.82)% 2000 34.46% (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. 175 [Graphic] GARTMORE GLOBAL PARTNERS GARTMORE HOUSE 8 FENCHURCH PLACE LONDON EC3M 4PH, ENGLAND [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 GARTMORE GLOBAL PARTNERS Gartmore Global Partners is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore Global Partners was formed in 1995 as a registered investment adviser and manages more than $1 billion in assets. Gartmore Global Partners is 100% owned by Gartmore Investment Management plc whose advisory affiliates are members of Gartmore Group. Gartmore Group, the brand name of Nationwide Mutual Insurance Company's (Nationwide Mutual) asset management business, represents a unified global marketing and investment platform featuring nine affiliated investment advisors collectively managing over $75 billion in assets. Gartmore Group encompasses 170 portfolio managers, analysts and traders supported by approximately 1,000 professionals working in offices strategically located in the United States, United Kingdom, Sweden, Italy, Spain, Germany and Japan. Gartmore Global Partners generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore Global Partners is the investment sub-adviser to Nations Emerging Markets Fund. 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 Global Partners in 1995 and is a senior investment manager on the Gartmore Global Partners Emerging Markets Team. Before he joined Gartmore Global Partners, 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. 176 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 [Graphic] MACKAY SHIELDS LLC 9 WEST 57TH STREET NEW YORK, NEW YORK 10019 PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust, 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. 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 $32 billion in assets, including over $10.5 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, 2001. 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, 2001
CSFB MacKay Shields Global High Yield Composite (%) Index (%) one year 9.12% 5.78% three years 5.45% 1.17% five years 7.57% 3.24% ten years 12.79% 7.83%
177 [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. [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
CSFB MacKay Shields Global High Yield Composite (%) Index (%) 2001 9.1% 5.7% 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. 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 & 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. 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. 178 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: .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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other Funds in Nations Funds Family .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. .There is no minimum amount for additional investments. .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. 179 [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] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT REDUCTIONS AND WAIVERS OF REDEMPTION FEES. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR A REDUCTION OR A WAIVER BEFORE SELLING SHARES. WE CAN CHANGE OR CANCEL THESE TERMS AT ANY TIME. ANY CHANGE OR CANCELLATION APPLIES ONLY TO FUTURE PURCHASES. 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. REDEMPTION FEES The International/Global Stock Funds may assess, subject to exceptions described below, a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. The redemption fee is paid to the Fund, and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the Funds. The redemption fee is imposed to the extent that Fund shares redeemed exceed Fund shares that have been held more than 90 days. For shares of the Funds acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to apply the redemption fee. You won't pay a redemption fee on the following transactions: .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 .distribution from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 180 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .shares sold under our right to liquidate a shareholder's account including instances where the aggregate net asset value of Primary A Shares held in the account is less than the minimum account size .shares redeemed from accounts where by agreement with Nations Funds short-term trading activity is permitted, including shares sold as part of an automatic rebalancing within an asset allocation program [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Primary A Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .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. 181 [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] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. .The International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. We may sell your shares: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [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: .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 Money Market Funds. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. 182 .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and otherwise promote the best interests of the Funds, the International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. .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). 183 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of Frequency of declaration of payment of Fund income distributions income distributions Nations Convertible Securities Fund quarterly quarterly Nations Asset Allocation Fund quarterly quarterly Nations Classic Value Fund annually annually Nations Value Fund quarterly quarterly Nations LargeCap Value Fund quarterly quarterly Nations MidCap Value Fund quarterly quarterly Nations Strategic Growth Fund annually annually Nations Marsico Growth Fund annually annually Nations Capital Growth Fund annually annually Nations Marsico Focused Equities Fund annually annually Nations MidCap Growth Fund annually annually Nations Marsico 21st Century Fund annually annually Nations SmallCap Value Fund annually annually Nations Small Company Fund annually annually Nations Financial Services Fund annually annually Nations Global Value Fund annually annually Nations International Value Fund annually annually Nations International Equity Fund annually annually Nations Marsico International Opportunities Fund annually annually Nations Emerging Markets Fund annually annually Nations LargeCap Index Fund annually annually Nations MidCap Index Fund annually annually Nations SmallCap Index Fund annually annually Nations Managed Index Fund annually monthly Nations Short-Term Income Fund daily monthly Nations Short-Intermediate Government Fund daily monthly Nations Government Securities Fund daily monthly Nations Intermediate Bond Fund monthly monthly Nations Bond Fund daily monthly Nations Strategic Income Fund daily monthly Nations High Yield Bond Fund monthly monthly Nations Short-Term Municipal Income Fund daily monthly Nations Intermediate Municipal Bond Fund daily monthly Nations Municipal Income Fund daily monthly
184 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 paid (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 Fund shares shortly before the Fund 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. 185 [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 of a Fund's ordinary income and net short-term capital gain 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. 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 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 alternative minimum taxes. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable interest income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions of net long-term capital gain, if any, 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: .include in your gross income your proportional amount of foreign income taxes paid by the fund .treat this amount as foreign income taxes you paid directly .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 income 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 individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 186 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 187 [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. Financial highlights for Primary A Shares of Nations SmallCap 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. 188 NATIONS CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $16.05 $22.18 $18.15 Net investment income 0.59 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 0.59 (1.49) 5.94 LESS DISTRIBUTIONS: Dividends from net investment income (0.56) (0.60) (0.50) Distributions from net realized capital gains (0.05) (4.04) (1.41) Total dividends and distributions (0.61) (4.64) (1.91) Net asset value, end of period $16.03 $16.05 $22.18 Total return++ 3.74% (7.59)% 35.21% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $236,202 $75,627 $13,688 Ratio of operating expenses to average net assets 1.00%(a)(b) 0.99%(a)(b) 0.97%+(b) Ratio of net investment income to average netassets 3.78% 3.08% 2.21%+ Portfolio turnover rate 50% 73% 65% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a) 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 YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $20.32 $24.35 $23.06 Net investment income 0.44 0.57 0.49 Net realized and unrealized gain/(loss) on investments (0.39) (2.84) 1.93 Net increase/(decrease) in net asset value from operations 0.05 (2.27) 2.42 LESS DISTRIBUTIONS: Dividends from net investment income (0.41) (0.55) (0.41) Distributions from net realized capital gains (0.03) (1.21) (0.72) Total dividends and distributions (0.44) (1.76) (1.13) Net asset value, end of period $19.93 $20.32 $24.35 Total return++ 0.26% (9.83)% 10.88% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $40,287 $12,847 $15,532 Ratio of operating expenses to average net assets 1.03%(a) 0.98%(a)(b) 0.95%+(a)(b) Ratio of net investment income to average net assets 2.10% 2.45% 1.85%+ Portfolio turnover rate 226% 88% 84% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.03%(a) 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%. 189 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED PRIMARY A SHARES 03/31/02*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.00 Net investment income 0.11 Net realized and unrealized gain/(loss) on investments 2.10 Net increase/(decrease) in net asset value from operations 2.21 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) Distributions from net realized capital gains (0.10) Total dividends and distributions (0.14) Net asset value, end of period $12.07 Total return++ 22.21% ---------------------------------------------------------- ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $274,661 Ratio of operating expenses to average net assets 1.04%+(a) Ratio of net investment income to average net assets 1.06% + Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.04%+(a)
* Classic Value Fund Primary A Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. NATIONS VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.39 $16.24 $18.16 $19.92 $17.87 Net investment income 0.12 0.17 0.11 0.13 0.20 Net realized and unrealized gain/(loss) on investments 0.58 (0.42) (0.06) 0.64 5.98 Net increase/(decrease) in net asset value from operations 0.70 (0.25) 0.05 0.77 6.18 LESS DISTRIBUTIONS: Dividends from net investment income (0.10) (0.18) (0.11) (0.14) (0.19) Distributions from net realized capital gains (1.03) (3.42) (1.86) (2.39) (3.94) Total dividends and distributions (1.13) (3.60) (1.97) (2.53) (4.13) Net asset value, end of year $11.96 $12.39 $16.24 $18.16 $19.92 Total return++ 5.64% (1.97)% (0.16)% 4.15% 38.53% - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $513,206 $844,432 $1,290,572 $1,939,704 $2,248,460 Ratio of operating expenses to average net assets 0.95%(a)(b) 0.94%(a)(b) 0.93%(a)(b) 0.94%(a)(b) 0.95%(a) Ratio of net investment income to average net assets 1.02% 1.28% 0.65% 0.76% 1.04% Portfolio turnover rate 135% 181% 95% 38% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95%(a) 0.94%(a) 0.93%(a) 0.94%(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. (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%. 190 NATIONS LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED PRIMARY A SHARES 03/31/02*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.00 Net investment income 0.08 Net realized and unrealized gain/(loss) on investments 0.63 Net increase/(decrease) in net asset value from operations 0.71 LESS DISTRIBUTIONS: Dividends from net investment income (0.02) Net asset value, end of period $10.69 Total return++ 7.08% ------------------------------------------------------- ------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $17,822 Ratio of operating expenses to average net assets 1.07%+(a) Ratio of net investment income to average net assets 0.88% + Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.31%+(a)
* LargeCap Value Fund Primary A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. NATIONS MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED PRIMARY A SHARES 03/31/02*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.00 Net investment income 0.06 Net realized and unrealized gain/(loss) on investments 1.30 Net increase/(decrease) in net asset value from operations 1.36 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) Net asset value, end of period $11.32 Total return++ 13.63% ------------------------------------------------------- ------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $98,888 Ratio of operating expenses to average net assets 1.25%+(a) Ratio of net investment income to average net assets 0.64% + Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.03%+(a)
* MidCap Value Fund Primary A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 191 NATIONS STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.47 $17.03 $13.86 $10.00 Net investment income/(loss) 0.02 (0.01) (0.02) 0.00## Net realized and unrealized gain/(loss) on investments (0.12) (4.51) 3.39 3.87 Net increase/(decrease) in net asset value from operations (0.10) (4.52) 3.37 3.87 LESS DISTRIBUTIONS: Dividends from net investment income (0.02) (0.01) -- -- Distributions from net realized capital gains -- (0.03) (0.20) (0.01) Total dividends and distributions (0.02) (0.04) (0.20) (0.01) Net asset value, end of period $12.35 $12.47 $17.03 $13.86 Total return++ (0.83)% (26.62)% 24.63% 38.65% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,230,030 $1,182,028 $860,124 $266,823 Ratio of operating expenses to average net assets 0.94%(a) 0.94%(a)(b) 0.97% 1.07%+(a) Ratio of net investment income/(loss) to average net assets 0.20% (0.09)% (0.10)% (0.03)%+ Portfolio turnover rate 71% 56% 23% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.94%(a) 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%.
NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.91 $21.61 $14.91 $12.03 $10.00 Net investment income/(loss) (0.06) (0.01) (0.07) 0.00## 0.01 Net realized and unrealized gain/(loss) on investments (0.06) (6.53) 6.81 2.89 2.02 Net increase/(decrease) in net asset value from operations (0.12) (6.54) 6.74 2.89 2.03 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of period $14.79 $14.91 $21.61 $14.91 $12.03 Total return++ (0.80)% (30.42)% 45.33% 24.05% 20.30% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $58,752 $80,526 $113,028 $52,229 $2,517 Ratio of operating expenses to average net assets 1.14% 1.10% 1.23%(a) 1.25%(a) 1.09%+(a) Ratio of net investment income/(loss) to average net assets (0.39)% (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 1.14% 1.10% 1.23%(a) 1.25%(a) 1.97%+(a)
* Nations Marsico Growth 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. 192 NATIONS CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.30 $14.59 $12.05 $13.30 $11.70 Net investment income/(loss) (0.01) (0.03) (0.05) 0.00## 0.02 Net realized and unrealized gain/(loss) on investments (0.22) (3.90) 3.47 1.59 5.27 Net increase/(decrease) in net asset value from operations (0.23) (3.93) 3.42 1.59 5.29 LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- (0.01) Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Total dividends and distributions (0.26) (2.36) (0.88) (2.84) (3.69) Net asset value, end of year $7.81 $8.30 $14.59 $12.05 $13.30 Total return++ (3.31)% (30.69)% 29.90% 14.99% 53.89% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $302,843 $531,657 $816,371 $737,620 $872,150 Ratio of operating expenses to average net assets 0.97%(a)(b) 0.95%(a)(b) 0.96%(a)(b) 0.96%(a) 0.95%(a)(b) Ratio of net investment income/(loss) to average net assets (0.12)% (0.28)% (0.38)% (0.04)% 0.13% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97%(a) 0.95%(a) 0.96%(a) 0.96%(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 MARSICO FOCUSED EQUITIES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $ 15.37 $ 22.59 $ 16.69 $ 12.13 $ 10.00 Net investment income/(loss) (0.05) (0.01) (0.01) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments 0.55 (7.13) 6.14 4.58 2.14 Net increase/(decrease) in net asset value from operations 0.50 (7.14) 6.13 4.57 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.87 $15.37 $22.59 $16.69 $12.13 Total return++ 3.25% (31.67)% 37.13% 37.73% 21.30% - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $346,435 $354,798 $326,745 $105,458 $8,808 Ratio of operating expenses to average net assets 1.11% 1.09% 1.16%(a) 1.06%(a) 1.52%+(a) Ratio of net investment income/(loss) to average net assets (0.33)% (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 1.11% 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. 193 NATIONS MIDCAP GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $14.63 $22.41 $13.31 $16.56 $12.86 Net investment income/(loss) (0.05) (0.03) (0.07) (0.04) (0.06) Net realized and unrealized gain/(loss) on investments (1.37) (4.02) 9.81 (0.94) 5.55 Net increase/(decrease) in net asset value from operations (1.42) (4.05) 9.74 (0.98) 5.49 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $13.21 $14.63 $22.41 $13.31 $16.56 Total return++ (9.71)% (20.67)% 75.34% (7.21)% 45.09% - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $547,514 $388,152 $281,951 $177,861 $318,584 Ratio of operating expenses to average net assets 0.97%(a)(b) 0.98%(a) 1.00%(a)(b) 0.98%(a)(b) 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 (0.39)% (0.27)% (0.45)% (0.29)% (0.42)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97%(a) 0.98%(a) 1.00%(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 EACH PERIOD
YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.99 $10.00 Net investment income/(loss) (0.05) (0.03) Net realized and unrealized gain/(loss) on investments 0.16 (2.98) Net increase/(decrease) in net asset value from operations 0.11 (3.01) Net asset value, end of period $7.10 $6.99 Total return++ 1.57% (30.10)% - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,356 $5,686 Ratio of operating expenses to average net assets 1.37%(a) 1.35%+ Ratio of net investment income/(loss) to average net assets (0.72)% (0.41)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.37%(a) 1.35%+
* Nations Marsico 21st Century Fund 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. # 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%. 194 NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PRIMARY A SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 OPERATING PERFORMANCE: Net asset value, beginning of period $13.69 $22.66 $11.50 $15.79 $12.07 $10.65 Net investment income/(loss) (0.07) (0.10) (0.10) (0.05) 0.01 0.04 Net realized and unrealized gain/(loss) on investments 1.45 (6.67) 11.29 (3.11) 4.43 1.47 Net increase/(decrease) in net asset value from operations 1.38 (6.77) 11.19 (3.16) 4.44 1.51 LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- (0.01) (0.04) 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) (0.72) (0.09) Net asset value, end of period $15.07 $13.69 $22.66 $11.50 $15.79 $12.07 Total return ++ 10.08% (31.86)% 97.46% (21.05)% 37.27% 14.21% - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $572,820 $477,246 $647,825 $327,981 $235,427 $109,450 Ratio of operating expenses to average net assets 1.15%(a)(b) 1.15%(a)(b) 1.13%(a)(b) 0.95%(a) 0.95%+(a) 0.98%+ Ratio of net investment income/(loss) to average net assets (0.48)% (0.52)% (0.65)% (0.42)% 0.05%+ 0.54%+ Portfolio turnover rate 35% 48% 63% 87% 59% 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21%(a) 1.20%(a) 1.22%(a) 1.22%(a) 1.26%+(a) 1.41%+
* 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 became Banc of America Capital Management, LLC. + 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 FINANCIAL SERVICES FUND FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
YEAR ENDED PRIMARY A SHARES 03/31/02# OPERATING PERFORMANCE: Net asset value, beginning of year $10.00 Net investment income 0.01 Net realized and unrealized gain/(loss) on investments 0.36 Net increase/(decrease) in net asset value from operations 0.37 LESS DISTRIBUTIONS: Dividends from net investment income (0.01) Net asset value, end of year $10.36 Total return ++ 3.71% - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $5,333 Ratio of operating expenses to average net assets 1.31%(a) Ratio of net investment income to average net assets 0.10% Portfolio turnover rate 89% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.78%(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%. 195 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
PERIOD ENDED PRIMARY A SHARES 03/31/02*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.00 Net investment income 0.06 Net realized and unrealized gain/(loss) on investments 0.47 Net increase/(decrease) in net asset value from operations 0.53 LESS DISTRIBUTIONS: Dividends from net investment income (0.01) Distributions from net realized capital gains (0.02) Total dividends and distributions (0.03) Net asset value, end of period $10.50 Total return++ 5.24% -------------------------------------------------------------- -------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $49,246 Ratio of operating expenses to average net assets 1.40%+(a) Ratio of net investment income to average net assets 0.66%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.63%+(a)
* Global Value Fund Primary A Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PRIMARY A SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 05/15/98 11/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $17.30 $18.78 $14.45 $15.53 $13.17 $11.29 Net investment income 0.22 0.32 0.37 0.16 0.09 0.09 Net realized and unrealized gain/(loss) on investments (0.29) (0.39) 4.73 0.28 2.56 1.91 Net increase/(decrease) in net asset value from operations (0.07) (0.07) 5.10 0.44 2.65 2.00 LESS DISTRIBUTIONS: Dividends from net investment income (0.20) (0.21) (0.28) (0.18) -- (0.10) Distributions from net realized capital gains (0.36) (1.20) (0.49) (1.34) (0.29) (0.02) Total dividends and distributions (0.56) (1.41) (0.77) (1.52) (0.29) (0.12) Net asset value, end of period $16.67 $17.30 $18.78 $14.45 $15.53 $13.17 Total return++ (0.18)% (0.50)% 36.03% 1.48% 20.54% 17.75% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,059,558 $1,163,899 $600,589 $142,546 $119,412 $54,277 Ratio of operating expenses to average net assets 1.19% 1.13% 1.24%(a) 1.30%+ 1.25%+ 1.21% Ratio of net investment income to average net assets 1.36% 1.89% 2.11% 1.36%+ 2.06%+ 0.89% Portfolio turnover rate -- -- 12%(b) 44% 88% 29% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23% 1.23% 1.34%(a) 1.39%+ 1.26%+ 1.21%
* 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. + 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. 196 NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $11.12 $16.74 $14.12 $14.81 $13.13 Net investment income 0.09 0.12 0.10 0.11 0.11 Net realized and unrealized gain/(loss) on investments (0.72) (4.47) 4.91 0.39 1.95 Net increase/(decrease) in net asset value from operations (0.63) (4.35) 5.01 0.50 2.06 LESS DISTRIBUTIONS: Dividends from net investment income --## (0.11) (0.06) (0.12) (0.22) Distributions from net realized capital gains -- (1.16) (2.33) (1.07) (0.16) Total dividends and distributions --## (1.27) (2.39) (1.19) (0.38) Net asset value, end of year $10.49 $11.12 $16.74 $14.12 $14.81 Total return++ (5.65)% (27.40)% 39.85% 3.68% 16.06% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $474,738 $724,572 $866,731 $743,861 $885,329 Ratio of operating expenses to average net assets 1.16% 1.15% 1.14% 1.13% 1.14% Ratio of net investment income to average net assets 0.88% 0.89% 0.69% 0.79% 0.76% Portfolio turnover rate -- -- 129%(b) 146% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16% 1.16% 1.18% 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. ## Amount represents less than $(0.01) per share. (b) Amount represents results prior to conversion to a master-feeder structure. NATIONS MARSICO INTERNATIONAL FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD OPPORTUNITIES FUND
YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01*# OPERATING PERFORMANCE: Net asset value, beginning of period $8.03 $10.00 Net investment income/(loss) (0.01) --## Net realized and unrealized gain/(loss) on investments 0.34 (1.97) Net increase/(decrease) in net asset value from operations 0.33 (1.97) Net asset value, end of period $8.36 $8.03 Total return++ 4.11% (19.70)% - ------------------------------------------------------------------- - ------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,700 $1,477 Ratio of operating expenses to average net assets 1.42%(a)(b) 1.47%+ Ratio of net investment income/(loss) to average net assets (0.08)% 0.12%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.02%(a) 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. (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%. 197 NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.92 $15.76 $8.14 $10.60 $11.41 Net investment income/(loss) 0.05 (0.05) (0.05) 0.14 0.04 Net realized and unrealized gain/(loss) on investments 1.52 (6.76) 7.68 (2.53) (0.76) Net increase/(decrease) in net asset value from operations 1.57 (6.81) 7.63 (2.39) (0.72) LESS DISTRIBUTIONS: Dividends from net investment income -- (0.03) (0.01) (0.07) (0.09) Net asset value, end of year $10.49 $8.92 $15.76 $8.14 $10.60 Total return++ 17.60% (43.21)% 93.71% (22.60)% (6.39)% - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $19,640 $34,876 $56,234 $21,689 $73,797 Ratio of operating expenses to average net assets 1.80% 1.80% 1.90% 1.78%(a) 1.57% Ratio of operating expenses to average net assets including interest expense 1.85% 1.84% 1.91% --(b) -- Ratio of net investment income/(loss) to average net assets 0.54% (0.40)% (0.40)% 1.66% 0.36% Portfolio turnover rate 102% 97% 61% 71% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.08% 1.86% 2.54% 1.98%(a) 1.57%
++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $22.35 $28.90 $25.06 $22.41 $15.89 Net investment income 0.24 0.24 0.26 0.26 0.46 Net realized and unrealized gain/(loss) on investments (0.27) (6.55) 4.09 3.63 7.11 Net increase/(decrease) in net asset value from operations (0.03) (6.31) 4.35 3.89 7.38 LESS DISTRIBUTIONS: Dividends from net investment income (0.23) (0.24) (0.25) (0.25) (0.27) Distributions from net realized capital gains -- (0.00)## (0.26) (0.99) (0.59) Total dividends and distributions (0.23) (0.24) (0.51) (1.24) (0.86) Net asset value, end of year $22.09 $22.35 $28.90 $25.06 $22.41 Total return++ (0.09)% (21.94)% 17.58% 18.26% 47.38% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,283,450 $2,021,690 $2,826,486 $933,313 $656,523 Ratio of operating expenses to average net assets 0.35%(a)(b) 0.35%(a)(b) 0.35%(a)(b) 0.35%(a) 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 1.05% 0.88% 0.96% 1.17% 1.39% Portfolio turnover rate 7% 8% 7% 4% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.68%(a) 0.71%(a) 0.71%(a) 0.66%(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%. 198 NATIONS MIDCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $8.39 $10.00 Net investment income 0.07 0.08 Net realized and unrealized gain/(loss) on investments 1.46 (0.72) Net increase/(decrease) in net asset value from operations 1.53 (0.64) LESS DISTRIBUTIONS: Dividends from net investment income (0.06) (0.08) Distributions from net realized capital gains (0.55) (0.89) Total dividends and distributions (0.61) (0.97) Net asset value, end of period $9.31 $8.39 Total return++ 18.29% (7.27)% - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $679,205 $342,503 Ratio of operating expenses to average net assets 0.35%(a) 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% 0.82% Portfolio turnover rate 16% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72%(a) 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. # 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%. NATIONS SMALLCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $13.24 $13.53 $11.04 $14.10 $9.83 Net investment income 0.06 0.08 0.04 0.06 0.06 Net realized and unrealized gain/(loss) on investments 2.73 (0.31) 2.49 (2.92) 4.58 Net increase/(decrease) in net asset value from operations 2.79 (0.23) 2.53 (2.86) 4.64 LESS DISTRIBUTIONS: Dividends from net investment income (0.07) (0.06) (0.04) (0.06) (0.06) Distributions from net realized capital gains (0.33) -- -- (0.14) (0.31) Total dividends and distributions (0.40) (0.06) (0.04) (0.20) (0.37) Net asset value, end of year $15.63 $13.24 $13.53 $11.04 $14.10 Total return++ 21.30% (1.74)% 22.97% (20.50)% 47.71% - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $499,084 $256,465 $196,593 $189,379 $102,437 Ratio of operating expenses to average net assets 0.40%(a)(b) 0.41%(a)(b) 0.50%(a) 0.50%(a)(b) 0.50%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- 0.51%(a) -- -- Ratio of net investment income to average net assets 0.46% 0.56% 0.35% 0.52% 0.52% Portfolio turnover rate 18% 65% 53% 65% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.76%(a) 0.79%(a) 0.77%(a) 0.82%(a) 1.02%(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%.3 (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 199 NATIONS MANAGED INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $14.90 $22.04 $19.39 $17.14 $11.89 Net investment income 0.12 0.13 0.16 0.18 0.15 Net realized and unrealized gain/(loss) on investments 0.39 (4.46) 2.78 2.40 5.42 Net increase/(decrease) in net asset value from operations 0.51 (4.33) 2.94 2.58 5.57 LESS DISTRIBUTIONS: Dividends from net investment income (0.12) (0.12) (0.16) (0.18) (0.17) Distributions from net realized capital gains (1.29) (2.69) (0.13) (0.15) (0.15) Total dividends and distributions (1.41) (2.81) (0.29) (0.33) (0.32) Net asset value, end of year $14.00 $14.90 $22.04 $19.39 $17.14 Total return++ 2.80% (21.49%) 15.33% 15.25% 47.54% - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $190,130 $345,795 $593,317 $665,631 $374,504 Ratio of operating expenses to average net assets 0.50%(a)(b) 0.50%(a)(b) 0.50%(a)(b) 0.50%(a) 0.50%(a)(b) Ratio of net investment income to average net assets 0.83% 0.67% 0.80% 1.03% 1.26% Portfolio turnover rate 345% 97% 64% 35% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.75%(a) 0.70%(a) 0.72%(a) 0.73%(a) 0.80%(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-TERM INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.80 $9.51 $9.79 $9.77 $9.68 Net investment income 0.48 0.58 0.56 0.56 0.56 Net realized and unrealized gain/(loss) on investments 0.02 0.29 (0.28) 0.02 0.09 Net increase/(decrease) in net asset value from operations 0.50 0.87 0.28 0.58 0.65 LESS DISTRIBUTIONS: Dividends from net investment income (0.48) (0.58) (0.56) (0.56) (0.56) Net asset value, end of year $9.82 $9.80 $9.51 $9.79 $9.77 Total return++ 5.19% 9.44% 3.00% 6.07% 6.89% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $493,457 $358,812 $398,620 $397,467 $331,961 Ratio of operating expenses to average net assets 0.52%(a) 0.51%(a) 0.50%(a) 0.50%(a) 0.56%(a)(b) Ratio of net investment income to average net assets 4.79% 6.04% 5.86% 5.70% 5.75% Portfolio turnover rate 80% 42% 62% 64% 66% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.61%(a) 0.63%(a) 0.80%(a) 0.86%(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%. 200 NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $4.15 $3.94 $4.10 $4.12 $3.99 Net investment income 0.18 0.23 0.22 0.22 0.23 Net realized and unrealized gain/(loss) on investments 0.01 0.21 (0.16) (0.02) 0.13 Net increase/(decrease) in net asset value from operations 0.19 0.44 0.06 0.20 0.36 LESS DISTRIBUTIONS: Dividends from net investment income (0.18) (0.23) (0.22) (0.22) (0.23) Net asset value, end of year $4.16 $4.15 $3.94 $4.10 $4.12 Total return++ 4.68% 11.56% 1.63% 4.97% 9.11% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $390,543 $496,821 $497,392 $589,092 $663,833 Ratio of operating expenses to average net assets 0.62%(a) 0.59%(a) 0.60%(a) 0.58%(a) 0.61% Ratio of net investment income to average net assets 4.35% 5.77% 5.59% 5.36% 5.53% Portfolio turnover rate 486% 108% 177% 242% 538% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.59%(a) 0.65%(a) 0.78%(a) 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 the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. NATIONS GOVERNMENT SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.87 $9.38 $9.86 $9.90 $9.39 Net investment income 0.44 0.60 0.58 0.58 0.55 Net realized and unrealized gain/(loss) on investments (0.08) 0.48 (0.48) (0.05) 0.51 Net increase/(decrease) in net asset value from operations 0.36 1.08 0.10 0.53 1.06 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.59) (0.58) (0.57) (0.55) Net asset value, end of year $9.79 $9.87 $9.38 $9.86 $9.90 Total return++ 3.70% 11.97% 1.12% 5.41% 11.65% - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $168,621 $153,799 $108,798 $119,659 $75,796 Ratio of operating expenses to average net assets 0.73%(a) 0.75%(a) 0.78%(b) 0.73%(a) 0.85%(a)(b) Ratio of net investment income to average net assets 4.44% 6.21% 6.17% 5.70% 5.63% Portfolio turnover rate 522% 183% 348% 600% 303% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.86%(a) 0.86%(a) 0.90% 0.84%(a) 0.99%(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%. 201 NATIONS INTERMEDIATE BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00* OPERATING PERFORMANCE: Net asset value, beginning of period $9.52 $9.13 $9.52 Net investment income 0.49 0.58 0.49 Net realized and unrealized gain/(loss) on investments (0.11) 0.39 (0.37) Net increase/(decrease) in net asset value from operations 0.38 0.97 0.12 LESS DISTRIBUTIONS: Dividends from net investment income (0.49) (0.58) (0.51) Net asset value, end of period $9.41 $9.52 $9.13 Total return++ 4.04% 11.04% 1.29% ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $261,018 $51,178 $18,365 Ratio of operating expenses to average net assets 0.78% 0.78% 0.81%+ Ratio of net investment income to average net assets 4.80% 6.31% 6.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.86% 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 ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.78 $9.37 $9.93 $10.03 $9.62 Net investment income 0.54 0.62 0.59 0.59 0.58 Net realized and unrealized gain/(loss) on investments (0.12) 0.41 (0.52) (0.04) 0.41 Net increase/(decrease) in net asset value from operations 0.42 1.03 0.07 0.55 0.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.54) (0.62) (0.59) (0.59) (0.58) Distributions from net realized capital gains -- -- (0.04) (0.06) -- Total dividends and distributions (0.54) (0.62) (0.63) (0.65) (0.58) Net asset value, end of year $9.66 $9.78 $9.37 $9.93 $10.03 Total return++ 4.33% 11.39% 0.97% 5.61% 10.53% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,256,647 $2,333,703 $1,793,913 $1,798,155 $1,681,990 Ratio of operating expenses to average net assets 0.68%(a)(b) 0.67%(a) 0.67% 0.68%(a) 0.72%(a)(b) Ratio of net investment income to average net assets 5.41% 6.53% 6.20% 5.86% 5.86% Portfolio turnover rate 314% 120% 63% 107% 244% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.67%(a) 0.69% 0.78%(a) 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%. 202 NATIONS STRATEGIC INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.89 $9.53 $10.31 $10.55 $10.11 Net investment income 0.60 0.66 0.68 0.66 0.65 Net realized and unrealized gain/(loss) on investments (0.28) 0.35 (0.78) (0.14) 0.44 Net increase/(decrease) in net asset value from operations 0.32 1.01 (0.10) 0.52 1.09 LESS DISTRIBUTIONS: Dividends from net investment income (0.60) (0.65) (0.68) (0.66) (0.65) Distributions from net realized capital gains -- -- (0.00)## (0.10) -- Total dividends and distributions (0.60) (0.65) (0.68) (0.76) (0.65) Net asset value, end of year $9.61 $9.89 $9.53 $10.31 $10.55 Total return++ 3.30% 11.06% (0.95)% 5.00% 11.07% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $143,283 $177,877 $118,458 $317,937 $263,840 Ratio of operating expenses to average net assets 0.81%(a) 0.72% 0.71%(a) 0.70%(a) 0.73%(a) Ratio of net investment income to average net assets 5.76% 6.76% 6.80% 6.27% 6.27% Portfolio turnover rate 199% 238% 107% 94% 203% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.91%(a) 0.84% 0.90%(a) 0.80%(a) 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. ## 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 ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.27 $9.90 $10.00 Net investment income 0.86 0.96 0.09 Net realized and unrealized gain/(loss) on investments (0.34) (0.54) (0.11) Net increase/(decrease) in net asset value from operations 0.52 0.42 (0.02) LESS DISTRIBUTIONS: Dividends from net investment income (0.88) (1.05) (0.08) Distributions from net realized capital gains (0.05) -- -- Total dividends and distributions (0.93) (1.05) (0.08) Net asset value, end of period $8.86 $9.27 $9.90 Total return++ 6.05% 4.51% (0.12)% - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $194,867 $61,181 $9,394 Ratio of operating expenses to average net assets 0.93% 0.93% 0.93%+ Ratio of net investment income to average net assets 9.75% 10.97% 7.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00% 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. 203 NATIONS SHORT-TERM MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.14 $9.94 $10.10 $10.05 $9.95 Net investment income 0.34 0.44 0.41 0.41 0.42 Net realized and unrealized gain/(loss) on investments 0.01 0.20 (0.16) 0.05 0.10 Net increase/(decrease) in net asset value from operations 0.35 0.64 0.25 0.46 0.52 LESS DISTRIBUTIONS: Dividends from net investment income (0.36) (0.44) (0.41) (0.41) (0.42) Net asset value, end of year $10.13 $10.14 $9.94 $10.10 $10.05 Total return++ 3.54% 6.61% 2.58% 4.71% 5.33% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $364,372 $105,004 $94,393 $79,002 $70,740 Ratio of operating expenses to average net assets 0.40%(a) 0.40%(a) 0.40%(a) 0.40%(a) 0.40%(a) Ratio of net investment income to average net assets 3.37% 4.41% 4.16% 4.11% 4.17% Portfolio turnover rate 12% 38% 90% 53% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63% 0.66% 0.77% 0.80% 0.77%
* Effective April 1, 2001, the Short-Term Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares--increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.33% to 3.37%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.15 $9.78 $10.30 $10.30 $10.01 Net investment income 0.47 0.47 0.47 0.47 0.48 Net realized and unrealized gain/(loss) on investments (0.15) 0.37 (0.50) 0.07 0.33 Net increase/(decrease) in net asset value from operations 0.32 0.84 (0.03) 0.54 0.81 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.47) (0.47) (0.47) (0.48) Distributions from net realized capital gains -- -- (0.02) (0.07) (0.04) Total dividends and distributions (0.47) (0.47) (0.49) (0.54) (0.52) Net asset value, end of year $10.00 $10.15 $9.78 $10.30 $10.30 Total return++ 3.17% 8.81% (0.27)% 5.33% 8.20% - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,160,559 $1,196,121 $849,966 $918,367 $867,154 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 4.61% 4.73% 4.75% 4.55% 4.65% Portfolio turnover rate 14% 17% 30% 40% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68% 0.68% 0.70% 0.68% 0.74%
* Effective April 1, 2001, the Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares--increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.53% to 4.61%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 204 NATIONS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.14 $10.69 $11.48 $11.46 $10.89 Net investment income 0.55 0.56 0.54 0.54 0.57 Net realized and unrealized gain/(loss) on investments (0.31) 0.45 (0.78) 0.07 0.62 Net increase/(decrease) in net asset value from operations 0.24 1.01 (0.24) 0.61 1.19 LESS DISTRIBUTIONS: Dividends from net investment income (0.55) (0.56) (0.54) (0.54) (0.57) Distributions from net realized capital gains -- -- (0.01) (0.05) (0.05) Total dividends and distributions (0.55) (0.56) (0.55) (0.59) (0.62) Net asset value, end of year $10.83 $11.14 $10.69 $11.48 $11.46 Total return++ 2.21% 9.80% (2.08)% 5.42% 11.12% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $805,149 $881,611 $552,650 $635,629 $456,485 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 5.01% 5.13% 4.99% 4.71% 4.97% Portfolio turnover rate 13% 18% 36% 11% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.79% 0.79% 0.82% 0.80% 0.84%
* Effective April 1, 2001, the Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares--increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.95% to 5.01%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 205 [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. Bond - 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 U.S. Treasury obligations and commerical paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 206 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. 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 U.S. Treasury obligations and commercial paper. 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. 207 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 principal 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 an NRSRO such as S&P or 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. 208 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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. 209 Lehman Intermediate Government Credit 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. Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 210 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. 211 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. 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. 212 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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. 213 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 214 [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.nationsfunds.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 number: Nations Funds Trust, 811-09645 COMPROPA-0802 [LOGO] Nations Funds [GRAPHIC] State Municipal Bond Funds - -------------------------- Prospectus -- Primary A Shares August 1, 2002 Nations California Intermediate Municipal Bond Fund Nations California Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund Nations Kansas Municipal Income Fund Nations Maryland Intermediate Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Virginia Intermediate 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 [LOGO] 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 95. 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: .you're looking for income .you want to reduce taxes on your investment .you have longer-term investment goals They may not be suitable for you if: .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 74. [Graphic] About the Funds NATIONS CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND 6 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS CALIFORNIA MUNICIPAL BOND FUND 10 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND 15 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS FLORIDA MUNICIPAL BOND FUND 21 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND 26 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS KANSAS MUNICIPAL INCOME FUND 31 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND 36 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND 42 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND 48 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND 54 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND 60 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 66 Sub-adviser: BACAP -----------------------------------------------------------
OTHER IMPORTANT INFORMATION 72 ----------------------------------------------------------- HOW THE FUNDS ARE MANAGED 74
4 - -------------------------------------------------------------------------------- [Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 77 Distributions and taxes 81 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 83 --------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 95 --------------------------------------------------------- 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 75. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO CALIFORNIA STATE MUNICIPAL BOND FUNDS. . WHO SHOULD CONSIDER INVESTING: RESIDENTS OF CALIFORNIA . DURATION: 3 TO 6 YEARS . INCOME POTENTIAL: MODERATE . 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 CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks high current income exempt from federal and California state individual income taxes consistent with moderate fluctuation of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 the 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 .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 .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 .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. The team may sell a security when it believes the security is overvalued, when there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. 7 .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California 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. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.40% Other expenses/1/ 0.39% ----- Total annual Fund operating expenses 0.79% Fee waivers and/or reimbursements (0.29)% ------- Total net expenses /2/ 0.50% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Primary A Shares $51 $223
9 [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 75. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO CALIFORNIA STATE MUNICIPAL BOND FUNDS. . WHO SHOULD CONSIDER INVESTING: RESIDENTS OF CALIFORNIA . DURATION: MORE THAN 6 YEARS . INCOME POTENTIAL: HIGH . 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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. The Fund also normally invests at least 80% of its assets in investment grade municipal securities. 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 .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 .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 .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. 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, or 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 California Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 11 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 12 [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, TAXES 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. [CHART] 2000 2001 ------ ------ 12.47% 4.17% *Year-to-date return as of June 30, 2002: 3.46% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 3.97% Worst: 4th quarter 2001: -0.64%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes 4.17% 4.56% Primary A Shares Returns After Taxes on Distributions 4.09% 4.49% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.52% 4.62% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.33%
*The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 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] 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. [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 0.35% ----- Total annual Fund operating expenses 0.85% Fee waivers and/or reimbursements (0.25)% ------- 0.60% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $246 $447 $1,026
14 [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 75. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO FLORIDA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF FLORIDA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Florida state intangibles tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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, or 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 Florida Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 16 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Florida state intangibles tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 17 [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. [CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------ ------- ------ ----- ----- ----- ------- ----- ----- 11.30% (4.12)% 14.31% 3.74% 7.21% 5.38% (0.59)% 8.27% 4.78%
*Year-to-date return as of June 30, 2002: 3.45% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.85% Worst: 1st quarter 1994: -4.25%
18 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 4.78% 4.96% 5.45% Primary A Shares Returns After Taxes On Distributions 4.78% 4.96% 5.45% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.79% 4.94% 5.35% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.96% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% - **
*The inception date of Primary A Shares is December 11, 1992. The returns for the indices shown are from that date. **The inception date of the Fund is prior to the inception date for this index. 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] 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. [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)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
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 75. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO FLORIDA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF FLORIDA .DURATION: MORE THAN 6 YEARS .INCOME POTENTIAL: HIGH .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Florida state intangibles tax. The Fund also normally invests at least 80% of its assets in investment grade long-term municipal securities. 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 .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 .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 .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, or 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 Florida Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Florida state intangibles tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 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, TAXES 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ------ ----- ----- ------- ------ ------ (8.08)% 19.89% 3.17% 8.93% 5.84% (2.57)% 11.33% 4.81% *Year-to-date return as of June 30, 2002: 4.49% 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, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period of 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 4.81% 5.56% 5.15% Primary A Shares Returns After Taxes on Distributions 4.70% 5.53% 5.14% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.93% 5.46% 5.13% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.98% 5.89%
*The inception date of Primary A Shares is December 13, 1993. 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] 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. [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 (0.27)% ------- 0.60% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $251 $456 $1,048
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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF GEORGIA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Georgia individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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, or 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 Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Georgia state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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, TAXES 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. [CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------ ------- ------ ----- ----- ----- ------- ----- ------ 11.26% (4.61)% 14.30% 3.65% 7.19% 5.59% (1.32)% 8.30% 5.55%
*Year-to-date return as of June 30, 2002: 3.17% 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, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A shares Returns Before Taxes 5.55% 5.01% 5.77% Primary A Shares Returns After Taxes on Distributions 5.55% 4.97% 5.73% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.27% 4.96% 5.63% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.21% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% -**
*The inception date of Primary A Shares is March 1, 1992. The returns for the indices shown are from that date. **The inception date of the Fund is prior to the inception date for this index. 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] 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. [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 0.36% ----- Total annual Fund operating expenses 0.76% Fee waivers and/or reimbursements (0.26)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $217 $397 $918
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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF KANSAS .DURATION: 3 TO 8 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Kansas individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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: .looks at a security's potential to generate both income and price appreciation .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 .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 .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: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Kansas state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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 and transportation equipment manufacturing industries. Adverse conditions affecting the agricultural and transportation equipment manufacturing industries could have a significant impact on Kansas municipal securities. The State of Kansas faces a potential budget shortfall for fiscal 2003. The 2002 Kansas legislature raised taxes by $252 million and trimmed the State of Kansas fiscal 2003 budget by 3.5 percent to $4.4 billion. Even with the increase in taxes and budget cuts, however, the budget may not be fully funded, making further spending cuts in State programs necessary. Significant further budget cuts could also have a significant impact on Kansas municipal securities. 33 [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, TAXES 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. [CHART] 2001 ----- 4.05% *Year-to-date return as of June 30, 2002: 4.30% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 2.07% Worst: 4th quarter 2001: -0.73%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The index is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes 4.05% 5.86% Primary A Shares Returns After Taxes on Distributions 4.04% 5.85% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.25% 5.61% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 6.88%
*The inception date of Primary A Shares is July 17, 2000. The return for the index shown is from that date. 34 [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] 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. [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 0.41% ----- Total annual Fund operating expenses 0.91% Fee waivers and/or reimbursements (0.31)% ------- 0.60% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $259 $474 $1,091
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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF MARYLAND .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Maryland individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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, or 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 Maryland Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Maryland state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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, Maryland's economy is more reliant on the government and service sectors than other states throughout the United States, and is particularly sensitive to changes in federal employment and spending. Adverse conditions affecting these sectors could have an impact on Maryland municipal securities. In addition, a continuing decline in the national economy, along with domestic and international developments, has had and could continue to have an adverse effect on Maryland's economy and fiscal integrity. Several analysts have suggested that Maryland could face a gap between revenues and spending of over $900 million by fiscal year 2004, and up to $2 billion by fiscal year 2007. The State may need to raise taxes, or cut spending, in order to achieve balanced budgets in the future. 38 [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ----- ------ ------- ------ ----- ----- ----- ------- ----- ----- 7.15% 10.17% (4.52)% 13.84% 3.64% 6.76% 5.30% (0.83)% 8.55% 4.66%
*Year-to-date return as of June 30, 2002: 3.81% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.62% Worst: 1st quarter 1994: -4.49%
39 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes 4.66% 4.84% 5.35% 5.98% Primary A Shares Returns After Taxes on Distributions 4.66% 4.84% 5.29% 5.92% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.68% 4.82% 5.24% 5.82% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.13% 6.79% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --** --**
*The inception date of Primary A Shares is September 1, 1990. The returns for the indices shown are from that date. ** The inception date of the Fund is prior to the inception date for this index and this index does not yet have 10 years of performance. 40 [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] 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. [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 0.34% ----- Total annual Fund operating expenses 0.74% Fee waivers and/or reimbursements (0.24)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $212 $388 $896
41 [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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF NORTH CAROLINA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and North Carolina individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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, or for other reasons. 42 [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: .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. .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. .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. .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. .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. .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. 43 .Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, which is generally free from federal income tax and North Carolina state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. The economic profile of the State consists of a combination of services, trade, agriculture, manufacturing and tourism. In recent years, services and trade (wholesale and retail) have continued to grow while agriculture and manufacturing have declined, particularly in the production of textile mill goods and furniture. While a portion of these declines is attributable to general economic conditions, a portion is related to increased competition from cheap foreign labor. In May 2002, the unemployment rate in North Carolina was 6.8 percent, exceeding the national average of 5.8 percent. The State of North Carolina and many of its municipalities have been able to maintain balanced budgets in 2002 primarily through reductions in services and expenditures. Despite difficult economic times, North Carolina's bonds have continued to receive a AAA rating from the major rating services, although one rating service has placed the State on a negative credit watch. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the State's universities and community colleges which, with other approved bonds, would more than double the State's bonds outstanding, if issued. These factors could have a significant impact on North Carolina state and municipal securities. 44 [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. [CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------ ------- ------ ----- ----- ----- ------- ----- ----- 10.45% (4.09)% 14.14% 3.85% 7.22% 5.37% (1.37)% 8.59% 4.72%
*Year-to-date return as of June 30, 2002: 3.77% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.83% Worst: 1st quarter 1994: -4.03%
45 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 4.72% 4.85% 5.31% Primary A Shares Returns After Taxes on Distributions 4.72% 4.83% 5.28% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.73% 4.83% 5.20% Lehman 7-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 5.20% 5.57% 5.96% Lehman Quality Intermediate Municipal Index (reflects no deduction for fees, expenses or taxes) 5.52% 5.52% --**
*The inception date of Primary A Shares, is December 11, 1992. The returns for the indices shown are from that date. ** The inception date of the Fund is prior to the inception date for this index. 46 [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] 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. [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 0.34% ----- Total annual Fund operating expenses 0.74% Fee waivers and/or reimbursements (0.24)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $212 $388 $896
47 [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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF SOUTH CAROLINA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and South Carolina individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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, or for other reasons. 48 [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: .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. .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. .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. .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. .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. .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. 49 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and South Carolina state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 50 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ------ ------- ------ ----- ----- ----- ------- ----- ----- 10.11% (2.93)% 13.67% 3.96% 6.83% 5.54% (1.12)% 8.71% 5.02% *Year-to-date return as of June 30, 2002: 3.51% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.23% Worst: 1st quarter 1994: -3.47%
51 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 5.02% 4.94% 5.63% Primary A Shares Returns After Taxes on Distributions 5.02% 4.92% 5.61% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.04% 4.95% 5.54% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.13% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --**
*The inception date of Primary A Shares is January 6, 1992. The returns for the indices shown are from that date. **The inception date of the Fund is prior to the inception date for this index. 52 [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] 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. [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)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
53 [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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF TENNESSEE .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Tennessee Hall income tax on unearned income. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk 54 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Tennessee Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. 55 .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. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. Nissan Motor Manufacturing and Saturn Corporation as well as a number of automotive parts and accessories suppliers have located in Tennessee, as have other industries capitalizing on Tennessee's central location, favorable business climate and its advanced transportation system. Adverse conditions affecting these businesses could have an impact on Tennessee municipal securities. 56 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (4.47)% 14.15% 3.92% 6.92% 5.41% (1.25)% 8.31% 5.43% *Year-to-date return as of June 30, 2002: 4.26% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.82% Worst: 1st quarter 1994: -4.19%
57 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 5.43% 4.91% 4.99% Primary A Shares Returns After Taxes on Distributions 5.43% 4.91% 4.98% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.13% 4.87% 4.93% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.71% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --**
*The inception date of Primary A Shares is April 13, 1993. The returns for the indices shown are from that date. **The inception date of the Fund is prior to the inception date for this index. 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] 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. [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 0.53% ----- Total annual Fund operating expenses 0.93% Fee waivers and/or reimbursements (0.43)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $253 $473 $1,104
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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF TEXAS .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Texas individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk 60 [Graphic] YOU'LL FIND MORE ABOUT RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Texas Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. 61 .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. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (3.33)% 12.93% 3.65% 7.12% 5.41% (1.19)% 8.53% 4.98% *Year-to-date return as of June 30, 2002: 3.40% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 4.94% Worst: 1st quarter 1994: -3.98%
63 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 year Fund* Primary A Shares Returns Before Taxes 4.98% 4.92% 5.17% Primary A Shares Returns After Taxes on Distributions 4.99% 4.90% 5.15% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 5.00% 4.92% 5.11% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.92% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% -**
*The inception date of Primary A Shares is January 12, 1993. The returns for the indices shown are from that date. **The inception date of the Fund is prior to the inception date for this index. 64 [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] 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. [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 0.32% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.22)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $208 $379 $874
65 [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 75. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF VIRGINIA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Virginia individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk 66 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Virginia Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. 67 .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. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Virginia state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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 and tourism industries. Adverse conditions affecting these industries could have a significant impact on Virginia municipal securities. 68 [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ----- ------ ------- ------ ----- ----- ----- ------- ----- ----- 6.96% 10.08% (4.29)% 13.39% 3.82% 6.83% 5.46% (1.01)% 8.70% 4.99%
*Year-to-date return as of June 30, 2002: 3.77% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.24% Worst: 1st quarter 1994: -4.07%
69 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes 4.99% 4.94% 5.38% 5.92% Primary A Shares Returns After Taxes on Distributions 4.99% 4.94% 5.33% 5.88% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.89% 4.91% 5.28% 5.79% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.13% 6.69% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --** --**
*Theinception date of Primary A Shares is September 20, 1989. The returns for the indices shown are from that date. **Theinception date of this Fund is prior to the inception date for this index and this index does not yet have 10 years of performance. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.32% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.22)% ------- 0.50% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $208 $379 $874
71 [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: .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. .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 Fund that is not already a feeder 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. 72 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 California Intermediate Municipal Bond Fund is expected to be no more than 91%. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 73 [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 70 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, 2003. 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 California Intermediate Municipal Bond Fund 0.40% N/A Nations California Municipal Bond Fund 0.50% 0.27% Nations Florida Intermediate Municipal Bond Fund 0.40% 0.19% Nations Florida Municipal Bond Fund 0.50% 0.25% Nations Georgia Intermediate Municipal Bond Fund 0.40% 0.16% Nations Kansas Municipal Income Fund 0.50% 0.21% Nations Maryland Intermediate Municipal Bond Fund 0.40% 0.18% Nations North Carolina Intermediate Municipal Bond Fund 0.40% 0.18% Nations South Carolina Intermediate Municipal Bond Fund 0.40% 0.19% Nations Tennessee Intermediate Municipal Bond Fund 0.40% 0.00% Nations Texas Intermediate Municipal Bond Fund 0.40% 0.20% Nations Virginia Intermediate Municipal Bond Fund 0.40% 0.20%
74 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 75 [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. [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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. 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. 76 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: .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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .endowments .other Funds in the Nations Funds Family .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. .There is no minimum amount for additional investments. .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. 77 [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. 78 [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: .You buy Primary A Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .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: .We normally send the sale proceeds by Fedwire to investors within three business days after Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. We may sell your shares: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 79 [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: .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 Money Market Funds. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). 80 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare distributions of net investment income daily and pay them monthly. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 81 [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 Fund shares shortly before the Fund 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. 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 individual 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 alternative minimum taxes. 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 interest income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions of net long-term capital gain, if any, 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a 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 taxable distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. 82 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. [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. 83 NATIONS CALIFORNIA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02#+++ 03/31/01# 03/31/00* OPERATING PERFORMANCE: Net asset value, beginning of period $7.45 $7.13 $7.51 Net investment income 0.35 0.37 0.30 Net realized and unrealized gain/(loss) on investments (0.14) 0.33 (0.36) Net increase/(decrease) in net asset value from operations 0.21 0.70 (0.06) LESS DISTRIBUTIONS: Dividends from net investment income (0.35) (0.36) (0.30) Distributions from net realized capital gains (0.03) (0.02) (0.02) Total dividends and distributions (0.38) (0.38) (0.32) Net asset value, end of period $7.28 $7.45 $7.13 TOTAL RETURN++ 2.85% 10.05% (0.66)% - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $57,803 $37,285 $21,654 Ratio of operating expenses to average net assets 0.60% 0.60%(a) 0.60%+(a) Ratio of net investment income to average net assets 4.71% 5.04% 4.70%+ Portfolio turnover rate 8% 20% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.85% 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. +++ Effective April 1, 2001, the California Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.69% to 4.71%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. # 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%. 84 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 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.70 $10.34 $10.79 $10.77 $10.40 Net investment income 0.50 0.50 0.50 0.50 0.50 Net realized and unrealized gain/(loss) on investments (0.15) 0.37 (0.45) 0.02 0.37 Net increase/(decrease) in net asset value from operations 0.35 0.87 0.05 0.52 0.87 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.51) (0.50) (0.50) (0.50) Net asset value, end of year $10.55 $10.70 $10.34 $10.79 $10.77 TOTAL RETURN++ 3.28% 8.59% 0.54% 4.95% 8.55% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $211,928 $240,441 $207,704 $234,530 $203,710 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) 0.50% 0.50%(a) Ratio of net investment income to average net assets 4.65% 4.82% 4.80% 4.65% 4.74% Portfolio turnover rate 15% 6% 12% 14% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73% 0.71% 0.74% 0.72% 0.76%
*Effective April 1, 2001, the Florida Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.61% to 4.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 85 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.98 $9.53 $9.99 $9.99 $9.48 Net investment income 0.47 0.48 0.48 0.48 0.48 Net realized and unrealized gain/(loss) on investments (0.12) 0.46 (0.46) 0.00 0.51 Net increase/(decrease) in net asset value from operations 0.35 0.94 0.02 0.48 0.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.48) (0.48) (0.48) (0.48) Distributions from net realized capital gains (0.05) (0.01) -- -- -- Total dividends and distributions (0.52) (0.49) (0.48) (0.48) (0.48) Net asset value, end of year $9.81 $9.98 $9.53 $9.99 $9.99 TOTAL RETURN++ 3.55% 10.13% 0.26% 4.90% 10.60% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $75,300 $92,327 $79,335 $77,197 $27,378 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 4.76% 4.93% 4.98% 4.80% 4.85% Portfolio turnover rate 5% 7% 18% 16% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87% 0.83% 0.86% 0.85% 0.90%
*Effective April 1, 2001, the Florida Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.71% to 4.76%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. # Per share net investment income has been calculated using the monthly average shares method. ++ Total return 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%. 86 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.82 $10.42 $10.94 $10.92 $10.58 Net investment income 0.50 0.51 0.50 0.49 0.49 Net realized and unrealized gain/(loss) on investments (0.13) 0.40 (0.51) 0.07 0.38 Net increase/(decrease) in net asset value from operations 0.37 0.91 (0.01) 0.56 0.87 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.51) (0.50) (0.50) (0.49) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.04) Total dividends and distributions (0.50) (0.51) (0.51) (0.54) (0.53) Net asset value, end of year $10.69 $10.82 $10.42 $10.94 $10.92 TOTAL RETURN++ 3.50% 8.93% (0.02)% 5.20% 8.45% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $134,638 $128,158 $121,948 $132,016 $125,654 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) 0.50% 0.50% Ratio of net investment income to average net assets 4.65% 4.80% 4.69% 4.51% 4.54% Portfolio turnover rate 6% 10% 28% 14% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.76% 0.73% 0.78% 0.73% 0.75%
*Effective April 1, 2001, the Georgia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.61% to 4.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. # Per share net investment income has been calculated using the monthly average shares method. ++ Total return 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%. 87 NATIONS KANSAS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02#+++ 03/31/01*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.33 $10.00 Net investment income 0.45 0.46 Net realized and unrealized gain/(loss) on investments (0.16) 0.18 Net increase/(decrease) in net asset value from operations 0.29 0.64 LESS DISTRIBUTIONS: Dividends from net investment income (0.45) (0.31) Distributions from net realized capital gains (0.01) 0.00 Total dividends and distributions (0.46) (0.31) Net asset value, end of period $10.16 $10.33 TOTAL RETURN++ 2.84% 6.60% ------------------------------------------------------------------------- ------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $98,506 $111,226 Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) Ratio of net investment income to average net assets 4.40% 4.44%+ Portfolio turnover rate 13% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.91% 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. +++ Effective April 1, 2001, the Kansas Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.39% to 4.40%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. # 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%. 88 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 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.01 $10.58 $11.07 $11.01 $10.70 Net investment income 0.50 0.51 0.50 0.50 0.51 Net realized and unrealized gain/(loss) on investments (0.17) 0.43 (0.48) 0.06 0.31 Net increase/(decrease) in net asset value from operations 0.33 0.94 0.02 0.56 0.82 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.51) (0.50) (0.50) (0.51) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.50) (0.51) (0.51) (0.50) (0.51) Net asset value, end of year $10.84 $11.01 $10.58 $11.07 $11.01 TOTAL RETURN++ 3.02% 9.08% 0.17% 5.17% 7.83% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $172,600 $178,304 $169,218 $183,356 $84,715 Ratio of operating expenses to average net assets 0.50%(a) 0.50% 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 4.54% 4.72% 4.65% 4.51% 4.63% Portfolio turnover rate 16% 13% 21% 22% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.74% 0.71% 0.76% 0.74% 0.80%
*Effective April 1, 2001, the Maryland Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.49% to 4.54%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 89 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 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.58 $10.21 $10.71 $10.70 $10.34 Net investment income 0.49 0.49 0.48 0.49 0.49 Net realized and unrealized gain/(loss) on investments (0.16) 0.37 (0.48) 0.04 0.36 Net increase/(decrease) in net asset value from operations 0.33 0.86 0.00 0.53 0.85 LESS DISTRIBUTIONS: Dividends from net investment income (0.48) (0.49) (0.48) (0.49) (0.49) Distributions from net realized capital gains -- -- (0.02) (0.03) -- Total dividends and distributions (0.48) (0.49) (0.50) (0.52) (0.49) Net asset value, end of year $10.43 $10.58 $10.21 $10.71 $10.70 TOTAL RETURN++ 3.20% 8.61% 0.05% 5.03% 8.39% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $176,671 $180,126 $175,650 $193,398 $179,729 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) 0.50% 0.50%(a) Ratio of net investment income to average net assets 4.58% 4.71% 4.67% 4.57% 4.69% Portfolio turnover rate 13% 19% 19% 16% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.74% 0.71% 0.76% 0.71% 0.76%
*Effective April 1, 2001, the North Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares - increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.48% to 4.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 90 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 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.64 $10.27 $10.79 $10.79 $10.50 Net investment income 0.52 0.52 0.51 0.51 0.52 Net realized and unrealized gain/(loss) on investments (0.14) 0.37 (0.51) 0.04 0.29 Net increase/(decrease) in net asset value from operations 0.38 0.89 -- 0.55 0.81 LESS DISTRIBUTIONS: Dividends from net investment income (0.52) (0.52) (0.51) (0.51) (0.52) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.00)## Total dividends and distributions (0.52) (0.52) (0.52) (0.55) (0.52) Net asset value, end of year $10.50 $10.64 $10.27 $10.79 $10.79 TOTAL RETURN++ 3.65% 8.85% 0.09% 5.22% 7.88% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $207,645 $217,513 $204,854 $239,195 $253,090 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 4.92% 4.95% 4.88% 4.75% 4.86% Portfolio turnover rate 8% 9% 14% 9% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73% 0.70% 0.74% 0.69% 0.75%
*Effective April 1, 2001, the South Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares - increase net investment income per share by $0.02, decrease net realized and unrealized gains or losses per share by $0.02 and increase the ratio of net investment income to average net assets from 4.78% to 4.92%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 91 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 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $9.91 $10.46 $10.40 $10.08 Net investment income 0.46 0.48 0.47 0.47 0.47 Net realized and unrealized gain/(loss) on investments (0.10) 0.44 (0.54) 0.06 0.32 Net increase/(decrease) in net asset value from operations 0.36 0.92 (0.07) 0.53 0.79 LESS DISTRIBUTIONS: Dividends from net investment income (0.46) (0.48) (0.47) (0.47) (0.47) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.46) (0.48) (0.48) (0.47) (0.47) Net asset value, end of year $10.25 $10.35 $9.91 $10.46 $10.40 TOTAL RETURN++ 3.54% 9.53% (0.67)% 5.18% 7.99% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $40,807 $38,928 $37,736 $42,826 $39,091 Ratio of operating expenses to average net assets 0.50% 0.50%(a) 0.50%(a) 0.50% 0.50%(a) Ratio of net investment income to average net assets 4.45% 4.77% 4.62% 4.48% 4.58% Portfolio turnover rate 0% 10% 49% 22% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93% 0.84% 0.94% 0.85% 0.84%
*Effective April 1, 2001, the Tennessee Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares - increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.44% to 4.45%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 92 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $10.00 $10.48 $10.50 $10.18 Net investment income 0.50 0.51 0.49 0.49 0.49 Net realized and unrealized gain/(loss) on investments (0.16) 0.35 (0.48) 0.02 0.32 Net increase/(decrease) in net asset value from operations 0.34 0.86 0.01 0.51 0.81 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.51) (0.49) (0.49) (0.49) Distributions from net realized capital gains -- -- ## (0.04) -- Total dividends and distributions (0.50) (0.51) (0.49) (0.53) (0.49) Net asset value, end of year $10.19 $10.35 $10.00 $10.48 $10.50 TOTAL RETURN++ 3.36% 8.78% 0.17% 4.98% 8.09% - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $265,882 $286,949 $326,323 $391,431 $385,770 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) 0.50% 0.50% Ratio of net investment income to average net assets 4.87% 5.00% 4.84% 4.66% 4.74% Portfolio turnover rate 5% 6% 33% 22% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72% 0.70% 0.72% 0.68% 0.75%
*Effective April 1, 2001, the Texas Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares - increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.84% to 4.87%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 93 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 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.92 $10.51 $10.98 $10.92 $10.59 Net investment income 0.50 0.50 0.50 0.50 0.51 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.47) 0.06 0.33 Net increase/(decrease) in net asset value from operations 0.37 0.91 0.03 0.56 0.84 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.50) (0.50) (0.50) (0.51) Distributions from net realized capital gains -- -- (0.00)## -- -- Total dividends and distributions (0.50) (0.50) (0.50) (0.50) (0.51) Net asset value, end of year $10.79 $10.92 $10.51 $10.98 $10.92 TOTAL RETURN++ 3.44% 8.92% 0.29% 5.21% 8.12% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $237,459 $252,741 $228,698 $227,299 $170,969 Ratio of operating expenses to average net assets 0.50%(a) 0.50% 0.50%(a) 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.58% 4.73% 4.66% 4.54% 4.77% Portfolio turnover rate 10% 9% 23% 5% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72% 0.70% 0.73% 0.70% 0.74%
*Effective April 1, 2001, the Virginia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Primary A Shares - increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.49% to 4.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 94 [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. Bond - 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 U.S. Treasury obligations and commerical paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 95 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. 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 U.S. Treasury obligations and commercial paper. 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. 96 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 principal 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 an NRSRO such as S&P or 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. 97 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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 Credit 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. 98 Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 99 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. 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. 100 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. 101 [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.nationsfunds.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 number: Nations Funds Trust, 811-09645 SMBPROPA-0802 [LOGO] Nations Funds [GRAPHIC] Nations LifeGoal Portfolios - ---------------- Prospectus -- Primary A Shares August 1, 2002 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 [LOGO] Nations Funds 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 41. 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, have different return and risk characteristics, and react 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 which 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 which 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 which 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: .you have longer-term investment goals .they're part of a balanced portfolio They may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities .you have short-term investment goals .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 28. [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 26 -------------------------------------------------- HOW THE PORTFOLIOS ARE MANAGED 28
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 33 Distributions and taxes 36 -------------------------------------------------- FINANCIAL HIGHLIGHTS 38 -------------------------------------------------- TERMS USED IN THIS PROSPECTUS 41 -------------------------------------------------- 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 29. [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: .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 .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 .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: .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 .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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 10-30% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-20% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund
*Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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: .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. .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. .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. .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. .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. .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. .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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ----- -------- 14.70% 12.74% 25.89% 4.58% (14.07)% *Year-to-date return as of June 30, 2002: -6.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 23.67% Worst: 3rd quarter 2001: -17.56%
7 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Portfolio* Primary A Shares Returns Before Taxes -14.07% 7.90% 8.29% Primary A Shares Returns After Taxes on Distributions -14.21% 5.47% 5.85% Primary A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -8.57% 5.65% 5.96% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 11.47%
*The inception date of Primary A Shares is October 15, 1996. 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 PORTFOLIO OPERATING EXPENSES THAT ARE DEDUCTED FROM A PORTFOLIO'S ASSETS AND FROM THE ASSETS OF THE NATIONS FUNDS THE PORTFOLIO INVESTS IN. [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. [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 Primary A (Fees paid directly from your investment) 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) 0.25% Management fees ----- Total annual Portfolio operating expenses 0.25% =====
/1/The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.98% and 1.33% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 $143 $525 $933 $2,073
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 29. [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: .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 .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 .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: .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 .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 [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.
Nations LifeGoal Balanced Growth Target allocation for each Portfolio can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 5-15% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-15% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund
* Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Balanced Growth Portfolio has the following risks: .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. .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. .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 .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. .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. .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. .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. .Technology and technology-related risk - The 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. .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. [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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ----- ------- 11.42% 11.76% 14.56% 7.21% (2.88)% *Year-to-date return as of June 30, 2002: -3.33% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 12.48% Worst: 3rd quarter 1998: -8.92%
13 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, Asset-Backed Securities Index and the Mortgaged-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Portfolio* Primary A Shares Returns Before Taxes -2.88% 8.23% 8.39% Primary A Shares Returns After Taxes on Distributions -4.37% 5.37% 5.51% Primary A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -1.59% 5.40% 5.52% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.65% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 6.79%
*The inception date of Primary A Shares is October 15, 1996. 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 PORTFOLIO OPERATING EXPENSES THAT ARE DEDUCTED FROM A PORTFOLIO'S ASSETS AND FROM THE ASSETS OF THE NATIONS FUNDS THE PORTFOLIO INVESTS IN. [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. [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/1/ (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% ----- Total annual Portfolio operating expenses 0.25% =====
/1/The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 1.07% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire in July 31, 2003), and is based on: . the amount the Portfolio expects to invest in each Fund, based on the target allocation . each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 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: . 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 . you reinvest all dividends and distributions in the Portfolio . your investment has a 5% return each year . the Portfolio's operating expenses remain the same as shown in the table above . 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 $103 $364 $646 $1,448
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 29. [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, International/Global Stock and Money Market Funds. The team uses asset allocation as its principal investment approach. It: .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 .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 .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: .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 .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 [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.
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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 0-10% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 0-10% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities 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 Cash Reserves
* Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Income and Growth Portfolio has the following risks: .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. .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. 17 .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. .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. .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. .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. .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. 18 [Graphic] MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS AND PORTFOLIO EXPENSES. .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. [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. [CHART] 1997 1998 1999 2000 2001 ----- ------ ----- ----- ----- 8.73% 10.17% 6.11% 5.91% 2.63% *Year-to-date return as of June 30, 2002: -1.69% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 6.23% Worst: 3rd quarter 2001: -2.86%
19 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 Years Portfolio* Primary A Shares Returns Before Taxes 2.63% 6.68% 6.82% Primary A Shares Returns After Taxes on Distributions 1.04% 4.41% 4.43% Primary A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares 1.67% 4.30% 4.35% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 11.47% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.34%
*The inception date of Primary A Shares is October 15, 1996. The returns for the indices shown are from that date. 20 [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] 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. [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 Primary A (Fees paid directly from your investment) 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) 0.25% Management fees ----- Total annual Portfolio operating expenses 0.25% =====
/1/The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 $85 $293 $518 $1,166
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 What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ STOCK FUNDS Nations Value Fund Growth of capital by investing in . at least 80% of its assets in common stocks companies that are believed to be of U.S. companies. The Fund generally invests in undervalued. 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 Strategic Growth Fund Long-term growth of capital. Nations Strategic Growth Master Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of companies selected from most major industry sectors . The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities - --------------------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund Growth of capital by investing in . at least 65% of its assets in common stocks of companies that are believed to have companies that have one or more of the following superior earnings growth potential. characteristics: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth Index - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico Focused Long-term growth of capital. Nations Marsico Focused Equities Master Portfolio. Equities Fund The Master Portfolio invests: . at least 80% of its assets in equity securities. The investments mostly consist of equity securities of large capitalization companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks . up to 25% of its assets in foreign securities - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Value Fund Long-term growth of capital with income . at least 80% of its assets in equity securities of as a secondary consideration. U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in . at least 80% of its assets in U.S. companies emerging growth companies that are whose market capitalizations are within the range believed to have superior long-term of companies within the Russell MidCap Growth earnings growth prospects. Index and that are believed to have the potential for long-term growth of capital. 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 SmallCap Value Fund Long-term growth of capital by investing Nations SmallCap Value Master Portfolio. The in companies believed to be Master Portfolio invests: undervalued. . at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing . at least 80% 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 - ---------------------------------------------------------------------------------------------------------------------------------
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The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ INTERNATIONAL/GLOBAL STOCK FUNDS Nations International Value Long-term capital appreciation by Nations International Value Master Portfolio. The Fund investing primarily in equity securities of Master Portfolio invests: (closed to new investments) foreign issuers, including emerging . at least 65% of its assets in foreign companies markets 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 - --------------------------------------------------------------------------------------------------------------------------------- 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 . at least 80% of its assets in established East and other regions, including companies located in at least three countries developing 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 . 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 - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico International Long-term growth of capital Nations Marsico International Opportunities Master Opportunities Fund Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of foreign companies selected for their long-term growth potential. While the Master Portfolio may invest in companies of any size, it focuses on large companies. The Master Portfolio normally invests in issuers from at least three countries other than the United States and generally holds a core position of 35 to 50 common stocks - --------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS STOCK FUND Nations Emerging Markets Fund Long-term capital growth by investing . at least 80% of its assets in companies in primarily in equity securities of emerging markets or developing countries. The companies in emerging market Fund typically invests in securities of companies countries, such as those in Latin in at least three emerging markets countries at America, Eastern Europe, the Pacific any one time Basin, the Far East and India. . normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts . 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 Fund High current income consistent with . at least 80% of its assets in income-producing minimal fluctuations of principal. securities . 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 . 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 . at least 80% of its assets in bonds grade fixed income securities. . 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 . 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 - ---------------------------------------------------------------------------------------------------------------------------------
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The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ International Bond Portfolio Maximize total return by investing in a .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. .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 diversified portfolio of high yield debt Master Portfolio invests: securities. .at least 80% 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 Investors Service, Inc. or "BB" or "B" by Standard & Poor's Corporation .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 .up to 25% of its assets in equity securities which may include convertible securities - --------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUND Nations Cash Reserves Preservation of principal value and .money market instruments, including commercial maintenance of a high degree of liquidity paper, bank obligations, short-term debt while providing current income. securities, short-term taxable municipal securities, repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations - ---------------------------------------------------------------------------------------------------------------------------------
25 [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: .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. .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 that is not already a feeder 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 a Portfolio becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .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 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. 26 .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. .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. .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. .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, 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 27 [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 70 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%
28 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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 a Portfolio's Board that the Portfolio: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 29 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 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 Strategic Growth Fund/1/ Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations MidCap Value Fund Value Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations SmallCap Value Fund/1/ 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 Cash Reserves Cash Investment Team
/1/ These funds don't have their own investment sub-adviser because they invest in Nations Strategic Growth Master Portfolio and Nations SmallCap Value Master Portfolio, respectively. BACAP is the investment sub-adviser to each Master Portfolio. Nations Funds and BA Advisors have engaged other 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. 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Focused Equities Master Portfolio .Nations Marsico International Opportunities Master Portfolio Marsico Capital is a co-investment sub adviser to: .Nations International Equity 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. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio and Marsico Capital's portion of Nations International Equity 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. 30 [Graphic] BRANDES INVESTMENT PARTNER, L.P. 11988 EL CAMINO REAL SUITE 500 SAN DIEGO, CALIFORNIA 92130 [Graphic] GARTMORE GLOBAL PARTNERS GARTMORE HOUSE 8 FENCHURCH PLACE LONDON EC3M 4PH, ENGLAND [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 BRANDES INVESTMENT PARTNERS, L.P. Founded in 1974 , Brandes is an investment advisory firm with 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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. GARTMORE GLOBAL PARTNERS Gartmore Global Partners is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore Global Partners was formed in 1995 as a registered investment adviser and manages more than $1 billion in assets. Gartmore Global Partners is 100% owned by Gartmore Investment Management plc whose advisory affiliates are members of Gartmore Group. Gartmore Group, the brand name of Nationwide Mutual Insurance Company's (Nationwide Mutual) asset management business, represents a unified global marketing and investment platform featuring nine affiliated investment advisors collectively managing over $75 billion in assets. Gartmore Group encompasses 170 portfolio managers, analysts and traders supported by approximately 1,000 professionals working in offices strategically located in the United States, United Kingdom, Sweden, Italy, Spain, Germany and Japan. Gartmore Global Partners generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore Global Partners is the investment sub-adviser to Nations Emerging Markets Fund. 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 Global Partners in 1995 and is a senior investment manager on the Gartmore Global Partners Emerging Markets Team. Before he joined Gartmore Global Partners, 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. 31 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 [Graphic] MACKAY SHIELDS LLC 9 WEST 57TH STREET NEW YORK, NEW YORK 10019 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust 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. 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 $32 billion in assets, including over $10.5 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. 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. 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. 32 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: .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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other Funds in the Nations Funds Family .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. .There is no minimum amount for additional investments. .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. 33 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A PORTFOLIO EVERY BUSINESS DAY. 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] BUYING SHARES Here are some general rules for buying shares: .You buy Primary A Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Portfolio. We generally don't issue certificates. .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: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. 34 [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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [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: .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 Money Market Funds. .The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. .You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Portfolio or Fund that is accepting investments. .The interests of a Portfolio's or Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations--also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Portfolio's or Fund's ability to manage its investments, a Portfolio or Fund may reject purchase orders and exchanges into a Portfolio or Fund by any person, group or account that is believed to be a market timer. .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). 35 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare and pay distributions of net investment income quarterly, and distribute any net realized capital gain at least once a year. The Portfolios may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Portfolio shares shortly before the Portfolio 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. 36 [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 of a Portfolio's ordinary income and net short-term capital gain 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Portfolio 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Portfolio shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 37 [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 a 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. 38 NATIONS LIFEGOAL GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.38 $15.50 $12.15 $12.49 $10.15 Net investment income 0.03 0.09 0.04 0.04 0.08 Net realized and unrealized gain/(loss) on investments 0.31 (2.29) 3.88 0.31 2.87 Net increase/(decrease) in net assets resulting from investment operations 0.34 (2.20) 3.92 0.35 2.95 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) (0.07) (0.18) (0.09) (0.40) Distributions from net realized capital gains -- (2.85) (0.39) (0.60) (0.21) Total dividends and distributions (0.04) (2.92) (0.57) (0.69) (0.61) Net asset value, end of year $10.68 $10.38 $15.50 $12.15 $12.49 TOTAL RETURN++ 3.30% (16.52)% 32.94% 3.04% 29.80% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $75,284 $66,504 $15,265 $4,291 $289 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 0.25% 0.81% 0.34% 0.46% 0.65% Portfolio turnover rate 33% 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.25% 0.25% -- -- --
++ 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 YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.33 $11.97 $10.80 $10.92 $9.95 Net investment income 0.31 0.44 0.36 0.26 0.33 Net realized and unrealized gain/(loss) on investments 0.16 (0.71) 1.54 0.23 1.74 Net increase/(decrease) in net assets resulting from investment operations 0.47 (0.27) 1.90 0.49 2.07 LESS DISTRIBUTIONS: Dividends from net investment income (0.31) (0.42) (0.44) (0.28) (0.60) Distributions from net realized capital gains (0.11) (0.95) (0.29) (0.33) (0.50) Total dividends and distributions (0.42) (1.37) (0.73) (0.61) (1.10) Net asset value, end of year $10.38 $10.33 $11.97 $10.80 $10.92 TOTAL RETURN++ 4.65% (2.39)% 18.34% 4.77% 21.74% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $195,436 $194,842 $13,325 $14,844 $103 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 3.02% 3.69% 3.37% 2.77% 2.87% Portfolio turnover rate 117% 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.25% 0.25% -- -- --
++ 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. 39 NATIONS LIFEGOAL INCOME AND GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.37 $10.63 $10.86 $10.70 $9.97 Net investment income 0.40 0.52 0.49 0.35 0.43 Net realized and unrealized gain/(loss) on investments (0.01) (0.04) 0.02 0.37 0.89 Net increase/(decrease) in net assets resulting from investment operations 0.39 0.48 0.51 0.72 1.32 LESS DISTRIBUTIONS: Dividends from net investment income (0.36) (0.50) (0.51) (0.36) (0.52) Distributions from net realized capital gains (0.05) (0.24) (0.23) (0.20) (0.07) Total dividends and distributions (0.41) (0.74) (0.74) (0.56) (0.59) Net asset value, end of year $10.35 $10.37 $10.63 $10.86 $10.70 TOTAL RETURN++ 3.83% 4.60% 4.91% 6.98% 13.56% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $25,906 $15,297 $4,736 $8,489 $476 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 3.81% 5.05% 4.78% 3.99% 4.17% Portfolio turnover rate 37% 35% 96% 107% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.25% 0.25% 0.25% 0.25% 0.25%
++ 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. 40 [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 Investors Service, 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 debt security issued security by banks, corporations, municipalities and other borrowers. 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. 41 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 U.S. Treasury obligations and commercial paper. 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. 42 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 principal 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 an NRSRO such as S&P or 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. 43 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 Credit 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, high quality debt security. 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. 44 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. 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. 45 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. 46 [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.nationsfunds.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, 811-09654 LGPROPA-0802 [LOGO] Nations Funds [GRAPHIC] Prospectus - ------------------------------ Prospectus -- Primary A Shares August 1, 2002 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 - ----------------- [LOGO] 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 59. 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: .Government Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. .Stock Funds invest primarily in equity securities of U.S. companies. .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. .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 generally focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities, including foreign securities .you have short-term investment goals .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: .you're looking for income .you have longer-term investment goals The Government Bond Fund may not be suitable for you if: .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 42. [Graphic] About the Funds NATIONS BOND FUND 5 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS VALUE FUND 11 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS MARSICO FOCUSED EQUITIES FUND 16 Sub-adviser: Marsico Capital Management, LLC --------------------------------------------------------------- NATIONS LARGECAP INDEX FUND 21 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS MIDCAP INDEX FUND 26 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS SMALLCAP INDEX FUND 30 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS INTERNATIONAL EQUITY FUND 35 Sub-advisers: Marsico Capital Management, LLC, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management, LLC --------------------------------------------------------------- OTHER IMPORTANT INFORMATION 40 --------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 42 [Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 46 Redemption fees 47 Distributions and taxes 51 --------------------------------------------------------------- FINANCIAL HIGHLIGHTS 54 --------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 59 --------------------------------------------------------------- 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 43. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in bonds. 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: .corporate debt securities, including bonds, notes and debentures .U.S. government obligations .foreign debt securities denominated in U.S. dollars .mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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 .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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: .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. .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. .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. .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. .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. .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 .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. [CHART]
1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------ ------ ----- ----- ----- ------ ------ ----- 10.78% (3.32)% 17.28% 2.12% 8.48% 7.16% (1.24)% 10.10% 7.87%
*Year-to-date return as of June 30, 2002: 2.18% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 5.95% Worst: 1st quarter 1994: -2.81%
8 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period of the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 7.87% 6.40% 6.46% Primary A Shares Returns After Taxes on Distributions 5.40% 3.83% 3.82% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.75% 3.84% 3.85% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.27%
*The inception date of Primary A Shares is October 30, 1992. 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] 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. [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% ----- 0.68% Total annual Fund operating expenses =====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $69 $218 $379 $847
10 [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 43. [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. 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 80% 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 Value Fund has the following risks: .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. .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. 12 [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ----- ----- ----- ----- ----- ----- ---- ---- ----- 7.30% 16.36% (2.99)% 36.09% 21.12% 26.66% 17.34% 1.25% 3.94% (7.09)%
*Year-to-date return as of June 30, 2002: -5.51% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 19.69% Worst: 3rd quarter 1998: -12.48%
13 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to August 1, 2002, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Value Index is considered a more appropriate comparison. These indices are weighted by market capitalization and are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes -7.09% 7.76% 11.24% 11.50% Primary A Shares Returns After Taxes on Distributions -9.01% 4.10% 8.16% 8.80% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -2.91% 5.94% 8.65% 9.06% Russell 1000 Value Index (reflects no deductions for fees, expenses or taxes) -5.59% 11.13% 14.13% 12.63% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 12.93% 12.76%
* The inception date of Primary A Shares is September 19, 1989. 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] 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. [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 0.30% ---- 0.95% Total annual Fund operating expenses ====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $97 $303 $525 $1,166
15 [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 44. [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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in equity securities. The investments will mostly consist of equity securities of large capitalization 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico Focused Equities Fund has the following risks: .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. .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. .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. .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. .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. .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. 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. [CHART] 1998 1999 2000 2001 ------ ------ ------- ------- 49.64% 53.43% (17.09)% (18.89)% *Year-to-date return as of June 30, 2002: 1.25% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 33.16% Worst: 1st quarter 2001: -17.76%
18 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -18.89% 11.47% Primary A Shares Returns After Taxes on Distributions -18.89% 11.29% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.50% 9.39% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
* The inception date of Primary A Shares is December 31, 1997. 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. [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. [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 0.36% ----- 1.11% Total annual Fund operating expenses =====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $113 $353 $612 $1,352
20 [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 43. [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, or 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 LargeCap Index Fund has the following risks: .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. .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. .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. 22 [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.
[CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- 0.99% 37.02% 22.63% 32.70% 28.39% 20.66% (9.37)% (12.20)%
*Year-to-date return as of June 30, 2002: -13.31% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 21.13% Worst: 3rd quarter 2001: -14.75%
23 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes -12.20% 10.34% 13.64% Primary A Shares Returns After Taxes on Distributions -12.56% 9.37% 12.51% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.43% 8.16% 11.07% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 14.00%
*The inception date of Primary A Shares is December 15, 1993. 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] 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. [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)% ---- 0.35% Total net expenses/2/ ====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
25 [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 43. [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, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations MidCap Index Fund has the following risks: .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. .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. .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. [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. [CHART] 2001 ------ (0.92)% *Year-to-date return as of June 30, 2002: -3.53% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.96% Worst: 3rd quarter 2001: -16.69%
27 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the S&P MidCap 400, an unmanaged index of 400 common stocks, weighted by market value. The S&P MidCap 400 is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary A Shares Returns Before Taxes -0.92% 1.73% Primary A Shares Returns After Taxes on Distributions -2.31% -0.60% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.59% 0.93% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 2.06%
*The inception date of Investor A Shares is March 31, 2000. The return for the index shown is from that date. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.32% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.37)% ------- 0.35% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $193 $364 $860
29 [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 43. [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 with market capitalizations ranging from $500 million to $3 billion 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, or 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 SmallCap Index Fund has the following risks: .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. .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. .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. .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. 31 [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. [CHART] 1997 1998 1999 2000 2001 ----- ---- ---- ---- ---- 27.97% (1.65)% 5.47% 9.47% 6.06% *Year-to-date return as of June 30, 2002: -0.39% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 20.60% Worst: 3rd quarter 1998: -20.83%
32 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary A Shares Returns Before Taxes 6.06% 9.04% 9.31% Primary A Shares Returns After Taxes on Distributions 5.36% 8.45% 8.73% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.13% 7.18% 7.43% S&P SmallCap 600 (reflects no deductions for fees, expenses or taxes) 6.51% 10.65% 11.63%
*The inception date of Primary A Shares is October 15, 1996. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.36% ----- Total annual Fund operating expenses 0.76% Fee waivers and/or reimbursements (0.36)% ------- 0.40% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $207 $387 $909
34 [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. MARSICO CAPITAL, 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. JAMES G. GENDELMAN OF MARSICO CAPITAL, 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 MARSICO CAPITAL AND MR. GENDELMAN AND INVESCO ON PAGE 44 AND PUTNAM ON PAGE 45. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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: .Marsico Capital combines "top-down," allocation among sectors and regions around the world with a "bottom-up" analysis that focuses on investing in securities with earnings growth potential that may not be realized by other investors. .INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. .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 a target set by the manager, if the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, or 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 International Equity Fund has the following risks: .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. .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. .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. .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. .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. EFFECTIVE JANUARY 15, 2002, MARSICO CAPITAL REPLACED GARTMORE GLOBAL PARTNERS (GARTMORE) AS CO-INVESTMENT SUB-ADVISER FOR A PORTION OF THE MASTER PORTFOLIO'S ASSETS. MARSICO CAPITAL HAS A DIFFERENT INVESTMENT STYLE THAN GARTMORE. [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (8.57)% 27.21% 2.60% 8.45% 8.47% 1.27% 16.46% 39.49% (15.13)% (20.66)%
*Year-to-date returns as of June 30, 2002: 0.63% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 28.59% Worst: 3rd quarter 2001: -14.03%
37 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Primary A Shares Returns Before Taxes -20.66% 2.07% 4.52% 4.90% Primary A Shares Returns After Taxes on Distributions -20.67% 0.00% 3.16% 3.56% Primary A Shares Returns After Taxes on Distributions and Sale of Fund Shares -12.58% 1.22% 3.37% 3.71% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% 0.89% 4.46% 4.92%
*The inception date of Primary A Shares is December 2, 1991. 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. [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. [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 Redemption fee (as a percentage of total redemption proceeds)/1/ 2.00%
ANNUAL FUND OPERATING EXPENSES/2/ (Expenses that are deducted from the Fund's assets)/3/ Management fees 0.80% Other expenses 0.36% ----- 1.16% Total annual Fund operating expenses =====
/1/ The redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. /2/ 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. /3/ 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $118 $368 $638 $1,409
39 [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: .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. .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. EachFund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. 40 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. .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. .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. .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 41 [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 70 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, 2003. 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 Fund/1/ 0.75% 0.75% Nations LargeCap Index Fund 0.40% 0.07% Nations MidCap Index Fund 0.40% 0.03% Nations SmallCap Index Fund 0.40% 0.04% 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. 42 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .. change, add or terminate one or more sub-advisers; .. continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .. 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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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
43 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Focused Equities Master Portfolio Marsico Capital is a co-investment sub-adviser to: .Nations International Equity 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. James G. Gendelman is the portfolio manager of Marsico Capital's portion of Nations International Equity 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. 44 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 [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. [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust, 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. 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. 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. 45 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: .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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other Funds in Nations Funds Family .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. .There is no minimum amount for additional investments. .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. 46 [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] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT REDUCTIONS AND WAIVERS OF REDEMPTION FEES. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR A REDUCTION OR A WAIVER BEFORE SELLING SHARES. WE CAN CHANGE OR CANCEL THESE TERMS AT ANY TIME. ANY CHANGE OR CANCELLATION APPLIES ONLY TO FUTURE PURCHASES. 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. REDEMPTION FEES Nations International Equity Fund may assess, subject to exceptions described below, a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. The redemption fee is paid to the Fund, and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the Fund. The redemption fee is imposed to the extent that Fund shares redeemed exceed Fund shares that have been held more than 90 days. For shares of the Fund acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to apply the redemption fee. You won't pay a redemption fee on the following transactions: . 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 . distribution from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 47 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. .the following retirement plan distributions: .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 case of a "key employee" of a "top heavy" plan) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .shares sold under our right to liquidate a shareholder's account including instances where the aggregate net asset value of Primary A Shares held in the account is less than the minimum account size .shares redeemed from accounts where by agreement with Nations Funds short-term trading activity is permitted, including shares sold as part of an automatic rebalancing within an asset allocation program [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Primary A Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .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. 48 [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] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. .Nations International Equity Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see About your investment -- Buying, selling and exchanging shares -- Redemption fees for details. We may sell your shares: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [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: .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 Money Market Funds. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 49 .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also know as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and otherwise promote the best interests of the Fund, Nations International Equity Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see About your investment -- Buying, selling and exchanging share -- Redemption fees for details. .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). 50 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of Frequency of declaration of payment of income income Fund distributions distributions Nations Bond Fund daily monthly Nations Value Fund quarterly quarterly Nations Marsico Focused Equities Fund annually annually Nations LargeCap Index Fund annually annually Nations MidCap Index Fund annually annually Nations SmallCap Index Fund annually annually Nations International Equity Fund annually 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 paid (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. 51 [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. 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 Fund shares shortly before the Fund 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. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain 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. 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 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: .include in your gross income your proportional amount of foreign income taxes paid by the fund .treat this amount as foreign income taxes you paid directly .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 income 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 individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 52 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 53 [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. 54 NATIONS BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.78 $9.37 $9.93 $10.03 $9.62 Net investment income 0.54 0.62 0.59 0.59 0.58 Net realized and unrealized gain/(loss) on investments (0.12) 0.41 (0.52) (0.04) 0.41 Net increase/(decrease) in net asset value from operations 0.42 1.03 0.07 0.55 0.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.54) (0.62) (0.59) (0.59) (0.58) Distributions from net realized capital gains -- -- (0.04) (0.06) -- Total dividends and distributions (0.54) (0.62) (0.63) (0.65) (0.58) Net asset value, end of year $9.66 $9.78 $9.37 $9.93 $10.03 TOTAL RETURN++ 4.33% 11.39% 0.97% 5.61% 10.53% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,256,647 $2,333,703 $1,793,913 $1,798,155 $1,681,990 Ratio of operating expenses to average net assets 0.68%(a)(b) 0.67%(a) 0.67% 0.68%(a) 0.72%(a)(b) Ratio of net investment income to average net assets 5.41% 6.53% 6.20% 5.86% 5.86% Portfolio turnover rate 314% 120% 63% 107% 244% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68% (a) 0.67%(a) 0.69% 0.78%(a) 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 VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.39 $16.24 $18.16 $19.92 $17.87 Net investment income 0.12 0.17 0.11 0.13 0.20 Net realized and unrealized gain/(loss) on investments 0.58 (0.42) (0.06) 0.64 5.98 Net increase/(decrease) in net asset value from operations 0.70 (0.25) 0.05 0.77 6.18 LESS DISTRIBUTIONS: Dividends from net investment income (0.10) (0.18) (0.11) (0.14) (0.19) Distributions from net realized capital gains (1.03) (3.42) (1.86) (2.39) (3.94) Total dividends and distributions (1.13) (3.60) (1.97) (2.53) (4.13) Net asset value, end of year $11.96 $12.39 $16.24 $18.16 $19.92 TOTAL RETURN++ 5.64% (1.97)% (0.16)% 4.15% 38.53% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $513,206 $844,432 $1,290,572 $1,939,704 $2,248,460 Ratio of operating expenses to average net assets 0.95% (a)(b) 0.94%(a)(b) 0.93%(a)(b) 0.94%(a)(b) 0.95%(a) Ratio of net investment income to average net assets 1.02% 1.28% 0.65% 0.76% 1.04% Portfolio turnover rate 135% 181% 95% 38% 79% Ratio of operating expenses to average net asset without waivers and/or expense reimbursements 0.95%(a) 0.94%(a) 0.93%(a) 0.94%(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. (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%. 55 NATIONS MARSICO FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.37 $22.59 $16.69 $12.13 $10.00 Net investment income/(loss) (0.05) (0.01) (0.01) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments 0.55 (7.13) 6.14 4.58 2.14 Net increase/(decrease) in net asset value from operations 0.50 (7.14) 6.13 4.57 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.87 $15.37 $22.59 $16.69 $12.13 Total return++ 3.25% (31.67)% 37.13% 37.73% 21.30% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $346,435 $354,798 $326,745 $105,458 $8,808 Ratio of operating expenses to average net assets 1.11% 1.09% 1.16%(a) 1.06%(a) 1.52%+(a) Ratio of net investment income/(loss) to average net assets (0.33)% (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 1.11% 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 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 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $22.35 $28.90 $25.06 $22.41 $15.89 Net investment income 0.24 0.24 0.26 0.26 0.46 Net realized and unrealized gain/(loss) on investments (0.27) (6.55) 4.09 3.63 7.11 Net increase/(decrease) in net asset value from operations (0.03) (6.31) 4.35 3.89 7.38 LESS DISTRIBUTIONS: Dividends from net investment income (0.23) (0.24) (0.25) (0.25) (0.27) Distributions from net realized capital gains -- (0.00)## (0.26) (0.99) (0.59) Total dividends and distributions (0.23) (0.24) (0.51) (1.24) (0.86) Net asset value, end of year $22.09 $22.35 $28.90 $25.06 $22.41 TOTAL RETURN++ (0.09)% (21.94)% 17.58% 18.26% 47.38% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,283,450 $2,021,690 $2,826,486 $933,313 $656,523 Ratio of operating expenses to average net assets 0.35%(a)(b) 0.35%(a)(b) 0.35%(a)(b) 0.35%(a) 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 1.05% 0.88% 0.96% 1.17% 1.39% Portfolio turnover rate 7% 8% 7% 4% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.68%(a) 0.71%(a) 0.71%(a) 0.66%(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%. 56 NATIONS MIDCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED PRIMARY A SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $8.39 $10.00 Net investment income 0.07 0.08 Net realized and unrealized gain/(loss) on investments 1.46 (0.72) Net increase/(decrease) in net asset value from operations 1.53 (0.64) LESS DISTRIBUTIONS: Dividends from net investment income (0.06) (0.08) Distributions from net realized capital gains (0.55) (0.89) Total dividends and distributions (0.61) (0.97) Net asset value, end of period $9.31 $8.39 Total return++ 18.29% (7.27)% - ----------------------------------------------------------- ----------------------- - ----------------------------------------------------------- ----------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $679,205 $342,503 Ratio of operating expenses to average net assets 0.35%(a) 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% 0.82% Portfolio turnover rate 16% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72%(a) 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. # 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%. NATIONS SMALLCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $13.24 $13.53 $11.04 $14.10 $9.83 Net investment income 0.06 0.08 0.04 0.06 0.06 Net realized and unrealized gain/(loss) on investments 2.73 (0.31) 2.49 (2.92) 4.58 Net increase/(decrease) in net asset value from operations 2.79 (0.23) 2.53 (2.86) 4.64 LESS DISTRIBUTIONS: Dividends from net investment income (0.07) (0.06) (0.04) (0.06) (0.06) Distributions from net realized capital gains (0.33) -- -- (0.14) (0.31) Total dividends and distributions (0.40) (0.06) (0.04) (0.20) (0.37) Net asset value, end of year $15.63 $13.24 $13.53 $11.04 $14.10 Total return++ 21.30% (1.74)% 22.97% (20.50)% 47.71% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $499,084 $256,465 $196,593 $189,379 $102,437 Ratio of operating expenses to average net assets 0.40%(a)(b) 0.41%(a)(b) 0.50%(a) 0.50%(a)(b) 0.50%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- 0.51%(a) -- -- Ratio of net investment income to average net assets 0.46% 0.56% 0.35% 0.52% 0.52% Portfolio turnover rate 18% 65% 53% 65% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.76%(a) 0.79%(a) 0.77%(a) 0.82%(a) 1.02%(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%. 57 NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $11.12 $16.74 $14.12 $14.81 $13.13 Net investment income 0.09 0.12 0.10 0.11 0.11 Net realized and unrealized gain/(loss) on investments (0.72) (4.47) 4.91 0.39 1.95 Net increase/(decrease) in net asset value from operations (0.63) (4.35) 5.01 0.50 2.06 LESS DISTRIBUTIONS: Dividends from net investment income - ## (0.11) (0.06) (0.12) (0.22) Distributions from net realized capital gains - (1.16) (2.33) (1.07) (0.16) Total dividends and distributions - ## (1.27) (2.39) (1.19) (0.38) Net asset value, end of year $10.49 $11.12 $16.74 $14.12 $14.81 Total return++ (5.65)% (27.40)% 39.85% 3.68% 16.06% - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $474,738 $724,572 $866,731 $743,861 $885,329 Ratio of operating expenses to average net assets 1.16% 1.15% 1.14% 1.13% 1.14% Ratio of net investment income to average net assets 0.88% 0.89% 0.69% 0.79% 0.76% Portfolio turnover rate - -- 129%### 146% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16% 1.16% 1.18% 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. ## Amount represents less than $(0.01) per share. ### Amount represents results prior to conversion to a master-feeder structure. 58 [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. Bond - 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 59 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. 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 U.S. Treasury obligations and commercial paper. 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. 60 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 principal 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 an NRSRO such as S&P or 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. 61 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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. 62 Lehman Intermediate Government Credit 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. Lehman Quality Intermediate Municipal Index - a broad based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 63 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. 64 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. 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. 65 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion: the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 66 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 67 [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.nationsfunds.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 number: Nations Funds Trust, 811-09645 BANKPROPA-0802 [LOGO] Nations Funds [GRAPHIC] Nations Research Fund - --------------------- Prospectus -- Primary A Shares August 1, 2002 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 [LOGO] 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 18. 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 Nations Research Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUND Nations Research 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 the highest 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 Research Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 RESEARCH FUND 4 Sub-adviser: BACAP - ---------------------------------------------------- OTHER IMPORTANT INFORMATION 8 - ---------------------------------------------------- HOW THE FUND IS MANAGED 10
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 12 Distributions and taxes 16 - ----------------------------------------------------- TERMS USED IN THIS PROSPECTUS 18 - ----------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND 'S SUB-ADVISER. BACAP 'S EQUITY RESEARCH ANALYSTS TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 11. [Graphic] THE INTEGRATION OF FUNDAMENTAL AND QUANTITATIVE RESEARCH APPROACHES PROVIDES COMPLEMENTARY INSIGHT INTO A COMPANY'S CAPACITY FOR SUSTAINING LONG-TERM GROWTH AND THE POTENTIAL FOR BETTER THAN EXPECTED NEAR-TERM PERFORMANCE. NATIONS RESEARCH FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks capital appreciation. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests in securities that are believed to be the best ideas of BACAP's team of equity research analysts. BACAP's research process seeks to identify mid-and large capitalization U.S. companies believed to have the greatest potential for capital appreciation. The Fund normally invests at least 80% of its assets in equity securities of U.S. companies and will typically hold between 50 and 100 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 uses the Russell 1000 Index as a general baseline for the Fund's sector diversification and industry group weighting. Then, within these sectors and industry groups, the stock selection process integrates fundamental and quantitative analysis. Starting with a universe of companies with market capitalizations of at least $1 billion, the team performs primary research which includes talking to company management at senior and other levels, suppliers, distributors, customers and competitors in order to form a comprehensive picture of the company within the context of its industry. Quantitative analysis, which considers growth, momentum and valuation factors, is then overlaid by the team in order to determine individual stock weightings. Quantitative analysis is also used to create risk control parameters. A security may be sold when its price reaches the target set by the team, when the company's growth prospects are seen as deteriorating, when the team believes other investments are more attractive, or 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 Research Fund has the following risks: .Investment strategy risk - The Fund's team chooses stocks it believes have the potential for capital appreciation. There is a risk that the value of these investments will not rise as expected, or will fall. The analysts on the team invest the Fund's assets in securities that they believe to be their best ideas. However, these ideas are also provided to other individuals and entities that may or may not decide to make the same or similar investment decisions based on these ideas. .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. .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. [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 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/ 0.65% ----- Total annual Fund operating expenses 1.30% Fee waivers and/or reimbursements (0.05)% ------- Total net expenses /2/ 1.25% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Primary A Shares $127 $407
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: .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. .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. .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 analysts can also choose not to invest in specific securities described in this prospectus and in the SAI. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest 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. .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. .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 .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, 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 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 Research Fund is expected to be no more than 150%. 9 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] HOW THE FUND IS MANAGED INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 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, 2003. 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 Research Fund 0.65%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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 [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. [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Research Fund. BACAP's Equity Research Analysts Team makes the day-to-day investment decisions for the Fund. OTHER SERVICE PROVIDERS The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. 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. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for the services they provide. 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] 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 Fund. Here are some general rules about this class of shares: .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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other Funds in the Nations Funds Family .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. .There is no minimum amount for additional investments. .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 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. 12 [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 THE FUND EVERY BUSINESS 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. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Primary A Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .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. 13 [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] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [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: .You can exchange Primary A Shares of the 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 Money Market Funds. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 14 .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .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). 15 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declares and pays distributions of net investment income annually. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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 Fund has built up, or has the potential to build up, high levels of unrealized capital gain. 16 [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 of the Fund's ordinary income and net short-term capital gain generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions of 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 17 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 18 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 U.S. Treasury obligations and commercial paper. 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. 19 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 principal 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 an NRSRO such as S&P or 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. 20 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 Credit 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, high quality debt security. 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. 21 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. 22 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 23 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion: the median market capitalization was approximately 2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 24 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 25 [Graphic] Where to find more information You'll find more information about Nations Research 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.nationsfunds.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 RESRCHPROPA-0802 [LOGO] Nations Funds [GRAPHIC] Nations LifeGoal Portfolios - ------------------------------ Prospectus -- Primary B Shares August 1, 2002 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 [LOGO] Nations Funds 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 43. 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, have different return and risk characteristics, and react 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 which 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 which 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 which 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: .you have longer-term investment goals .they're part of a balanced portfolio They may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities .you have short-term investment goals .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 30. [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 17 Sub-adviser: BACAP ------------------------------------------------------ ABOUT THE NATIONS FUNDS 24 ------------------------------------------------------ OTHER IMPORTANT INFORMATION 28 ------------------------------------------------------ HOW THE PORTFOLIOS ARE MANAGED 30
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 35 How selling and servicing agents are paid 38 Distributions and taxes 39 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 41 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 43 ------------------------------------------------------ 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 31. [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: .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 .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 .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: .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 .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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 10-30% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-20% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund
*Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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: .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. .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. .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. .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. .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. .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. .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. [CHART] 1998 1999 2000 2001 ------ ------ ----- ------ 10.17% 25.31% 4.34% (14.51)% *Year-to-date return as of June 30, 2002: -6.80% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 23.37% Worst: 3rd quarter 2001: -17.75%
7 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. [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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE PORTFOLIO AFTER WAIVERS. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Primary B Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary B Shares Returns Before Taxes -14.51% 4.27% Primary B Shares Returns After Taxes on Distributions -14.51% 1.76% Primary B Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -8.83% 2.66% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 6.03%
*The inception date of Primary B Shares is September 19, 1997. The return for the index shown is from that date. [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 (0.10)% ---- (0.75)% Total net expenses/2/ ====
/1/ The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. /2/ The Portfolio's investment adviser and/or some of its other service providers have agreed to waive fees until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. 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. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.98% and 1.33% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 .the waivers and/or reimbursements shown above expire July 31, 2003 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 $193 $699 $1,231 $2,689
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 31. [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: .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 .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 .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: .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 .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 [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.
Nations LifeGoal Balanced Growth Target allocation for each Portfolio can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 5-15% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-15% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund
*Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Balanced Growth Portfolio has the following risks: .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. .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. 11 .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. .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. .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. .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. .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. 12 [Graphic] MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS AND PORTFOLIO EXPENSES. .Technology and technology-related risk - The 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. .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. [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. [CHART] 1998 1999 2000 2001 ----- ----- ----- ----- 11.27% 14.03% 6.69% (3.35)% *Year-to-date return as of June 30, 2002: -3.56% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 12.22% Worst: 3rd quarter 1998: -9.02%
13 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Primary B Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, Asset-Backed Securities Index and the Mortgaged-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Portfolio* Primary B Shares Returns Before Taxes -3.35% 6.63% Primary B Shares Returns After Taxes on Distributions -4.65% 3.78% Primary B Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -1.87% 4.10% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.69% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.06%
*The inception date of Primary B Shares is August 4, 1997. 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 PORTFOLIO 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 PORTFOLIO AFTER WAIVERS. [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 (0.10)% ---- 0.75% Total net expenses/2/ ====
/1/ The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. /2/ The Portfolio's investment adviser and/or some of its other service providers have agreed to waive fees until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 1.07% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire in July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, 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 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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 .the waivers and/or reimbursements shown above expire July 31, 2003 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 $154 $540 $952 $2,102
16 [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 31. [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, International/Global Stock and Money Market Funds. The team uses asset allocation as its principal investment approach. It: .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 .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 .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: .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 .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. 17 [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.
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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 0-10% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 0-10% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities 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 Cash Reserves
* Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Income and Growth Portfolio has the following risks: .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. .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. 18 .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. .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. .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. .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. .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. 19 [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. .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. [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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ------ 8.50% 10.25% 6.15% 5.72 (0.54)% *Year-to-date return as of June 30, 2002: -2.76% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 6.23% Worst: 3rd quarter 2001: -3.49%
20 [Graphic] THE RETURNS SHOWN FOR THE INDICES DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 Years Portfolio* Investor A Shares Returns Before Taxes -3.46% 5.28% 5.48% Investor A Shares Returns After Taxes on Distributions -4.87% 3.15% 3.23% Investor A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -2.05% 3.22% 3.31% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 11.47% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.34%
*The inception date of Investor A Shares is October 15, 1996. The returns for the indices shown are from that date. 21 [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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE PORTFOLIO AFTER WAIVERS. [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 (0.10)% ------- Total net expenses/2/ 0.75% =====
/1/The figures contained in the above table are based on amounts incurred during the Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. /2/The Portfolio's investment adviser and/or some of its other service providers have agreed to waive fees until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 22 [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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 .the waivers and/or reimbursements shown above expire July 31, 2003 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 $135 $470 $828 $1,837
23 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. 24
The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ STOCK FUNDS Nations Value Fund Growth of capital by investing in . at least 80% of its assets in common stocks companies that are believed to be of U.S. companies. The Fund generally invests in undervalued. 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 Strategic Growth Fund Long-term growth of capital. NationsStrategic Growth Master Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of companies selected from most major industry sectors . The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities - --------------------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund Growth of capital by investing in . at least 65% of its assets in common stocks of companies that are believed to have companies that have one or more of the following superior earnings growth potential. characteristics: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth Index - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico Focused Long-term growth of capital. NationsMarsico Focused Equities Master Portfolio. Equities Fund The Master Portfolio invests: . at least 80% of its assets in equity securities. The investments mostly consist of equity securities of large capitalization companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks . up to 25% of its assets in foreign securities - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Value Fund Long-term growth of capital with income . at least 80% of its assets in equity securities of as a secondary consideration. U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in . at least 80% of its assets in U.S. companies emerging growth companies that are whose market capitalizations are within the range believed to have superior long-term of companies within the Russell MidCap Growth earnings growth prospects. Index and that are believed to have the potential for long-term growth of capital. 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 SmallCap Value Fund Long-term growth of capital by investing Nations SmallCap Value Master Portfolio. The in companies believed to be Master Portfolio invests: undervalued. . at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing . at least 80% 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 - ---------------------------------------------------------------------------------------------------------------------------------
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The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ INTERNATIONAL/GLOBAL STOCK FUNDS Nations International Value Long-term capital appreciation by Nations International Value Master Portfolio. The Fund investing primarily in equity securities of Master Portfolio invests: (closed to new investments) foreign issuers, including emerging . at least 65% of its assets in foreign companies markets 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 - --------------------------------------------------------------------------------------------------------------------------------- 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 . at least 80% of its assets in established East and other regions, including companies located in at least three countries developing 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 . 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 - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico International Long-term growth of capital Nations Marsico International Opportunities Master Opportunities Fund Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of foreign companies selected for their long-term growth potential. While the Master Portfolio may invest in companies of any size, it focuses on large companies. The Master Portfolio normally invests in issuers from at least three countries other than the United States and generally holds a core position of 35 to 50 common stocks - --------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS STOCK FUND Nations Emerging Markets Fund Long-term capital growth by investing . at least 80% of its assets in companies in primarily in equity securities of emerging markets or developing countries. The companies in emerging market Fund typically invests in securities of companies countries, such as those in Latin in at least three emerging markets countries at America, Eastern Europe, the Pacific any one time Basin, the Far East and India. . normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts . 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 Fund High current income consistent with . at least 80% of its assets in income-producing minimal fluctuations of principal. securities . 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 . 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 . at least 80% of its assets in bonds grade fixed income securities. . 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 . 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 - ---------------------------------------------------------------------------------------------------------------------------------
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The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ----------------------------------------------------- International Bond Portfolio Maximize total return by investing in a . 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. . 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 diversified portfolio of high yield debt Master Portfolio invests: securities. . at least 80% 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 Investors Service, Inc. or "BB" or "B" by Standard & Poor's Corporation . 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 . up to 25% of its assets in equity securities which may include convertible securities - -------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUND Nations Cash Reserves Preservation of principal value and . money market instruments, including commercial maintenance of a high degree of liquidity paper, bank obligations, short-term debt while providing current income. securities, short-term taxable municipal securities, repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations
27 [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: .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. .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 that is not already a feeder 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 a Portfolio becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .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 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. 28 .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. .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. .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. .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, 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 29 [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 70 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%
30 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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 a Portfolio's Board that the Portfolio: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 31 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 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 Strategic Growth Fund/1/ Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations MidCap Value Fund Value Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations SmallCap Value Fund/1/ 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 Cash Reserves Cash Investment Team
/1/ These funds don't have their own investment sub-adviser because they invest in Nations Strategic Growth Master Portfolio and Nations SmallCap Value Master Portfolio, respectively. BACAP is the investment sub-adviser to each Master Portfolio. Nations Funds and BA Advisors have engaged other 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. 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Focused Equities Master Portfolio .Nations Marsico International Opportunities Master Portfolio Marsico Capital is a co-investment sub adviser to: .Nations International Equity 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. 32 [Graphic] BRANDES INVESTMENT PARTNER, L.P. 11988 EL CAMINO REAL SUITE 500 SAN DIEGO, CALIFORNIA 92130 [Graphic] GARTMORE GLOBAL PARTNERS GARTMORE HOUSE 8 FENCHURCH PLACE LONDON EC3M 4PH, ENGLAND [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio and Marsico Capital's portion of Nations International Equity 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. BRANDES INVESTMENT PARTNERS, L.P. Founded in 1974, Brandes is an investment advisory firm with 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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. GARTMORE GLOBAL PARTNERS Gartmore Global Partners is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore Global Partners was formed in 1995 as a registered investment adviser and manages more than $1 billion in assets. Gartmore Global Partners is 100% owned by Gartmore Investment Management plc whose advisory affiliates are members of Gartmore Group. Gartmore Group, the brand name of Nationwide Mutual Insurance Company's (Nationwide Mutual) asset management business, represents a unified global marketing and investment platform featuring nine affiliated investment advisors collectively managing over $75 billion in assets. Gartmore Group encompasses 170 portfolio managers, analysts and traders supported by approximately 1,000 professionals working in offices strategically located in the United States, United Kingdom, Sweden, Italy, Spain, Germany and Japan. Gartmore Global Partners generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore Global Partners is the investment sub-adviser to Nations Emerging Markets Fund. 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 Global Partners in 1995 and is a senior investment manager on the Gartmore Global Partners Emerging Markets Team. Before he joined Gartmore Global Partners, 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. 33 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 [Graphic] MACKAY SHIELDS LLC 9 WEST 57TH STREET NEW YORK, NEW YORK 10019 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust 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. 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 $32 billion in assets, including over $10.5 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. 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. 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. 34 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: .Primary B Shares are generally available only to financial institutions and intermediaries that sign an account with us or Stephens. These include: .Bank of America and certain of its affiliates .brokerage firms .other financial institutions .The minimum initial investment is $1,000. .There is no minimum amount for additional investments. .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. 35 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A PORTFOLIO EVERY BUSINESS DAY. 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] BUYING SHARES Here are some general rules for buying shares: .You buy Primary B Shares at net asset value per share. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Portfolio. We generally don't issue certificates. .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: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. 36 [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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act [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: .You can exchange Primary B Shares of a Portfolio for Primary B Shares of any other Portfolio or Nations Fund. .The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. .You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Portfolio or Fund that is accepting investments. .The interests of a Portfolio's or Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Portfolio's or Fund's ability to manage its investments, a Portfolio or Fund may reject purchase orders and exchanges into a Portfolio or Fund by any person, group or account that is believed to be a market timer. .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). 37 [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. [Graphic] How selling and servicing agents are paid 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. 38 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare and pay distributions of net investment income quarterly, and distribute any net realized capital gain at least once a year. The Portfolios may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Portfolio shares shortly before the Portfolio 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. 39 [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 of a Portfolio's ordinary income and net short-term capital gain 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Portfolio shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 40 [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 a 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. 41 NATIONS LIFEGOAL GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.36 $15.43 $12.14 $12.49 $12.25 Net investment income/(loss) (0.03) 0.11 (0.02) 0.00 0.01 Net realized and unrealized gain/(loss) on investments 0.30 (2.31) 3.86 0.30 0.70 Net increase/(decrease) in net assets resulting from investment operations 0.27 (2.20) 3.84 0.30 0.71 LESS DISTRIBUTIONS: Distributions from net investment income --## (0.02) (0.16) (0.05) (0.26) 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 $10.63 $10.36 $15.43 $12.14 $12.49 TOTAL RETURN++ 2.63% (16.64)% 32.40% 2.58% 6.24% ===================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 7 $ 7 $ 9 $ 7 $ 6 Ratio of operating expenses to average net assets+++ 0.75% 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income/(loss) to average net assets (0.25)% 0.31% (0.16)% (0.04)% 0.15%+ Portfolio turnover rate 33% 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.85% 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. ## Amount represents less than $0.01 per share. NATIONS LIFEGOAL BALANCED GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.34 $11.99 $10.82 $10.94 $10.95 Net investment income 0.26 0.37 0.32 0.23 0.16 Net realized and unrealized gain/(loss) on investments 0.17 (0.70) 1.52 0.20 0.77 Net increase/(decrease) in net assets resulting from investment operations 0.43 (0.33) 1.84 0.43 0.93 LESS DISTRIBUTIONS: Distributions from net investment income (0.26) (0.37) (0.38) (0.22) (0.44) Distributions from net realized capital gains (0.11) (0.95) (0.29) (0.33) (0.50) Total dividends and distributions (0.37) (1.32) (0.67) (0.55) (0.94) Net asset value, end of period $10.40 $10.34 $11.99 $10.82 $10.94 Total return++ 4.14% (2.85)% 17.73% 4.15% 9.24% ===================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 340 $ 326 $ 322 $276 $ 26 Ratio of operating expenses to average net assets+++ 0.75% 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income to average net assets 2.52% 3.19% 2.87% 2.27% 2.37%+ Portfolio turnover rate 117% 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.85% 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. 42 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 43 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 U.S. Treasury obligations and commercial paper. 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. 44 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 principal 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 an NRSRO such as S&P or 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. 45 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 Credit 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, high quality debt security. 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. 46 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. 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. 47 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. 48 [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.nationsfunds.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-0802 [LOGO] Nations Funds [GRAPHIC] Nations Managed Index Fund Nations Short-Intermediate Government Fund - ------------------------------------------ Prospectus -- Primary B Shares August 1, 2002 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 [LOGO] 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 28. 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 a Nations Index Fund and a Government Bond Fund. 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: .the Index Fund invests primarily in equity securities that are included in the S&P 500. While maintaining the industry and risk characteristics of the index, the Fund varies the number, type and weighting of its holdings from those of the index to try to provide higher returns. .the Government Bond Fund focuses on the potential to earn income by investing primarily in fixed income 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. Fixed income securities have the potential to provide you 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 Index Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .you're looking for a regular stream of income 2 The Government Bond Fund focuses on the potential to earn income. It may be suitable for you if: .you're looking for income .you have longer-term investment goals It may not be suitable for you if: .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 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 15. [Graphic] About the Funds NATIONS MANAGED INDEX FUND 5 Sub-adviser: BACAP ------------------------------------------------------ NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND 9 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 13 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 15
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 18 How selling and servicing agents are paid 22 Distributions and taxes 23 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 26 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 28 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
4 [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 16. [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 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 may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, or 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. 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: .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 .may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Managed Index Fund has the following risks: .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. .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. .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. .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. 6 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES 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 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. [CHART] 1998 1999 2000 2001 ------ ------ -------- ------- 26.01% 17.13% (11.39)% (9.73)% *Year-to-date return as of June 30, 2002: -3.54% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 20.87% Worst: 3rd quarter 2001: -14.44%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary B Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Primary B Shares Returns Before Taxes -9.73% 4.92% Primary B Shares Returns After Taxes on Distributions -11.26% 3.66% Primary B Shares Returns After Taxes on Distributions and Sale of Fund Shares -4.37% 4.05% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 7.22%
*The inception date of Primary B Shares is September 4, 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 FUND'S ASSETS. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 B (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% Shareholder administration fees 0.60% 0.35% Other expenses ----- Total annual Fund operating expenses 1.35% (0.35)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 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. /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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Primary B Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $102 $393 $705 $1,592
8 [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 16. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations and repurchase agreements secured by these securities. 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 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 .selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows .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, or 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 Short-Intermediate Government Fund has the following risks: .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. .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. .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. .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. .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. .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. 10 [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, TAXES 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 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 6.87% 6.23% 0.07% 9.01% 7.08% *Year-to-date return as of June 30, 2002: 3.62% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2001: 4.55% Worst: 2nd quarter 1999: -0.75%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Primary B Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Primary B Shares Returns Before Taxes 7.08% 5.81% 5.97% Primary B Shares Returns After Taxes on Distributions 5.25% 3.74% 3.88% Primary B Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.28% 3.61% 3.73% Lehman Intermediate Government Bond Index (reflects no deductions for fees, expenses or taxes) 8.42% 7.06% 7.17%
*The inception date of Primary B Shares is June 28, 1996. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS. [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. [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 B (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% Shareholder administration fees 0.60% 0.32% Other expenses ----- Total annual Fund operating expenses 1.22% (0.10)% Fee waivers ------- Total net expenses/2/ 1.12% =====
/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 until July 31, 2003. The figure shown here is after waivers. There is no guarantee that this waiver will continue. 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: . you invest $10,000 in Primary B Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . the Fund's operating expenses remain the same as shown in the table above . the waivers and/or reimbursements shown above expire July 31, 2003 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 $114 $377 $661 $1,468
12 [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: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 13 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 14 [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 70 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, 2003. 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 Managed Index Fund 0.40% 0.15% Nations Short-Intermediate Government Fund 0.30% 0.30%
15 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Managed Index Fund Quantitative Strategies Team Nations Short-Intermediate Government Fund Fixed Income Management Team
16 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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: Index Fund 0.23% Government Bond Fund 0.22%
The Funds also pay shareholder administration and shareholder servicing fees to BA Advisors or financial institutions for providing services to investors. 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. 17 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 B Shares of the Funds. Here are some general rules about this class of shares: .. Primary B Shares are generally available only to financial institutions and intermediaries that sign an account with us or Stephens. These include: .Bank of America and certain of its affiliates .brokerage firms .other financial institutions .. The minimum initial investment is $1,000. .. There is no minimum amount for additional investments. .. 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 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. 18 [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 these times 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. 19 [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: .You buy Primary B Shares at net asset value per share. .If we don't receive your money within three business days of receiving the order, we'll refuse the order. We'll return any payment received for orders that we refuse. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. .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: .We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell shares. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your plan administrator. We may sell your shares: .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 .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 20 [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: .You can exchange Primary B Shares of a Fund for Primary B Shares of any other Nations Fund. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). 21 [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. 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. SHAREHOLDER ADMINISTRATION AND SERVICING FEES BA Advisors, its affiliates and/or financial institutions and intermediaries may receive a maximum annual shareholder administration fee of 0.60% of the average daily net assets of Primary B Shares of Nations Managed Index Fund and Nations Short-Intermediate Government Fund under a shareholder administration plan. 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 sales charges you may pay. The Funds 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, 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 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. 22 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Nations Managed Index Fund and Nations Short-Intermediate Government Fund distribute any net realized capital gain at least once a year. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of declaration Frequency of payment Fund of income distributions of income distributions Nations Managed Income Fund annually annually Nations Short-Intermediate Government Fund daily monthly
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 paid (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. 23 [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. 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 Fund shares shortly before the Fund 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. Some Funds have built up, or have the potential to build up, high levels of unrealized capital gain. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. 24 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 25 [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. 26 NATIONS MANAGED INDEX FUND FOR A SHARE OUTSTANDING THROUGH EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PRIMARY B SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98* OPERATING PERFORMANCE: Net asset value, beginning of period $14.99 $22.16 $19.38 $17.11 $14.52 Net investment income 0.05 0.04 0.06 0.09 0.14 Net realized and unrealized gain/(loss) on investments 0.38 (4.49) 2.78 2.41 2.73 Net increase/(decrease) in net asset value from operations 0.43 (4.45) 2.84 2.50 2.87 LESS DISTRIBUTIONS: Dividends from net investment income (0.05) (0.03) (0.06) (0.08) (0.13) Distributions from net realized capital gains (1.29) (2.69) -- (0.15) (0.15) Total dividends and distributions (1.34) (2.72) (0.06) (0.23) (0.28) Net asset value, end of period $14.08 $14.99 $22.16 $19.38 $17.11 TOTAL RETURN++ 2.17% (21.90)% 14.70% 14.78% 18.24% ============================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $--** $5 $6 $4 $3 Ratio of operating expenses to average net assets 1.00%(a)(b) 1.00%(a)(b) 1.00%(a)(b) 1.00%(a) 1.00%+(a)(b) Ratio of net investment income to average net assets 0.33% 0.17% 0.30% 0.53% 0.76%+ Portfolio turnover rate 345% 97% 64% 35% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35%(a) 1.30%(a) 1.32%(a) 1.33%(a) 1.30%+(a)
* Managed Index Fund Primary B Shares commenced operations on September 4, 1997. ** Amount represents less than $500. + 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-INTERMEDIATE GOVERNMENT FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRIMARY B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $4.15 $3.94 $4.10 $4.12 $3.99 Net investment income 0.16 0.21 0.21 0.21 0.21 Net realized and unrealized gain/(loss) on investments 0.01 0.21 (0.16) (0.02) 0.13 Net increase/(decrease) in net asset value from operations 0.17 0.42 0.05 0.19 0.34 LESS DISTRIBUTIONS: Dividends from net investment income (0.16) (0.21) (0.21) (0.21) (0.21) Net asset value, end of year $4.16 $4.15 $3.94 $4.10 $4.12 TOTAL RETURN ++ 4.16% 11.01% 1.23% 4.61% 8.74% =============================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $147 $141 $200 $273 $261 Ratio of operating expenses to average net assets 1.12%(a) 1.09%(a) 0.99%(a) 0.93%(a) 0.96% Ratio of net investment income to average net assets 3.85% 5.27% 5.20% 5.01% 5.18% Portfolio turnover rate 486% 108% 177% 242% 538% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.19%(a) 1.25%(a) 1.38%(a) 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) 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%. 27 [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. Bond - 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 28 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. 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 U.S. Treasury obligations and commercial paper. 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. 29 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 principal 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 an NRSRO such as S&P or 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. 30 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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 Credit 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. 31 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. Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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 32 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. 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. 33 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. 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 34 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 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. 35 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 36 [Graphic] Where to find more information You'll find more information about Nations Funds Index and Government 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.nationsfunds.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 number: Nations Funds Trust, 811-09645 COMPROPB-0802 [LOGO] Nations Funds [GRAPHIC] Municipal Bond Funds Prospectus -- Investor A, B and C Shares August 1, 2002 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 [LOGO] 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 60. 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 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 focus on the potential to earn income that is generally free from federal 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 fixed income securities and municipal 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 Municipal Bond Funds focus on the potential to earn income. They may be suitable for you if: .you're looking for income .you have longer-term investment goals .you want to reduce taxes on your investment income They may not be suitable for you if: .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 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 25. [Graphic] About the Funds NATIONS SHORT-TERM MUNICIPAL INCOME FUND 4 Sub-adviser: BACAP ---------------------------------------------------------------- NATIONS INTERMEDIATE MUNICIPAL BOND FUND 11 Sub-adviser: BACAP ---------------------------------------------------------------- NATIONS MUNICIPAL INCOME FUND 17 Sub-adviser: BACAP ---------------------------------------------------------------- OTHER IMPORTANT INFORMATION 23 ---------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 25
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 27 About Investor A Shares 29 Front-end sales charge 29 Contingent deferred sales charge 30 About Investor B Shares 30 Contingent deferred sales charge 30 About Investor C Shares 33 Contingent deferred sales charge 33 When you might not have to pay a sales charge 33 Buying, selling and exchanging shares 37 How orders are processed 39 How selling and servicing agents are paid 45 Distributions and taxes 47 --------------------------------------------------------------- FINANCIAL HIGHLIGHTS 50 --------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 60 --------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 26. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: . 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 . 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 . tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk . 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. The team may sell a security when it believes the security is overvalued, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Short-Term Municipal Income Fund has the following risks: .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. .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. .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. .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. .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. .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. 5 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- 0.27% 8.05% 3.97% 4.54% 4.53% 2.31% 5.37% 5.00% *Year-to-date return as of June 30, 2002: 2.18% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 2.86% Worst: 1st quarter 1994: -0.95%
7 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 3-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four years and an equal blend of the Lehman 1-Year Municipal Bond Index, with maturities greater than one year and less than two years, and the Lehman 3-Year Municipal Bond Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 3.96% 4.14% 4.15% Investor A Shares Returns After Taxes on Distributions 3.96% 4.14% 4.15% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 3.88% 4.11% 4.13% Investor B Shares Returns Before Taxes -0.77% 3.58% 3.93% Investor C Shares Returns Before Taxes 3.19% 3.83% 4.16% Lehman 3-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 6.59% 5.08% 4.92% Blended Lehman 1-Year Municipal Bond and Lehman 3-Year Municipal Bond Indices (reflect no deductions for fees, expenses or taxes) 5.86% 5.53% 5.32%
*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 returns for the indices shown are 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. 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% 0.33% 0.33% 0.33% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.88% 1.63% 1.63% (0.23)% (0.23)% (0.23)% Fee waivers and/or reimbursements ------- ------- ------- 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $355 $561 $1,153 Investor B Shares $143 $492 $865 $1,713 Investor C Shares $243 $492 $865 $1,914
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 $492 $865 $1,914
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 26. [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 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] INVESTMENT OBJECTIVE The Fund seeks high current income exempt from federal income tax consistent with moderate fluctuation of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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. The team may sell a security when it believes the security is overvalued, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. 12 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (4.78)% 14.55% 3.83% 7.16% 5.25% (1.46)% 7.89% 4.57% *Year-to-date return as of June 30, 2002: 3.78% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.95% Worst: 1st quarter 1994: -4.09%
13 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. Prior to August 1, 2002, the Fund compared its performance to the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturity of seven to eight years. The Fund changed the index to which it compares its performance because the Lehman Quality Intermediate Municipal Index is considered to be a more appropriate comparison. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.14% 3.94% 4.25% Investor A Shares Returns After Taxes on Distributions 1.15% 3.88% 4.21% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.41% 4.02% 4.28% Investor B Shares Returns Before Taxes 0.79% 3.97% 4.11% Investor C Shares Returns Before Taxes 2.78% 4.05% 5.33% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% 5.36% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.44%
*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 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. 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% 0.28% 0.28% 0.28% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.93% 1.68% 1.68% (0.18)% (0.18)% (0.18)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
16 [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 26. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt 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: .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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. The team may sell a security when it believes the security is overvalued, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Municipal Income Fund has the following risks: . 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. . 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. . 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. . 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. . 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. . 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. . Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. 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] 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------- ------ ----- ----- ----- ------- ----- ------ 8.22% 13.34% (7.62)% 19.27% 4.50% 9.34% 5.78% (4.28)% 9.79% 3.55% *Year-to-date return as of June 30, 2002: 3.78% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 7.96% Worst: 1st quarter 1994: -6.64%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes -1.38% 3.70% 5.41% 5.94% Investor A Shares Returns After Taxes on Distributions -1.38% 3.65% 5.30% 5.84% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.99% 3.90% 5.33% 5.80% Investor B Shares Returns Before Taxes -1.17% 3.82% -- 4.52% Investor C Shares Returns Before Taxes 1.88% 4.06% -- 5.29% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.98% 6.63% 7.04%
*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. 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 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% 0.29% 0.29% 0.29% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.04% 1.79% 1.79% (0.19)% (0.19)% (0.19)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 21 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
22 [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: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 23 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 24 [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 70 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, 2003. 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 Municipal Income Fund 0.30% 0.09% Nations Intermediate Municipal Bond Fund 0.40% 0.24% Nations Municipal Income Fund 0.50% 0.33%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .materially change a sub-advisory agreement with a sub-adviser. 25 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. BACAP's Municipal Fixed Income Management Team is responsible for making the day-to-day investment decisions for each Fund. 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. 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. 26 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 Municipal 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 Nations Short-Term Intermediate Nations Municipal Municipal Municipal Investor A Shares Income Fund Bond Fund Income Fund Maximum amount you can buy no limit no limit no limit Maximum front-end sales charge 1.00% 3.25% 4.75% Maximum deferred sales charge/1/ none none none Maximum annual distribution and 0.25% 0.25% 0.25% shareholder servicing fees distribution distribution distribution (12b-1)/ (12b-1)/ (12b-1)/ service fee/2/ service fee service fee 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/This Fund pays this fee under a separate servicing plan.
Nations Nations Short-Term Intermediate Nations Municipal Municipal Municipal Investor B Shares Income Fund Bond Fund Income Fund Maximum amount you can buy $250,000 $250,000 $250,000 Maximum front-end sales charge none none none Maximum deferred sales charge none 3.00%/1/ 5.00%/1/ Redemption fee none none none Maximum annual distribution and 0.75% 0.75% 0.75% shareholder servicing fees distribution distribution distribution (12b-1) fee (12b-1) fee (12b-1) fee and 0.25% and 0.25% and 0.25% service fee service fee service fee Conversion feature none yes yes
/1/This charge decreases over time. Please see Choosing a share class -- Investor B Shares -- Contingent deferred sales charge for details. 27
Nations Nations Short-Term Intermediate Nations Municipal Municipal Municipal Investor C Shares Income Fund Bond Fund Income Fund Maximum amount you can buy no limit no limit no limit Maximum front-end sales charge none none none Maximum deferred sales charge/1/ 1.00% 1.00% 1.00% Redemption fee none none none Maximum annual distribution and 0.75% 0.75% 0.75% shareholder servicing fees distribution distribution distribution (12b-1) fee (12b-1) fee (12b-1) fee and 0.25% and 0.25% and 0.25% service fee service fee 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 -- 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. 28 [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: . 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 . 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.
Nations Short-Term Municipal Income Fund Amount retained by selling Sales charge Sales charge agents as as a % of the as a % of the 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 Intermediate Municipal Bond Fund Amount retained by selling Sales charge Sales charge agents as as a % of the as a % of the 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/
29
Nations Municipal Income Fund Amount retained by selling Sales charge Sales charge agents as as a % of the as a % of the 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: .If you sell your shares 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 net asset 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 Municipal Income Fund. CONTINGENT DEFERRED SALES CHARGE You'll pay a CDSC when you sell your Investor B Shares, unless: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 30 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 Intermediate Municipal Bond Fund
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------- Shares you bought Shares you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------ $500,000 - $0 - $499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% the second year you own them 3.0% 2.0% 1.0% the third year you own them 2.0% 1.0% none the fourth year you own them 1.0% none none the fifth year you own them none none none the sixth year you own them none none none after six years of owning them none none none
Nations Municipal Income Fund
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------------ Shares you bought Shares you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% the second year you own them 4.0% 3.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 2.0% none none the fifth year you own them 2.0% 1.0% none none the sixth year you own them 1.0% none none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 31 ABOUT THE CONVERSION FEATURE Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: 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
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
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: .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. .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. .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. .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. .Conversions are free from federal tax. 32 [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: .you received the shares from reinvested distributions .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 net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 33 .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions acting as fiducuaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value .certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 34 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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .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 .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .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 .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 35 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 36 [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. 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. 37
Ways to buy, sell or How much you can buy, exchange sell or exchange --------------- ---------------------------------------- Buying shares In a lump sum minimum initial investment: . $1,000 for regular accounts . $250 for certain fee-based accounts minimum additional investment: . $100 for all accounts Using our minimum initial investment: Systematic . $100 Investment Plan minimum additional investment: . $ 50 - ---------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 of your shares by telephone, otherwise there are no limits to the amount you can sell . other restrictions may apply to withdrawals from retirement plan accounts Using our . minimum $25 per withdrawal Automatic Withdrawal Plan - ---------------------------------------------------------------------------------------- Exchanging shares In a lump sum . minimum $1,000 per exchange Using our . minimum $25 per exchange Automatic Exchange Feature
Other things to know ------------------------------------------ Buying shares There is no limit to the amount you can invest in Investor A and C Shares. You can invest up to $250,000 in Investor B Shares. Investor B Shares are only available to existing shareholders of Nations Short- Term Income Fund and Nations Short- Term Municipal Income Fund. You can buy shares twice a month, monthly or quarterly, using automatic transfers from your bank account. - ------------------------------------------------------------------------- Selling shares We'll deduct any CDSC from the amount you're selling and send you or your selling agent the balance, usually within three business days of receiving your order. 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. 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. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------- Exchanging shares 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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. You must already have an investment in the Funds into which you want to exchange. You can make exchanges monthly or quarterly.
38 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 39 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. 40 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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. 41 [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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). .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 an Index Fund for Investor A Shares of any other Index Fund. .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 Investor C Shares of any other Nations Fund. .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. 42 .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. .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 Investor B Shares of any other Nations Fund. 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 Investor B Shares of any other Nations 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 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 Investor C Shares of any other Nations Fund. 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. 43 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 44 [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: .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 .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 .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/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 Municipal 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. 45 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: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares of all other Funds .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 46 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare distributions of net investment income daily and pay them monthly. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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. 47 [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 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 alternative minimum taxes. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable interest income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions that come from net long-term capital gain, if any, 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. 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 48 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 certain 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 49 [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. 50 NATIONS SHORT-TERM MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.14 $9.94 $10.10 $10.05 $9.95 Net investment income 0.30 0.41 0.39 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.03 0.21 (0.16) 0.05 0.10 Net increase in net asset value from operations 0.33 0.62 0.23 0.44 0.50 LESS DISTRIBUTIONS: Dividends from net investment income (0.34) (0.42) (0.39) (0.39) (0.40) Net asset value, end of year $10.13 $10.14 $9.94 $10.10 $10.05 TOTAL RETURN++ 3.27% 6.34% 2.35% 4.50% 5.12% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $125,262 $23,613 $22,415 $35,805 $23,580 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a) 0.63%(a) 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 3.12% 4.16% 3.93% 3.91% 3.97% Portfolio turnover rate 12% 38% 90% 53% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88% 0.91% 1.02% 1.05% 0.97%
*Effective April 1, 2001, the Short-Term Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.08% to 3.12%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 51 NATIONS SHORT-TERM MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.14 $9.94 $10.10 $10.05 $9.95 Net investment income 0.27 0.34 0.36 0.38 0.39 Net realized and unrealized gain/(loss) on investments (0.02) 0.20 (0.16) 0.05 0.10 Net increase/(decrease) in net asset value from operations 0.25 0.54 0.20 0.43 0.49 LESS DISTRIBUTIONS: Dividends from net investment income (0.26) (0.34) (0.36) (0.38) (0.39) Net asset value, end of year $10.13 $10.14 $9.94 $10.10 $10.05 TOTAL RETURN++ 2.51% 5.56% 1.99% 4.34% 4.96% =============================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,884 $3,463 $7,030 $13,931 $13,753 Ratio of operating expenses to average net assets 1.40%(a) 1.40%(a) 0.94%(a) 0.75%(a) 0.75%(a) Ratio of net investment income to average net assets 2.37% 3.41% 3.62% 3.76% 3.82% Portfolio turnover rate 12% 38% 90% 53% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimburements 1.63% 1.66% 1.77% 1.80% 1.12%
*Effective April 1, 2001, the Short-Term Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 2.33% to 2.37%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 52 NATIONS SHORT-TERM MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.14 $9.94 $10.10 $10.05 $9.95 Net investment income 0.19 0.34 0.32 0.40 0.39 Net realized and unrealized gain/(loss) on investments 0.06 0.20 (0.16) 0.02 0.10 Net increase in net asset value from operations 0.25 0.54 0.16 0.42 0.49 LESS DISTRIBUTIONS: Dividends from net investment income (0.26) (0.34) (0.32) (0.37) (0.39) Net asset value, end of year $10.13 $10.14 $9.94 $10.10 $10.05 TOTAL RETURN++ 2.47% 5.55% 1.57% 4.29% 4.99% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $41,822 $1,417 $1,616 $2,583 $1,388 Ratio of operating expenses to average net assets 1.40%(a) 1.40%(a) 1.40%(a) 0.83%(a) 0.75%(a) Ratio of net investment income to average net assets 2.37% 3.41% 3.16% 3.68% 3.82% Portfolio turnover rate 12% 38% 90% 53% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.63% 1.66% 1.77% 1.80% 1.12%
*Effective April 1, 2001, the Short-Term Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 2.33% to 2.37%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 53 NATIONS INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.15 $9.78 $10.30 $10.30 $10.01 Net investment income 0.45 0.46 0.45 0.45 0.46 Net realized and unrealized gain/(loss) on investments (0.16) 0.36 (0.50) 0.07 0.33 Net increase/(decrease) in net asset value from operations 0.29 0.82 (0.05) 0.52 0.79 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.45) (0.45) (0.45) (0.46) Distributions from net realized capital gains -- -- (0.02) (0.07) (0.04) Total dividends and distributions (0.44) (0.45) (0.47) (0.52) (0.50) Net asset value, end of year $10.00 $10.15 $9.78 $10.30 $10.30 TOTAL RETURN++ 2.91% 8.54% (0.49)% 5.12% 7.99% ==================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $28,868 $20,728 $19,782 $16,149 $6,487 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.36% 4.48% 4.52% 4.35% 4.45% Portfolio turnover rate 14% 17% 30% 40% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93% 0.93% 0.95% 0.93% 0.94%
*Effective April 1, 2001, the Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.28% to 4.36%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 54 NATIONS INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR B SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.15 $9.78 $10.30 $10.30 $10.01 Net investment income 0.36 0.37 0.38 0.39 0.41 Net realized and unrealized gain/(loss) on investments (0.14) 0.37 (0.50) 0.07 0.33 Net increase/(decrease) in net asset value from operations 0.22 0.74 (0.12) 0.46 0.74 LESS DISTRIBUTIONS: Dividends from net investment income (0.37) (0.37) (0.38) (0.39) (0.41) Distributions from net realized capital gains -- -- (0.02) (0.07) (0.04) Total dividends and distributions (0.37) (0.37) (0.40) (0.46) (0.45) Net asset value, end of year $10.00 $10.15 $9.78 $10.30 $10.30 TOTAL RETURN++ 2.14% 7.74% (1.18)% 4.49% 7.50% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $4,110 $2,563 $2,733 $2,556 $2,023 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.42%(a) 1.30%(a) 1.20%(a) Ratio of net investment income to average net assets 3.61% 3.73% 3.83% 3.75% 3.95% Portfolio turnover rate 14% 17% 30% 40% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.68% 1.70% 1.68% 1.44%
*Effective April 1, 2001, the Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.53% to 3.61%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 55 NATIONS INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.16 $9.78 $10.30 $10.30 $10.01 Net investment income 0.35 0.37 0.38 0.40 0.42 Net realized and unrealized gain/(loss) on investments (0.14) 0.38 (0.50) 0.09 0.33 Net increase/(decrease) in net asset value from operations 0.21 0.75 (0.12) 0.49 0.75 LESS DISTRIBUTIONS: Dividends from net investment income (0.37) (0.37) (0.38) (0.42) (0.42) Distributions from net realized capital gains -- -- (0.02) (0.07) (0.04) Total dividends and distributions (0.37) (0.37) (0.40) (0.49) (0.46) Net asset value, end of year $10.00 $10.16 $9.78 $10.30 $10.30 TOTAL RETURN++ 2.03% 7.84% (1.19)% 4.80% 7.62% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,006 $528 $539 $1,511 $1,590 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.21%(a) 1.20%(a) Ratio of net investment income to average net assets 3.61% 3.73% 3.75% 3.84% 3.95% Portfolio turnover rate 14% 17% 30% 40% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.68% 1.70% 1.68% 1.44%
*Effective April 1, 2001, the Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.53% to 3.61%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 56 NATIONS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.14 $10.68 $11.48 $11.46 $10.89 Net investment income 0.53 0.53 0.52 0.52 0.54 Net realized and unrealized gain/(loss) on investments (0.31) 0.46 (0.79) 0.07 0.62 Net increase/(decrease) in net asset value from operations 0.22 0.99 (0.27) 0.59 1.16 LESS DISTRIBUTIONS: Dividends from net investment income (0.53) (0.53) (0.52) (0.52) (0.54) Distributions from net realized capital gains -- -- (0.01) (0.05) (0.05) Total dividends and distributions (0.53) (0.53) (0.53) (0.57) (0.59) Net asset value, end of year $10.83 $11.14 $10.68 $11.48 $11.46 TOTAL RETURN++ 1.95% 9.55% (2.28)% 5.21% 10.89% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $50,765 $38,591 $35,937 $28,625 $19,226 Ratio of operating expenses to average net assets 0.85%(a) 0.83%(a) 0.83%(a) 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.76% 4.90% 4.76% 4.51% 4.77% Portfolio turnover rate 13% 18% 36% 11% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.04% 1.04% 1.07% 1.05% 1.04%
*Effective April 1, 2001, the Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.70% to 4.76%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 57 NATIONS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.13 $10.69 $11.48 $11.46 $10.89 Net investment income 0.44 0.45 0.44 0.44 0.48 Net realized and unrealized gain/(loss) on investments (0.30) 0.44 (0.78) 0.08 0.62 Net increase/(decrease) in net asset value from operations 0.14 0.89 (0.34) 0.52 1.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.45) (0.44) (0.45) (0.48) Distributions from net realized capital gains -- -- (0.01) (0.05) (0.05) Total dividends and distributions (0.44) (0.45) (0.45) (0.50) (0.53) Net asset value, end of year $10.83 $11.13 $10.69 $11.48 $11.46 TOTAL RETURN++ 1.28% 8.62% (2.99)% 4.53% 10.23% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $9,116 $8,930 $8,795 $13,810 $15,383 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) 1.53%(a) 1.45%(a) 1.42%(a) Ratio of net investment income to average net assets 4.01% 4.13% 4.06% 3.86% 4.15% Portfolio turnover rate 13% 18% 36% 11% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.79% 1.79% 1.82% 1.80% 1.66%
*Effective April 1, 2001, the Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.95% to 4.01%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 58 NATIONS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.14 $10.69 $11.48 $11.46 $10.89 Net investment income 0.44 0.45 0.44 0.46 0.49 Net realized and unrealized gain/(loss) on investments (0.30) 0.45 (0.78) 0.07 0.62 Net increase/(decrease) in net asset value from operations 0.14 0.90 (0.34) 0.53 1.11 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.45) (0.44) (0.46) (0.49) Distributions from net realized capital gains -- -- (0.01) (0.05) (0.05) Total dividends and distributions (0.44) (0.45) (0.45) (0.51) (0.54) Net asset value, end of year $10.84 $11.14 $10.69 $11.48 $11.46 TOTAL RETURN++ 1.28% 8.71% (3.03)% 4.64% 10.37% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,294 $1,318 $1,418 $2,150 $2,444 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) 1.60%(a) 1.36%(a) 1.33%(a) Ratio of net investment income to average net assets 4.01% 4.13% 3.99% 3.95% 4.24% Portfolio turnover rate 13% 18% 36% 11% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.79% 1.79% 1.82% 1.80% 1.57%
*Effective April 1, 2001, the Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.95% to 4.01%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 59 [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. Bond - 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 60 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 U.S. Treasury obligations and commercial paper. 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%. 61 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 principal 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 an NRSRO such as S&P or 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. 62 Lehman 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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 Credit 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. 63 Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 64 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. 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. 65 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. 66 SEC file number: Nations Funds Trust, 811-09645 NATMUNIPROIX-0802 [Graphic] Where to find more information You'll find more information about Nations Funds 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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] State Municipal Bond Funds - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 Nations California Intermediate Municipal Bond Fund Nations California Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund Nations Kansas Municipal Income Fund Nations Maryland Intermediate Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Virginia Intermediate 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 [LOGO] 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 133. 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: .you're looking for income .you want to reduce taxes on your investment .you have longer-term investment goals They may not be suitable for you if: .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 90. [Graphic] About the Funds NATIONS CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND 6 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS CALIFORNIA MUNICIPAL BOND FUND 11 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND 18 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS FLORIDA MUNICIPAL BOND FUND 25 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND 32 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS KANSAS MUNICIPAL INCOME FUND 39 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND 46 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND 53 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND 60 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND 67 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND 74 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 81 Sub-adviser: BACAP -----------------------------------------------------------
4 OTHER IMPORTANT INFORMATION 88 - -------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 90 [Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 92 About Investor A Shares 94 Front-end sales charge 94 Contingent deferred sales charge 95 About Investor B Shares 95 Contingent deferred sales charge 95 About Investor C Shares 97 Contingent deferred sales charge 97 When you might not have to pay a sales charge 98 Buying, selling and exchanging shares 102 How orders are processed 104 How selling and servicing agents are paid 110 Distributions and taxes 112 - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 115 - -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 133 - -------------------------------------------------------------- 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 91. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO CALIFORNIA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF CALIFORNIA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks high current income exempt from federal and California state individual income taxes consistent with moderate fluctuation of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 the 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 .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk 6 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. The team may sell a security when it believes the security is overvalued, when there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations California Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. 7 .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. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California 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. 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. 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 (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% 0.39% 0.39% 0.39% Other expenses/4/ ----- ----- ----- Total annual Fund operating expenses 1.04% 1.79% 1.79% (0.29)% (0.29)% (0.29)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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 waive fees and/or reimburse expenses until July 31, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor A Shares $399 $618 Investor B Shares $453 $735 Investor C Shares $253 $535
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 $153 $535 Investor C Shares $153 $535
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 91. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO CALIFORNIA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF CALIFORNIA .DURATION: MORE THAN 6 YEARS .INCOME POTENTIAL: HIGH .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. The Fund also normally invests at least 80% of its assets in investment grade municipal securities. 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 .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 .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 .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. 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, or 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 California Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 12 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California 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] 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------- ------ ----- ----- ----- ----- ------ ----- 8.56% 12.50% (6.08)% 16.50% 3.75% 8.51% 6.54% 6.18% 12.36% 3.76% *Year-to-date return as of June 30, 2002: 3.33% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 6.72% Worst: 1st quarter 1994: -5.19%
14 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes -1.14% 4.33% 5.54% 7.18% Investor A Shares Returns After Taxes on Distributions -1.22% 4.20% 5.39% 7.09% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 1.09% 4.36% 6.11% 7.43% Investor B Shares Returns Before Taxes -1.95% -- -- 3.01% Investor C Shares Returns Before Taxes 2.00% -- -- 4.59% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.98% 6.63% 8.66%
*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. 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 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% 0.35% 0.35% 0.35% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.10% 1.85% 1.85% (0.25)% (0.25)% (0.25)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $785 $1,030 $1,733 Investor B Shares $663 $857 $1,177 $1,952 Investor C Shares $263 $557 $977 $2,149
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 $557 $977 $1,952 Investor C Shares $163 $557 $977 $2,149
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 91. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO FLORIDA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF FLORIDA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Florida state intangibles tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or 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 Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 19 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Florida state intangibles tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 11.13% (4.30)% 14.08% 3.53% 6.99% 5.16% (0.90)% 8.01% 4.52% *Year-to-date return as of June 30, 2002: 3.42% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.80% Worst: 1st quarter 1994: -4.29%
21 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.09% 4.03% 4.85% Investor A Shares Returns After Taxes On Distributions 1.09% 4.03% 4.85% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.38% 4.13% 4.80% Investor B Shares Returns Before Taxes 0.74% 4.07% 4.37% Investor C Shares Returns Before Taxes 2.62% 4.06% 4.70% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.96% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% - **
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 22 [Graphic] 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% 0.33% 0.33% 0.33% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.98% 1.73% 1.73% (0.23)% (0.23)% (0.23)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 23 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
24 [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 91. [Graphic] THIS FUND AT A GLANCE THIS INFORMATION IS DESIGNED TO HELP YOU COMPARE THE TWO FLORIDA STATE MUNICIPAL BOND FUNDS. .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF FLORIDA .DURATION: MORE THAN 6 YEARS .INCOME POTENTIAL: HIGH .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Florida state intangibles tax. The Fund also normally invests at least 80% of its assets in investment grade long-term municipal securities. 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 .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 .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 .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. 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, or 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 Florida Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 26 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Florida state intangibles tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 27 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ------ ----- (8.23)% 19.65% 2.96% 8.72% 5.63% (2.78)% 11.06% 4.55% *Year-to-date return as of June 30, 2002: 4.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 8.16% Worst: 1st quarter 1994: -8.00%
28 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period of 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -0.38% 4.31% 4.22% Investor A Shares Returns After Taxes on Distributions -0.49% 4.28% 4.20% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 1.57% 4.37% 4.30% Investor B Shares Returns Before Taxes -0.11% 4.44% 4.17% Investor C Shares Returns Before Taxes 2.77% 4.61% 6.56% Lehman Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.13% 5.98% 5.89%
*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. 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 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% 0.37% 0.37% 0.37% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.12% 1.87% 1.87% (0.27)% (0.27)% (0.27)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 30 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $789 $1,039 $1,753 Investor B Shares $663 $862 $1,186 $1,972 Investor C Shares $263 $562 $986 $2,168
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 $562 $986 $1,972 Investor C Shares $163 $562 $986 $2,168
31 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF GEORGIA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Georgia individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or for other reasons. 32 [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: .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. .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. .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. .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. .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. 33 .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Georgia state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 34 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 10.88% (4.79)% 14.07% 3.45% 6.97% 5.38% (1.55)% 8.03% 5.29% *Year-to-date return as of June 30, 2002: 3.04% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.52% Worst: 1st quarter 1994: -4.62%
35 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A shares Returns Before Taxes 1.86% 4.08% 5.22% Investor A Shares Returns After Taxes on Distributions 1.86% 4.04% 5.18% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.86% 4.14% 5.11% Investor B Shares Returns Before Taxes 1.50% 4.11% 4.33% Investor C Shares Returns Before Taxes 3.50% 4.09% 4.86% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.26% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% -**
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 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 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% 0.36% 0.36% 0.36% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.01% 1.76% 1.76% (0.26)% (0.26)% (0.26)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $611 $841 $1,500 Investor B Shares $453 $729 $930 $1,853 Investor C Shares $253 $529 $930 $2,052
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 $529 $930 $1,853 Investor C Shares $153 $529 $930 $2,052
38 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF KANSAS .DURATION: 3 TO 8 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Kansas individual income tax.The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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: .looks at a security's potential to generate both income and price appreciation .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 .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 .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. 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. 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 Kansas Municipal Income Fund has the following risks: .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. .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. .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. .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. .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. .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. 40 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Kansas state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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 and transportation equipment manufacturing industries. Adverse conditions affecting the agricultural and transportation equipment manufacturing industries could have a significant impact on Kansas municipal securities. The State of Kansas faces a potential budget shortfall for fiscal 2003. The 2002 Kansas legislature raised taxes by $252 million and trimmed the State of Kansas fiscal 2003 budget by 3.5 percent to $4.4 billion. Even with the increase in taxes and budget cuts, however, the budget may not be fully funded, making further spending cuts in State programs necessary. Significant further budget cuts could also have a significant impact on Kansas municipal securities. 41 [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. [CHART] 2001 ----- 3.79% *Year-to-date return as of June 30, 2002: 4.18% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 2.01% Worst: 3rd quarter 2001: -0.69%
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, TAXES OR OTHER EXPENSES OF INVESTING. BECAUSE INVESTOR C SHARES OF THIS FUND HAVE NOT BEEN IN OPERATION FOR A FULL CALENDAR YEAR, NO PERFORMANCE INFORMATION IS INCLUDED IN THE PROSPECTUS. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares of the Fund, however, it does not show after-tax returns for this class and this class' after-tax returns will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The index is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes 0.46% 2.87% Investor A Shares Returns After Taxes on Distributions 0.44% 2.86% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 1.90% 3.15% Investor B Shares Returns Before Taxes -1.95% 1.50% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 6.88%
*The inception dates of Investor A Shares and Investor B Shares are August 14, 2000 and August 29, 2000, respectively. The return for the index shown is from inception of Investor A Shares. 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 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% 0.41% 0.41% 0.41% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.16% 1.91% 1.91% (0.31)% (0.31)% (0.31)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. 44 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $652 $914 $1,663 Investor B Shares $463 $770 $1,003 $2,012 Investor C Shares $263 $570 $1,003 $2,208
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 $570 $1,003 $2,012 Investor C Shares $163 $570 $1,003 $2,208
45 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF MARYLAND .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Maryland individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or for other reasons. 46 [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: .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. .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. .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. .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. .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. .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. 47 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Maryland state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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, Maryland's economy is more reliant on the government and service sectors than other states throughout the United States, and is particularly sensitive to changes in federal employment and spending. Adverse conditions affecting these sectors could have an impact on Maryland municipal securities. In addition, a continuing decline in the national economy, along with domestic and international developments, has had and could continue to have an adverse effect on Maryland's economy and fiscal integrity. Several analysts have suggested that Maryland could face a gap between revenues and spending of over $900 million by fiscal year 2004, and up to $2 billion by fiscal year 2007. The State may need to raise taxes, or cut spending, in order to achieve balanced budgets in the future. 48 [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------- ------ ----- ----- ----- ------- ----- ----- 7.05% 10.01% (4.70)% 13.61% 3.43% 6.55% 5.09% (1.04)% 8.28% 4.40% *Year-to-date return as of June 30, 2002: 3.68% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.57% Worst: 1st quarter 1994: -4.53%
49 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes 0.98% 3.93% 4.80% 5.49% Investor A Shares Returns After Taxes on Distributions 0.98% 3.93% 4.73% 5.43% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.27% 4.02% 4.73% 5.36% Investor B Shares Returns Before Taxes 0.62% 3.95% -- 4.16% Investor C Shares Returns Before Taxes 2.62% 3.92% -- 4.53% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.13% 6.79% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --** --**
*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 returns for the indices shown are from inception of Investor A Shares. ** The inception date of the Fund is prior to the inception date for this index and this index does not yet have 10 years of performance. 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 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 0.34% 0.34% 0.34% ----- ----- ----- Total annual Fund operating expenses 0.99% 1.74% 1.74% Fee waivers and/or reimbursements (0.24)% (0.24)% (0.24)% ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $607 $832 $1,479 Investor B Shares $453 $725 $921 $1,833 Investor C Shares $253 $525 $921 $2,032
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 $525 $921 $1,833 Investor C Shares $153 $525 $921 $2,032
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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF NORTH CAROLINA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and North Carolina individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or 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: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, which is generally free from federal income tax and North Carolina state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. The economic profile of the State consists of a combination of services, trade, agriculture, manufacturing and tourism. In recent years, services and trade (wholesale and retail) have continued to grow while agriculture and manufacturing have declined, particularly in the production of textile mill goods and furniture. While a portion of these declines is attributable to general economic conditions, a portion is related to increased competition from cheap foreign labor. In May 2002, the unemployment rate in North Carolina was 6.8 percent, exceeding the national average of 5.8 percent. The State of North Carolina and many of its municipalities have been able to maintain balanced budgets in 2002 primarily through reductions in services and expenditures. Despite difficult economic times, North Carolina's bonds have continued to receive a AAA rating from major rating services, although one rating service has placed the State on a negative credit watch. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the State's universities and community colleges which, with other approved bonds, would more than double the State's bonds outstanding, if issued. 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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 10.29% (4.27)% 13.91% 3.64% 7.01% 5.16% (1.58)% 8.32% 4.46% *Year-to-date return as of June 30, 2002: 3.64% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.78% Worst: 1st quarter 1994: -4.07%
56 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.09% 3.93% 4.70% Investor A Shares Returns After Taxes on Distributions 1.09% 3.91% 4.67% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.36% 4.02% 4.64% Investor B Shares Returns Before Taxes 0.68% 3.96% 4.24% Investor C Shares Returns Before Taxes 2.67% 3.93% 4.54% Lehman 7-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 5.20% 5.57% 5.96% Lehman Quality Intermediate Municipal Index (reflects no deduction for fees, expenses or taxes) 5.52% 5.52% --**
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 57 [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 0.34% 0.34% 0.34% ----- ----- ----- Total annual Fund operating expenses 0.99% 1.74% 1.74% Fee waivers and/or reimbursements (0.24)% (0.24)% (0.24)% ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 58 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $607 $832 $1,479 Investor B Shares $453 $725 $921 $1,833 Investor C Shares $253 $525 $921 $2,032
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 $525 $921 $1,833 Investor C Shares $153 $525 $921 $2,032
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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF SOUTH CAROLINA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and South Carolina individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or 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 Intermediate Municipal Bond Fund has the following risks: .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. .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. .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. .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. .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. .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 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and South Carolina state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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 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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------- ------ ----- ----- ----- ------- ----- ----- 9.84% (3.11)% 13.45% 3.76% 6.62% 5.33% (1.33)% 8.44% 4.76% *Year-to-date return as of June 30, 2002: 3.38% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.18% Worst: 1st quarter 1994: -3.50%
63 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.40% 4.02% 5.09% Investor A Shares Returns After Taxes on Distributions 1.40% 3.99% 5.08% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.67% 4.13% 5.04% Investor B Shares Returns Before Taxes 0.98% 4.05% 4.38% Investor C Shares Returns Before Taxes 2.98% 4.03% 4.80% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.26% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --**
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 64 [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% 0.33% 0.33% 0.33% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.98% 1.73% 1.73% (0.23)% (0.23)% (0.23)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 65 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
66 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF TENNESSEE .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Tennessee Hall income tax on unearned income. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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 or for other reasons. 67 [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: .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. .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. .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. .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. .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. .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. 68 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to alternative minimum taxes, 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 tax-advantaged accounts and tax-exempt investors. .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. Nissan Motor Manufacturing and Saturn Corporation as well as a number of automotive parts and accessories suppliers have located in Tennessee, as have other industries capitalizing on Tennessee's central location, favorable business climate and its advanced transportation system. Adverse conditions affecting these businesses could have an impact on Tennessee municipal securities. 69 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (4.64)% 13.93% 3.72% 6.71% 5.20% (1.46)% 7.94% 5.27% *Year-to-date returns as of June 30,2002: 4.13% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.76% Worst: 1st quarter 1994: -4.23%
70 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.88% 3.99% 4.43% Investor A Shares Returns After Taxes on Distributions 1.88% 3.99% 4.43% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.81% 4.06% 4.42% Investor B Shares Returns Before Taxes 1.38% 4.02% 4.28% Investor C Shares Returns Before Taxes 3.41% 3.92% 5.23% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.71% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --**
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 71 [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% 0.53% 0.53% 0.53% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.18% 1.93% 1.93% (0.43)% (0.43)% (0.43)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 72 [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. [Graphic] 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $647 $914 $1,675 Investor B Shares $453 $764 $1,002 $2,024 Investor C Shares $253 $564 $1,002 $2,219
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 $564 $1,002 $2,024 Investor C Shares $153 $564 $1,002 $2,219
73 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF TEXAS .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Texas individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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, or for other reasons. 74 [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: .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. .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. .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. .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. .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. .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. 75 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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. 76 [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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ------- ------ ----- ----- ----- ------- ----- ----- (3.52)% 12.71% 3.44% 6.91% 5.20% (1.40)% 8.26% 4.72% *Year-to-date return as of June 30, 2002: 3.27% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 4.88% Worst: 1st quarter 1994: -4.02%
77 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 year Fund* Investor A Shares Returns Before Taxes 1.37% 3.99% 4.39% Investor A Shares Returns After Taxes on Distributions 1.37% 3.97% 4.36% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.63% 4.10% 4.40% Investor B Shares Returns Before Taxes 0.94% 4.02% 4.13% Investor C Shares Returns Before Taxes 2.97% 3.98% 5.14% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 5.81% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% - **
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of the Fund is prior to the inception date for this index. 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 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.97% 1.72% 1.72% (0.22)% (0.22)% (0.22)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 79 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $603 $824 $1,458 Investor B Shares $453 $720 $913 $1,813 Investor C Shares $253 $520 $913 $2,012
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 $520 $913 $1,813 Investor C Shares $153 $520 $913 $2,012
80 [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 91. [Graphic] THIS FUND AT A GLANCE .WHO SHOULD CONSIDER INVESTING: RESIDENTS OF VIRGINIA .DURATION: 3 TO 6 YEARS .INCOME POTENTIAL: MODERATE .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 Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and Virginia individual income tax. The Fund also normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. 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 .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 .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 .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. 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 or for other reasons. 81 [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: .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. .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. .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. .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. .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. .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. 82 .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and Virginia state income tax, but may be subject to alternative minimum taxes, 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-advantaged accounts and tax-exempt investors. .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 and tourism industries. Adverse conditions affecting these industries could have a significant impact on Virginia municipal securities. 83 [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ------- ------ ----- ----- ----- ------- ----- ----- 6.85% 9.91% (4.47)% 13.16% 3.62% 6.63% 5.62% (1.23)% 8.43% 4.73% *Year-to-date return as of June 30, 2002: 3.64% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 1995: 5.19% Worst: 1st quarter 1994: -4.10%
84 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman 7-Year Municipal Bond Index, a broad based, unmanaged index of investment grade bonds with maturity of seven to eight years and the Lehman Quality Intermediate Municipal Index, consisting of issues rated A3 or higher by Moody's Investors Service, Inc. with maturities between two and 11 years. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes 1.36% 4.02% 4.83% 5.44% Investor A Shares Returns After Taxes on Distributions 1.36% 4.02% 4.79% 5.40% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.52% 4.10% 4.78% 5.35% Investor B Shares Returns Before Taxes 1.04% 4.05% -- 4.20% Investor C Shares Returns Before Taxes 3.05% 4.03% -- 4.60% Lehman 7-Year Municipal Bond Index (reflects no deductions for fees, expenses or taxes) 5.20% 5.57% 6.13% 6.69% Lehman Quality Intermediate Municipal Index (reflects no deductions for fees, expenses or taxes) 5.52% 5.52% --** --**
*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 returns for the indices shown are from inception of Investor A Shares. **The inception date of this Fund is prior to the inception date for this index and this index does not yet have 10 years of performance. 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 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.97% 1.72% 1.72% (0.22)% (0.22)% (0.22)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 86 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $603 $824 $1,458 Investor B Shares $453 $720 $913 $1,813 Investor C Shares $253 $520 $913 $2,012
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 $520 $913 $1,813 Investor C Shares $153 $520 $913 $2,012
87 [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: .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. .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 Fund that is not already a feeder 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. 88 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 California Intermediate Municipal Bond Fund is expected to be no more than 91%. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 89 [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 70 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, 2003. 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 paid advisory fee last fiscal year NATIONS CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND 0.40% N/A Nations California Municipal Bond Fund 0.50% 0.27% NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND 0.40% 0.19% Nations Florida Municipal Bond Fund 0.50% 0.25% NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND 0.40% 0.16% Nations Kansas Municipal Income Fund 0.50% 0.21% NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND 0.40% 0.18% Nations North Carolina Intermediate Municipal Bond Fund 0.40% 0.18% NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND 0.40% 0.19% Nations Tennessee Intermediate Municipal Bond Fund 0.40% 0.00% NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND 0.40% 0.20% Nations Virginia Intermediate Municipal Bond Fund 0.40% 0.20%
90 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 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. 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. 91 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 and 0.75% distribution 0.75% distribution 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. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. 92
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. 93 [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: .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 .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. 94 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 in the 11/15/1998 following amounts: ---------- ------------------------------ $0 - $500,000 - $499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% the second year you own them 3.0% 2.0% 1.0% the third year you own them 2.0% 1.0% none the fourth year you own them 1.0% none none the fifth year you own them none none none the sixth year you own them none none none after six years of owning them none none none
95
Long-Term Municipal Bond Funds If you sell your shares during the following year: You'll pay a CDSC of: - -------------------------------------------------------------------------------------------- Shares you bought Shares you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% the second year you own them 4.0% 3.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 2.0% none none the fifth year you own them 2.0% 1.0% none none the sixth year you own them 1.0% none none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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
96 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: .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. .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. .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. .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. .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: .you received the shares from reinvested distributions .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 net asset 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. 97 [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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. 98 The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .shareholders of certain funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value .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. 99 CONTINGENT DEFERRED SALES CHARGES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .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 .shares sold by or distributions from certain pension, profit sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .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 .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 .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 .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 $1,000,000 100 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 101 [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. 102
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know --------------- ----------------------------------- ---------------------------------------------- Buying shares In a lump sum minimuminitial investment: There is no limit to the amount you can invest .$1,000 for regular accounts in Investor A and C Shares. You can invest up .$250 for certain fee based to $250,000 in Investor B Shares. investment accounts minimumadditional investment: .$100 for all accounts Using our minimuminitial investment: You can buy shares twice a month, monthly Systematic .$ 100 or quarterly, using automatic transfers from Investment Plan minimumadditional investment: your bank account. .$50 - --------------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your We'll deduct any CDSC from the amount shares by telephone, otherwise you're selling and send you or your selling there are no limits to the amount agent the balance, usually within three you can sell business days of receiving your order. .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 .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 .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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 .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
103 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 104 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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 $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: .$ 250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$ 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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 105 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act 106 [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. 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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a 107 Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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. 108 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 109 [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. [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: .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 .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 .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 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. 110 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 111 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare distributions of net investment income daily and pay them monthly. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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. 112 [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 individual 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 alternative minimum taxes. 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 interest income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions of net long-term capital gain, if any, 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a 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 taxable distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. 113 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 114 [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. Financial highlights for Investor A, Investor B and Investor C Shares of Nations California Intermediate Municipal Bond Fund and Investor C Shares of Nations Kansas Municipal Income Fund are not provided because these classes 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. 115 NATIONS CALIFORNIA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES* 03/31/02**# 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 $7.47 $7.14 $7.50 $7.60 $7.64 $7.35 $7.45 Net investment income 0.33 0.35 0.31 0.07 0.34 0.35 0.36 Net realized and unrealized gain/(loss) on investments (0.15) 0.34 (0.34) (0.10) 0.10 0.29 (0.05) Net increase/(decrease) in net asset value from operations 0.18 0.69 (0.03) (0.03) 0.44 0.64 0.31 LESS DISTRIBUTIONS: Dividends from net investment income (0.33) (0.34) (0.31) (0.07) (0.34) (0.35) (0.36) Distributions from net realized capital gains (0.03) (0.02) (0.02) -- (0.14) -- (0.05) Total dividends and distributions (0.36) (0.36) (0.33) (0.07) (0.48) (0.35) (0.41) Net asset value, end of period $7.29 $7.47 $7.14 $7.50 $7.60 $7.64 $7.35 TOTAL RETURN++ 2.45% 9.93% (0.46)% (0.42)% 5.94% 9.18% 4.29% ========================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $145,567 $149,282 $157,672 $206,000 $219,000 $214,000 $221,000 Ratio of operating expenses to average net assets 0.85% 0.83%(a) 0.80%+(a) 0.93%+ 0.93% 0.90%(b) 0.90%(b) Ratio of net investment income to average net assets 4.46% 4.81% 4.50%+ 4.40%+ 4.42% 4.74% 4.88% Portfolio turnover rate 8% 20% 34% 1% 42% 28% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.10% 1.07% 1.04%+ 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 ** Effective April 1, 2001, the California Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.44% to 4.46%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. *** 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%. 116 NATIONS CALIFORNIA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED INVESTOR B SHARES* 03/31/02**# 03/31/01# 03/31/00 05/14/99 02/28/99*** OPERATING PERFORMANCE: Net asset value, beginning of period $7.47 $7.14 $7.51 $7.61 $7.61 Net investment income 0.27 0.30 0.27 0.06 0.16 Net realized and unrealized gain/(loss) on investments (0.14) 0.34 (0.35) (0.10) 0.14 Net increase/(decrease) in net asset value from operations 0.13 0.64 (0.08) (0.04) 0.30 LESS DISTRIBUTIONS: Dividends from net investment income (0.28) (0.29) (0.27) (0.06) (0.16) Distributions from net realized capital gains (0.03) (0.02) (0.02) -- (0.14) Total dividends and distributions (0.31) (0.31) (0.29) (0.06) (0.30) Net asset value, end of period $7.29 $7.47 $7.14 $7.51 $7.61 TOTAL RETURN++ 1.68% 9.15% (1.16)% (0.57)% 4.09% =============================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $7,458 $5,729 $4,206 $3,000 $2,000 Ratio of operating expenses to average net assets 1.60% 1.55%(a) 1.45%+(a) 1.66%+ 1.70%+(b) Ratio of net investment income to average net assets 3.71% 4.09% 3.85%+ 3.63%+ 3.67%+ Portfolio turnover rate 8% 20% 34% 1% 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 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 ** Effective April 1, 2001, the California Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.69% to 3.71%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. *** 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%. 117 NATIONS CALIFORNIA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00** OPERATING PERFORMANCE: Net asset value, beginning of period $7.44 $7.12 $7.31 Net investment income 0.27 0.30 0.19 Net realized and unrealized gain/(loss) on investments (0.13) 0.33 (0.17) Net increase/(decrease) in net asset value from operations 0.14 0.63 0.02 LESS DISTRIBUTIONS: Dividends from net investment income (0.28) (0.29) (0.19) Distributions from net realized capital gains (0.03) (0.02) (0.02) Total dividends and distributions (0.31) (0.31) (0.21) Net asset value, end of period $7.27 $7.44 $7.12 TOTAL RETURN++ 1.82% 8.97% 0.30% ==================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,265 $1,191 $258 Ratio of operating expenses to average net assets 1.60% 1.60%(a) 1.60%+(a) Ratio of net investment income to average net assets 3.71% 4.04% 3.70%+ Portfolio turnover rate 8% 20% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 1.82% 1.79%+
* Effective April 1, 2001, the California Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.69% to 3.71%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ** 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.69 $10.33 $10.79 $10.77 $10.40 Net investment income 0.47 0.48 0.48 0.48 0.48 Net realized and unrealized gain/(loss) on investments (0.15) 0.36 (0.46) 0.02 0.37 Net increase/(decrease) in net asset value from operations 0.32 0.84 0.02 0.50 0.85 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.48) (0.48) (0.48) (0.48) Net asset value, end of year $10.54 $10.69 $10.33 $10.79 $10.77 Total return++ 3.03% 8.33% 0.22% 4.74% 8.34% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $8,530 $5,319 $9,695 $12,783 $7,205 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70% 0.70%(a) Ratio of net investment income to average net assets 4.40% 4.57% 4.57% 4.45% 4.54% Portfolio turnover rate 15% 6% 12% 14% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98% 0.96% 0.99% 0.97% 0.96%
* Effective April 1, 2001, the Florida Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.36% to 4.40%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 118 NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.70 $10.34 $10.79 $10.77 $10.40 Net investment income 0.39 0.40 0.41 0.42 0.43 Net realized and unrealized gain/(loss) on investments (0.15) 0.36 (0.45) 0.02 0.37 Net increase/(decrease) in net asset value from operations 0.24 0.76 (0.04) 0.44 0.80 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.41) (0.42) (0.43) Net asset value, end of year $10.55 $10.70 $10.34 $10.79 $10.77 TOTAL RETURN++ 2.26% 7.52% (0.38)% 4.11% 7.80% =============================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $5,700 $4,429 $4,639 $5,090 $3,606 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.41%(a) 1.30% 1.20%(a) Ratio of net investment income to average net assets 3.65% 3.82% 3.89% 3.85% 4.04% Portfolio turnover rate 15% 6% 12% 14% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.73% 1.71% 1.74% 1.72% 1.46%
* Effective April 1, 2001, the Florida Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.61% to 3.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 INVESTOR C SHARES 03/31/02*# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.72 $10.36 $10.79 $10.77 $10.40 Net investment income 0.31 0.40 0.40 0.41 0.43 Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.43) 0.03 0.37 Net increase/(decrease) in net asset value from operations 0.23 0.76 (0.03) 0.44 0.80 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.40) (0.42) (0.43) Net asset value, end of year $10.56 $10.72 $10.36 $10.79 $10.77 TOTAL RETURN++ 2.12% 7.49% (0.26)% 4.10% 7.80% =============================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,116 $172 $117 $1,416 $188 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.36% 1.20%(a) Ratio of net investment income to average net assets 3.65% 3.82% 3.80% 3.79% 4.04% Portfolio turnover rate 15% 6% 12% 14% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.73% 1.71% 1.74% 1.72% 1.46%
* Effective April 1, 2001, the Florida Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.61% to 3.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 119 NATIONS FLORIDA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.98 $9.53 $9.99 $9.99 $9.48 Net investment income 0.45 0.45 0.46 0.46 0.46 Net realized and unrealized gain/(loss) on investments (0.12) 0.46 (0.46) 0.00 0.51 Net increase/(decrease) in net asset value from operations 0.33 0.91 - 0.46 0.97 LESS DISTRIBUTIONS: Dividends from net investment income (0.45) (0.45) (0.46) (0.46) (0.46) Distributions from net realized capital gains (0.05) (0.01) - - - Total dividends and distributions (0.50) (0.46) (0.46) (0.46) (0.46) Net asset value, end of year $9.81 $9.98 $9.53 $9.99 $9.99 TOTAL RETURN++ 3.29% 9.86% 0.04% 4.69% 10.38% =========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $43,619 $45,034 $49,439 $65,373 $2,027 Ratio of operating expenses to average net assets 0.85%(a) 0.85%(a) 0.83%(a) 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.51% 4.68% 4.75% 4.60% 4.65% Portfolio turnover rate 5% 7% 18% 16% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.12% 1.08% 1.11% 1.10% 1.10%
* Effective April 1, 2001, the Florida Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.46% to 4.51%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.98 $9.53 $9.99 $9.99 $9.48 Net investment income 0.37 0.38 0.39 0.40 0.40 Net realized and unrealized gain/(loss) on investments (0.12) 0.46 (0.46) 0.00 0.51 Net increase/(decrease) in net asset value from operations 0.25 0.84 (0.07) 0.40 0.91 LESS DISTRIBUTIONS: Dividends from net investment income (0.37) (0.38) (0.39) (0.40) (0.40) Distributions from net realized capital gains (0.05) (0.01) - - - Total dividends and distributions (0.42) (0.39) (0.39) (0.40) (0.40) Net asset value, end of year $9.81 $9.98 $9.53 $9.99 $9.99 TOTAL RETURN++ 2.52% 9.05% (0.67)% 4.01% 9.71% =========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $10,419 $10,811 $12,802 $15,435 $17,048 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) 1.53%(a) 1.45%(a) 1.42%(a) Ratio of net investment income to average net assets 3.76% 3.93% 4.05% 3.95% 4.03% Portfolio turnover rate 5% 7% 18% 16% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87% 1.83% 1.86% 1.85% 1.72%
* Effective April 1, 2001, the Florida Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.71% to 3.76%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 120 NATIONS FLORIDA MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02*# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $9.97 $9.53 $9.99 $9.99 $9.48 Net investment income 0.36 0.37 0.38 0.37 0.41 Net realized and unrealized gain/(loss) on investments (0.11) 0.46 (0.46) 0.03 0.51 Net increase/(decrease) in net asset value from operations 0.25 0.83 (0.08) 0.40 0.92 LESS DISTRIBUTIONS: Dividends from net investment income (0.37) (0.38) (0.38) (0.40) (0.41) Distributions from net realized capital gains (0.05) (0.01) -- -- -- Total dividends and distributions (0.42) (0.39) (0.38) (0.40) (0.41) Net asset value, end of year $9.80 $9.97 $9.53 $9.99 $9.99 TOTAL RETURN++ 2.51% 8.92% (0.73)% 4.01% 9.83% ===================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $278 $64 $23 $23 $3 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) 1.60%(a) 1.53%(a) 1.33%(a) Ratio of net investment income to average net assets 3.76% 3.93% 3.98% 3.87% 4.12% PORTFOLIO TURNOVER RATE 5% 7% 18% 16% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87% 1.83% 1.86% 1.85% 1.63%
* Effective April 1, 2001, the Florida Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.71% to 3.76%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.82 $10.42 $10.94 $10.92 $10.58 Net investment income 0.48 0.48 0.48 0.47 0.47 Net realized and unrealized gain/(loss) on investments (0.13) 0.40 (0.52) 0.06 0.38 Net increase/(decrease) in net asset value from operations 0.35 0.88 (0.04) 0.53 0.85 LESS DISTRIBUTIONS: Dividends from net investment income (0.48) (0.48) (0.47) (0.47) (0.47) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.04) Total dividends and distributions (0.48) (0.48) (0.48) (0.51) (0.51) Net asset value, end of year $10.69 $10.82 $10.42 $10.94 $10.92 TOTAL RETURN++ 3.24% 8.66% (0.27)% 4.99% 8.24% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $12,791 $11,872 $13,244 $19,674 $9,446 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70% 0.70% Ratio of net investment income to average net assets 4.40% 4.55% 4.46% 4.31% 4.34% PORTFOLIO TURNOVER RATE 6% 10% 28% 14% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.01% 0.98% 1.03% 0.98% 0.95%
* Effective April 1, 2001, the Georgia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.36% to 4.40%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 ratio was less than 0.01%. 121 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.82 $10.42 $10.94 $10.92 $10.58 Net investment income 0.39 0.40 0.40 0.41 0.42 Net realized and unrealized gain/(loss) on investments (0.12) 0.40 (0.51) 0.06 0.38 Net increase/(decrease) in net asset value from operations 0.27 0.80 (0.11) 0.47 0.80 LESS DISTRIBUTIONS: Dividends from net investment income (0.40) (0.40) (0.40) (0.41) (0.42) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.04) Total dividends and distributions (0.40) (0.40) (0.41) (0.45) (0.46) Net asset value, end of year $10.69 $10.82 $10.42 $10.94 $10.92 TOTAL RETURN++ 2.47% 7.85% (0.96)% 4.37% 7.70% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $6,865 $6,773 $6,812 $8,310 $7,378 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.41%(a) 1.30% 1.20% Ratio of net investment income to average net assets 3.65% 3.80% 3.78% 3.71% 3.84% Portfolio turnover rate 6% 10% 28% 14% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.76% 1.73% 1.78% 1.73% 1.45%
* Effective April 1, 2001, the Georgia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.61% to 3.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 methods. (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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.82 $10.42 $10.94 $10.92 $10.58 Net investment income 0.39 0.40 0.39 0.41 0.42 Net realized and unrealized gain/(loss) on investments (0.12) 0.40 (0.51) 0.05 0.38 Net increase/(decrease) in net asset value from operations 0.27 0.80 (0.12) 0.46 0.80 LESS DISTRIBUTIONS: Dividends from net investment income (0.40) (0.40) (0.39) (0.40) (0.42) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.04) Total dividends and distributions (0.40) (0.40) (0.40) (0.44) (0.46) Net asset value, end of year $10.69 $10.82 $10.42 $10.94 $10.92 TOTAL RETURN++ 2.46% 7.96% (1.13)% 4.35% 7.70% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,400 $770 $764 $886 $1,034 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.31% 1.20% Ratio of net investment income to average net assets 3.65% 3.80% 3.69% 3.70% 3.84% Portfolio turnover rate 6% 10% 28% 14% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.76% 1.73% 1.78% 1.73% 1.45%
* Effective April 1, 2001, the Georgia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.61% to 3.65%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++Total return represents aggregate total return for 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%. 122 NATIONS KANSAS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02*# 03/31/01**# OPERATING PERFORMANCE: Net asset value, beginning of period $10.33 $10.00 Net investment income 0.43 0.47 Net realized and unrealized gain/(loss) on investments (0.17) 0.13 Net increase/(decrease) in net asset value from operations 0.26 0.60 LESS DISTRIBUTIONS: Dividends from net investment income (0.43) (0.27) Distributions from net realized capital gains (0.01) -- Total dividends and distributions (0.44) (0.27) Net asset value, end of period $10.15 $10.33 TOTAL RETURN++ 2.49% 5.66% ========================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,115 $646 Ratio of operating expenses to average net assets 0.85%(a) 0.85%+(a) Ratio of net investment income to average net assets 4.15% 4.19%+ Portfolio turnover rate 13% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16% 1.18%+
* Effective April 1, 2001, the Kansas Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- Increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.14% to 4.15%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ** 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%. NATIONS KANSAS MUNICIPAL INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02*# 03/31/01**# OPERATING PERFORMANCE: Net asset value, beginning of period $10.32 $10.00 Net investment income 0.35 0.33 Net realized and unrealized gain/(loss) on investments (0.17) 0.19 Net increase/(decrease) in net asset value from operations 0.18 0.52 LESS DISTRIBUTIONS: Dividends from net investment income (0.35) (0.20) Distributions from net realized capital gains (0.01) -- Total dividends and distributions (0.36) (0.20) Net asset value, end of period $10.14 $10.32 TOTAL RETURN++ 1.62% 4.78% ========================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $25 $262 Ratio of operating expenses to average net assets 1.60%(a) 1.60%+(a) Ratio of net investment income to average net assets 3.40% 3.44%+ Portfolio turnover rate 13% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.91% 1.93%+
* Effective April 1, 2001, the Kansas Municipal Income Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.39% to 3.40%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ** 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. # 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%. 123 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 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.01 $10.58 $11.07 $11.01 $10.70 Net investment income 0.47 0.48 0.47 0.48 0.49 Net realized and unrealized gain/(loss) on investments (0.17) 0.43 (0.48) 0.06 0.31 Net increase/(decrease) in net asset value from operations 0.30 0.91 (0.01) 0.54 0.80 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.48) (0.47) (0.48) (0.49) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.47) (0.48) (0.48) (0.48) (0.49) Net asset value, end of year $10.84 $11.01 $10.58 $11.07 $11.01 TOTAL RETURN++ 2.76% 8.81% (0.06)% 4.96% 7.61% =========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $20,760 $17,478 $16,454 $17,166 $15,558 Ratio of operating expenses to average net assets 0.75%(a) 0.75% 0.73% 0.70% 0.70% Ratio of net investment income to average net assets 4.29% 4.47% 4.42% 4.31% 4.43% Portfolio turnover rate 16% 13% 21% 22% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.99% 0.96% 1.01% 0.99% 1.00%
* Effective April 1, 2001, the Maryland Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.24% to 4.29%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 B SHARES 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.01 $10.58 $11.07 $11.01 $10.70 Net investment income 0.38 0.40 0.40 0.41 0.43 Net realized and unrealized gain/(loss) on investments (0.16) 0.43 (0.48) 0.06 0.31 Net increase/(decrease) in net asset value from operations 0.22 0.83 (0.08) 0.47 0.74 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.40) (0.41) (0.43) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.39) (0.40) (0.41) (0.41) (0.43) Net asset value, end of year $10.84 $11.01 $10.58 $11.07 $11.01 TOTAL RETURN++ 1.99% 8.01% (0.74)% 4.33% 7.07% =========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $6,318 $5,120 $5,662 $5,989 $4,804 Ratio of operating expenses to average net assets 1.50%(a) 1.50% 1.42% 1.30% 1.20% Ratio of net investment income to average net assets 3.54% 3.72% 3.73% 3.71% 3.93% Portfolio turnover rate 16% 13% 21% 22% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.74% 1.71% 1.76% 1.74% 1.50%
* Effective April 1, 2001, the Maryland Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.49% to 3.54%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 124 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 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $11.01 $10.58 $11.07 $11.01 $10.70 Net investment income 0.35 0.40 0.39 0.41 0.43 Net realized and unrealized gain/(loss) on investments (0.13) 0.43 (0.48) 0.06 0.31 Net increase/(decrease) in net asset value from operations 0.22 0.83 (0.09) 0.47 0.74 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.39) (0.41) (0.43) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.39) (0.40) (0.40) (0.41) (0.43) Net asset value, end of year $10.84 $11.01 $10.58 $11.07 $11.01 TOTAL RETURN++ 1.98% 8.01% (0.82)% 4.31% 7.07% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,454 $301 $335 $561 $840 Ratio of operating expenses to average net assets 1.50%(a) 1.50% 1.50% 1.32% 1.20% Ratio of net investment income to average net assets 3.54% 3.72% 3.65% 3.69% 3.93% Portfolio turnover rate 16% 13% 21% 22% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.74% 1.71% 1.76% 1.74% 1.50%
* Effective April 1, 2001, the Maryland Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.49% to 3.54%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.58 $10.21 $10.71 $10.70 $10.34 Net investment income 0.46 0.47 0.46 0.47 0.47 Net realized and unrealized gain/(loss) on investments (0.14) 0.36 (0.48) 0.04 0.36 Net increase/(decrease) in net asset value from operations 0.32 0.83 (0.02) 0.51 0.83 LESS DISTRIBUTIONS: Dividends from net investment income (0.46) (0.46) (0.46) (0.47) (0.47) Distributions from net realized capital gains -- -- (0.02) (0.03) -- Total dividends and distributions (0.46) (0.46) (0.48) (0.50) (0.47) Net asset value, end of year $10.44 $10.58 $10.21 $10.71 $10.70 TOTAL RETURN++ 3.04% 8.34% (0.18)% 4.82% 8.17% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $11,975 $10,332 $9,684 $10,099 $8,572 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70% 0.70%(a) Ratio of net investment income to average net assets 4.33% 4.46% 4.44% 4.37% 4.49% Portfolio turnover rate 13% 19% 19% 16% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.99% 0.96% 1.01% 0.96% 0.96%
* Effective April 1, 2001, the North Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.23% to 4.33%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 125 NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.58 $10.21 $10.71 $10.70 $10.34 Net investment income 0.38 0.38 0.39 0.40 0.42 Net realized and unrealized gain/(loss) on investments (0.15) 0.37 (0.48) 0.04 0.36 Net increase/(decrease) in net asset value from operations 0.23 0.75 (0.09) 0.44 0.78 LESS DISTRIBUTIONS: Dividends from net investment income (0.38) (0.38) (0.39) (0.40) (0.42) Distributions from net realized capital gains -- -- (0.02) (0.03) -- Total dividends and distributions (0.38) (0.38) (0.41) (0.43) (0.42) Net asset value, end of year $10.43 $10.58 $10.21 $10.71 $10.70 Total return++ 2.17% 7.54% (0.87)% 4.20% 7.64% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,917 $5,261 $5,212 $6,671 $6,859 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.41%(a) 1.30% 1.20%(a) Ratio of net investment income to average net assets 3.58% 3.71% 3.76% 3.77% 3.99% Portfolio turnover rate 13% 19% 19% 16% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.74% 1.71% 1.76% 1.71% 1.46%
* Effective April 1, 2001, the North Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.48% to 3.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.58 $10.21 $10.71 $10.70 $10.34 Net investment income 0.34 0.39 0.38 0.42 0.42 Net realized and unrealized gain/(loss) on investments (0.10) 0.36 (0.48) 0.02 0.36 Net increase/(decrease) in net asset value from operations 0.24 0.75 (0.10) 0.44 0.78 LESS DISTRIBUTIONS: Dividends from net investment income (0.38) (0.38) (0.38) (0.40) (0.42) Distributions from net realized capital gains -- -- (0.02) (0.03) -- Total dividends and distributions (0.38) (0.38) (0.40) (0.43) (0.42) Net asset value, end of year $10.44 $10.58 $10.21 $10.71 $10.70 Total return++ 2.25% 7.54% (0.95)% 4.18% 7.64% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $734 $79 $88 $109 $822 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.31% 1.20%(a) Ratio of net investment income to average net assets 3.58% 3.71% 3.67% 3.76% 3.99% Portfolio turnover rate 13% 19% 19% 16% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.74% 1.71% 1.76% 1.71% 1.46%
* Effective April 1, 2001, the North Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.48% to 3.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 126 NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.64 $10.27 $10.79 $10.79 $10.50 Net investment income 0.50 0.49 0.49 0.49 0.50 Net realized and unrealized gain/(loss) on investments (0.14) 0.37 (0.51) 0.04 0.29 Net increase/(decrease) in net asset value from operations 0.36 0.86 (0.02) 0.53 0.79 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.49) (0.49) (0.49) (0.50) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.00)## Total dividends and distributions (0.50) (0.49) (0.50) (0.53) (0.50) Net asset value, end of year $10.50 $10.64 $10.27 $10.79 $10.79 TOTAL RETURN++ 3.39% 8.58% (0.14)% 5.01% 7.67% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $17,791 $18,420 $17,396 $18,729 $13,945 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.67% 4.70% 4.65% 4.55% 4.66% Portfolio turnover rate 8% 9% 14% 9% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98% 0.95% 0.99% 0.94% 0.95%
* Effective April 1, 2001, the South Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.02, decrease net realized and unrealized gains or losses per share by $0.02 and increase the ratio of net investment income to average net assets from 4.53% to 4.67%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.64 $10.27 $10.79 $10.79 $10.50 Net investment income 0.42 0.41 0.41 0.43 0.44 Net realized and unrealized gain/(loss) on investments (0.14) 0.37 (0.51) 0.04 0.29 Net increase/(decrease) in net asset value from operations 0.28 0.78 (0.10) 0.47 0.73 LESS DISTRIBUTIONS: Dividends from net investment income (0.42) (0.41) (0.41) (0.43) (0.44) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.00)## Total dividends and distributions (0.42) (0.41) (0.42) (0.47) (0.44) Net asset value, end of year $10.50 $10.64 $10.27 $10.79 $10.79 TOTAL RETURN++ 2.62% 7.78% (0.82)% 4.39% 7.13% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $7,797 $7,083 $7,310 $8,542 $6,819 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.41%(a) 1.30%(a) 1.20%(a) Ratio of net investment income to average net assets 3.92% 3.95% 3.97% 3.95% 4.16% Portfolio turnover rate 8% 9% 14% 9% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.73% 1.70% 1.74% 1.69% 1.45%
* Effective April 1, 2001, the South Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.02, decrease net realized and unrealized gains or losses per share by $0.02 and increase the ratio of net investment income to average net assets from 3.78% to 3.92%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 127 NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.64 $10.27 $10.79 $10.79 $10.50 Net investment income 0.41 0.41 0.40 0.42 0.44 Net realized and unrealized gain/(loss) on investments (0.12) 0.37 (0.51) 0.04 0.29 Net increase/(decrease) in net asset value from operations 0.29 0.78 (0.11) 0.46 0.73 LESS DISTRIBUTIONS: Dividends from net investment income (0.42) (0.41) (0.40) (0.42) (0.44) Distributions from net realized capital gains -- -- (0.01) (0.04) (0.00)## Total dividends and distributions (0.42) (0.41) (0.41) (0.46) (0.44) Net asset value, end of year $10.51 $10.64 $10.27 $10.79 $10.79 TOTAL RETURN++ 2.71% 7.78% (0.91)% 4.36% 7.13% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,713 $2,175 $2,755 $3,102 $2,698 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.32%(a) 1.20%(a) Ratio of net investment income to average net assets 3.92% 3.95% 3.88% 3.93% 4.16% Portfolio turnover rate 8% 9% 14% 9% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.73% 1.70% 1.74% 1.69% 1.45%
* Effective April 1, 2001, the South Carolina Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.02, decrease net realized and unrealized gains or losses per share by $0.02 and increase the ratio of net investment income to average net assets from 3.78% to 3.92%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $9.91 $10.46 $10.40 $10.08 Net investment income 0.43 0.45 0.44 0.45 0.45 Net realized and unrealized gain/(loss) on investments (0.09) 0.44 (0.54) 0.06 0.32 Net increase/(decrease) in net asset value from operations 0.34 0.89 (0.10) 0.51 0.77 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.45) (0.44) (0.45) (0.45) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.44) (0.45) (0.45) (0.45) (0.45) Net asset value, end of year $10.25 $10.35 $9.91 $10.46 $10.40 TOTAL RETURN++ 3.28% 9.25% (0.90)% 4.97% 7.77% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $9,955 $7,945 $7,810 $9,242 $8,061 Ratio of operating expenses to average net assets 0.75% 0.75%(a) 0.73%(a) 0.70% 0.70%(a) Ratio of net investment income to average net assets 4.20% 4.52% 4.39% 4.28% 4.38% Portfolio turnover rate 0% 10% 49% 22% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.18% 1.09% 1.19% 1.10% 1.04%
* Effective April 1, 2001, the Tennessee Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.19% to 4.20%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 128 NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $9.91 $10.46 $10.40 $10.08 Net investment income 0.36 0.38 0.38 0.38 0.40 Net realized and unrealized gain/(loss) on investments (0.09) 0.44 (0.54) 0.06 0.32 Net increase/(decrease) in net asset value from operations 0.27 0.82 (0.16) 0.44 0.72 LESS DISTRIBUTIONS: Dividends from net investment income (0.36) (0.38) (0.38) (0.38) (0.40) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.36) (0.38) (0.39) (0.38) (0.40) Net asset value, end of year $10.26 $10.35 $9.91 $10.46 $10.40 TOTAL RETURN++ 2.61% 8.44% (1.58)% 4.34% 7.24% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,351 $1,448 $1,783 $3,007 $2,924 Ratio of operating expenses to average net assets 1.50% 1.50%(a) 1.41%(a) 1.30% 1.20%(a) Ratio of net investment income to average net assets 3.45% 3.77% 3.71% 3.68% 3.88% Portfolio turnover rate 0% 10% 49% 22% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.93% 1.84% 1.94% 1.85% 1.54%
* Effective April 1, 2001, the Tennessee Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.44% to 3.45%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.31 $9.87 $10.45 $10.40 $10.08 Net investment income 0.30 0.42 0.39 0.39 0.40 Net realized and unrealized gain/(loss) on investments (0.04) 0.40 (0.57) 0.05 0.32 Net increase/(decrease) in net asset value from operations 0.26 0.82 (0.18) 0.44 0.72 LESS DISTRIBUTIONS: Dividends from net investment income (0.36) (0.38) (0.39) (0.39) (0.40) Distributions from net realized capital gains -- -- (0.01) -- -- Total dividends and distributions (0.36) (0.38) (0.40) (0.39) (0.40) Net asset value, end of year $10.21 $10.31 $9.87 $10.45 $10.40 TOTAL RETURN++ 2.52% 8.46% (1.96)% 4.28% 7.29% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $322 $3 $3 $33 $3 Ratio of operating expenses to average net assets 1.50% 1.50%(a) 1.50%(a) 1.11% 1.20%(a) Ratio of net investment income to average net assets 3.45% 3.77% 3.62% 3.87% 3.88% Portfolio turnover rate 0% 10% 49% 22% 38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.93% 1.84% 1.94% 1.85% 1.54%
* Effective April 1, 2001, the Tennessee Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.44% to 3.45% Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. . ++ Total return represents aggregate total return for 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%. 129 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $10.00 $10.48 $10.50 $10.18 Net investment income 0.48 0.48 0.47 0.47 0.47 Net realized and unrealized gain/(loss) on investments (0.16) 0.35 (0.48) 0.02 0.32 Net increase/(decrease) in net asset value from operations 0.32 0.83 (0.01) 0.49 0.79 LESS DISTRIBUTIONS: Dividends from net investment income (0.48) (0.48) (0.47) (0.47) (0.47) Distributions from net realized capital gains -- -- (0.00)## (0.04) -- Total dividends and distributions (0.48) (0.48) (0.47) (0.51) (0.47) Net asset value, end of year $10.19 $10.35 $10.00 $10.48 $10.50 TOTAL RETURN++ 3.10% 8.52% (0.06)% 4.77% 7.87% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $4,813 $4,346 $6,075 $6,909 $2,666 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.73%(a) 0.70% 0.70% Ratio of net investment income to average net assets 4.62% 4.75% 4.61% 4.46% 4.54% Portfolio turnover rate 5% 6% 33% 22% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97% 0.95% 0.97% 0.93% 0.95%
* Effective April 1, 2001, the Texas Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 4.59% to 4.62%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 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 03/31/02*# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $10.00 $10.48 $10.50 $10.18 Net investment income 0.40 0.40 0.40 0.41 0.42 Net realized and unrealized gain/(loss) on investments (0.16) 0.35 (0.48) 0.02 0.32 Net increase/(decrease) in net asset value from operations 0.24 0.75 (0.08) 0.43 0.74 LESS DISTRIBUTIONS: Dividends from net investment income (0.40) (0.40) (0.40) (0.41) (0.42) Distributions from net realized capital gains -- -- (0.00)## (0.04) -- Total dividends and distributions (0.40) (0.40) (0.40) (0.45) (0.42) Net asset value, end of year $10.19 $10.35 $10.00 $10.48 $10.50 TOTAL RETURN++ 2.33% 7.71% (0.74)% 4.15% 7.34% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,021 $2,145 $2,005 $2,137 $2,184 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.42%(a) 1.30% 1.20% Ratio of net investment income to average net assets 3.87% 4.00% 3.92% 3.86% 4.04% Portfolio turnover rate 5% 6% 33% 22% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.70% 1.72% 1.68% 1.45%
* Effective April 1, 2001, the Texas Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.84% to 3.87%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 130 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 03/31/02*# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $10.00 $10.48 $10.50 $10.18 Net investment income 0.24 0.40 0.38 0.40 0.42 Net realized and unrealized gain/(loss) on investments (0.02) 0.35 (0.48) 0.02 0.32 Net increase/(decrease) in net asset value from operations 0.22 0.75 (0.10) 0.42 0.74 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.38) (0.40) (0.42) Distributions from net realized capital gains -- -- (0.00)## (0.04) -- Total dividends and distributions (0.39) (0.40) (0.38) (0.44) (0.42) Net asset value, end of year $10.18 $10.35 $10.00 $10.48 $10.50 TOTAL RETURN++ 2.16% 7.69% (0.86)% 4.14% 7.34% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $58 $3 $3 $3 $293 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.50%(a) 1.33% 1.20% Ratio of net investment income to average net assets 3.87% 4.00% 3.84% 3.83% 4.04% Portfolio turnover rate 5% 6% 33% 22% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.70% 1.72% 1.68% 1.45%
* Effective April 1, 2001, the Texas Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.00, decrease net realized and unrealized gains or losses per share by $0.00 and increase the ratio of net investment income to average net assets from 3.84% to 3.87%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $10.92 $10.51 $10.98 $10.92 $10.59 Net investment income 0.47 0.48 0.47 0.47 0.49 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.47) 0.07 0.33 Net increase/(decrease) in net asset value from operations 0.34 0.89 0.00 0.54 0.82 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.48) (0.47) (0.48) (0.49) Distributions from net realized capital gains -- -- (0.00)## -- -- Total dividends and distributions (0.47) (0.48) (0.47) (0.48) (0.49) Net asset value, end of year $10.79 $10.92 $10.51 $10.98 $10.92 TOTAL RETURN++ 3.18% 8.65% 0.06% 5.00% 7.91% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $45,678 $43,655 $46,663 $56,733 $54,080 Ratio of operating expenses to average net assets 0.75%(a) 0.75% 0.73%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.33% 4.48% 4.43% 4.34% 4.57% Portfolio turnover rate 10% 9% 23% 5% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97% 0.95% 0.98% 0.95% 0.94%
* Effective April 1, 2001, the Virginia intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor A Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 4.24% to 4.33%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 131 NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.92 $10.51 $10.98 $10.92 $10.59 Net investment income 0.39 0.40 0.40 0.41 0.44 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.47) 0.06 0.33 Net increase/(decrease) in net asset value from operations 0.26 0.81 (0.07) 0.47 0.77 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.40) (0.41) (0.44) Distributions from net realized capital gains -- -- (0.00)## -- -- Total dividends and distributions (0.39) (0.40) (0.40) (0.41) (0.44) Net asset value, end of year $10.79 $10.92 $10.51 $10.98 $10.92 TOTAL RETURN++ 2.40% 7.85% (0.63)% 4.38% 7.37% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $8,987 $8,859 $9,073 $10,296 $9,643 Ratio of operating expenses to average net assets 1.50%(a) 1.50% 1.41%(a) 1.30%(a) 1.20%(a) Ratio of net investment income to average net assets 3.58% 3.73% 3.75% 3.74% 4.07% Portfolio turnover rate 10% 9% 23% 5% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.70% 1.73% 1.70% 1.44%
* Effective April 1, 2001, the Virginia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor B Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.49% to 3.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02*# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.92 $10.51 $10.98 $10.92 $10.59 Net investment income 0.39 0.40 0.39 0.39 0.44 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.47) 0.08 0.33 Net increase/(decrease) in net asset value from operations 0.26 0.81 (0.08) 0.47 0.77 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.40) (0.39) (0.41) (0.44) Distributions from net realized capital gains -- -- (0.00)## -- -- Total dividends and distributions (0.39) (0.40) (0.39) (0.41) (0.44) Net asset value, end of year $10.79 $10.92 $10.51 $10.98 $10.92 TOTAL RETURN++ 2.41% 7.84% (0.71)% 4.36% 7.37% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $869 $817 $759 $1,100 $1,949 Ratio of operating expenses to average net assets 1.50%(a) 1.50% 1.50%(a) 1.34%(a) 1.20%(a) Ratio of net investment income to average net assets 3.58% 3.73% 3.66% 3.70% 4.07% Portfolio turnover rate 10% 9% 23% 5% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.70% 1.73% 1.70% 1.44%
* Effective April 1, 2001, the Virginia Intermediate Municipal Bond Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended March 31, 2002 on the class was: Investor C Shares -- increase net investment income per share by $0.01, decrease net realized and unrealized gains or losses per share by $0.01 and increase the ratio of net investment income to average net assets from 3.49% to 3.58%. Per share amounts and ratios for the period ended March 31, 2001 have not been restated to reflect this change in presentation. ++ Total return represents aggregate total return for 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%. 132 [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. Bond - 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 133 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. 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 U.S. Treasury obligations and commercial paper. 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. 134 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 principal 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 an NRSRO such as S&P or 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. 135 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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 Credit 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. 136 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. Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's Investors Service, Inc. and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 137 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. 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. 138 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. 139 SEC file number: Nations Funds Trust, 811-09645 SMBPROIX-0802 Where to find more information [Graphic] 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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Nations High Yield Bond Fund - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 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 - ----------------- [LOGO] 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 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: .you're looking for income .you want to diversify your existing portfolio .you have longer-term investment goals It may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with fixed income securities, particularly high yield debt securities .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 12. [Graphic] ABOUT THE FUND NATIONS HIGH YIELD BOND FUND 4 Sub-adviser: MacKay Shields LLC ----------------------------------- OTHER IMPORTANT INFORMATION 10 ----------------------------------- HOW THE FUND IS MANAGED 12
[Graphic] ABOUT YOUR INVESTMENT INFORMATION FOR INVESTORS Choosing a share class 15 About Investor A Shares 16 Front-end sales charge 16 Contingent deferred sales charge 17 About Investor B Shares 17 Contingent deferred sales charge 17 About Investor C Shares 20 Contingent deferred sales charge 20 When you might not have to pay a sales charge 20 Buying, selling and exchanging shares 24 How orders are processed 26 How selling and servicing agents are paid 32 Distributions and taxes 34 -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 36 -------------------------------------------------------------- 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 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 13. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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 Investors Service, 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: .Domestic corporate high yield debt securities, including private placements .U.S. dollar-denominated foreign corporate high yield debt securities, including private placements .Zero-coupon bonds .U.S. government obligations .Equity securities (up to 20% 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: .focuses on individual security selection ("bottom-up" analysis) .uses fundamental credit analysis .emphasizes current income while attempting to minimize risk to principal .seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring .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 a target price the team has set, if 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, or 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 High Yield Bond Fund has the following risks: . 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. . 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. . 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. . 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. . 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. . 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. . 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. 5 [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. 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 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. [CHART] 2001 ---- 8.28% *Year-to-date return as of June 30, 2002: -0.91% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 7.35% Worst: 3rd quarter 2001: -3.77%
6 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the CSFB Global High Yield Index, an unmanaged index that mirrors the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes 3.10% 0.63% Investor A Shares Returns After Taxes on Distributions -1.06% -3.45% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 1.82% -1.52% Investor B Shares Returns Before Taxes 2.78% 0.77% Investor C Shares Returns Before Taxes 6.48% 2.41% CSFB Global High Yield Index (reflects no deductions for fees, expenses or taxes) 6.76% 0.04%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are February 14, 2000, February 17, 2000 and March 8, 2000, 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. [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 0.45% 0.45% 0.45% ----- ----- ----- Total annual Fund operating expenses 1.25% 2.00% 2.00% Fee waivers and/or reimbursements (0.07)% (0.07)% (0.07)% ------- ------- ------- 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. 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these limitations will continue. 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 the Fund with the cost of investing in other mutual funds. This example assumes: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $847 $1,123 $1,911 Investor B Shares $696 $921 $1,271 $2,128 Investor C Shares $296 $621 $1,071 $2,322
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 $621 $1,071 $2,128 Investor C Shares $196 $621 $1,071 $2,322
9 [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: .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. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Master Portfolio may invest 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. .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. .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 Fund may not achieve its investment objective while it is investing defensively. .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. 10 .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, 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 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 11 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 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, 2003. 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% 0.48%
/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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 12 [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 $32 billion in assets, including over $10.5 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, 2001. 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, 2001
CSFB MacKay Shields Global High Composite (%) Yield Index (%) one year 9.12% 5.78% three years 5.45% 1.17% five years 7.57% 3.24% ten years 12.79% 7.83%
13 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
CSFB MacKay Shields Global High Composite (%) Yield Index (%) 2001 9.1% 5.7% 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. 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. 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. 14 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 you can buy no limit $250,000 no limit Maximum front-end sales charge 4.75% none none Maximum deferred sales charge none/1/ 5.00%/2/ 1.00%/3/ Maximum annual distribution and 0.25% distribution 0.75% distribution 0.75% distribution shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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. 15 [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. 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] 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: . 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 . 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. 16
Nations High Yield Bond Fund 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 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: . If you sell your shares 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 net asset 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: . you bought the shares before August 1, 1997 . you received the shares from reinvested distributions . 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 17 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 Shares you bought between bought after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ------------ ----------------------------------- $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% the second year you own them 4.0% 3.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 2.0% none none the fifth year you own them 2.0% 1.0% none none the sixth year you own them 1.0% none none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 18 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: .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. .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. .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. .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. .Conversions are free from federal tax. 19 [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: .you received the shares from reinvested distributions .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 net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 20 .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Fund .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 .shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 21 The following plans can buy Investor A Shares without paying a front-end sales charge: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: 22 .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 23 [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 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. 24
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 . $1,000 for regular accounts in Investor A and C Shares. You can invest up . $500 for traditional and Roth IRAs, to $250,000 in Investor B Shares. and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic . $ 100 quarterly, using automatic transfers from your Investment minimum additional investment: bank account. Plan . $ 50 - ------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . 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. . 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 . minimum $25 per withdrawal Your account balance must be at least Automatic $10,000 to set up the plan. You can make Withdrawal withdrawals twice a month, monthly, Plan 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 . 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 . 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.
25 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 26 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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. 27 [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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 28 [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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. 29 .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of the Fund for Investor B Shares of any other Nations 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. 30 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 31 [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 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: .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 .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 .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 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. 32 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 33 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declares and pays distributions of net investment income monthly. The Fund may, however, declare and pay distributions of net investment income more frequently. Zero coupon bonds generate taxable income each year without generating cash for distributions. The Fund may be required to prematurely sell investments to make distributions or pay for redemptions. 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 paid (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 Fund shares shortly before the Fund 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. 34 [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 of a Fund's ordinary income and net short-term capital gain 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. We'll send you a notice every year that tells you how much you've received in distributions during the year, their federal tax status and how much of the income from zero coupon bonds has been allocated to you. Foreign, state and local taxes may also apply to distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 35 [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. 36 NATIONS HIGH YIELD BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.22 $9.88 $10.00 Net investment income 0.80 0.96 0.08 Net realized and unrealized gain/ (loss) on investments (0.32) (0.58) (0.12) Net increase/(decrease) in net asset value from operations 0.48 0.38 (0.04) LESS DISTRIBUTIONS: Dividends from net investment income (0.85) (1.04) (0.08) Distributions from net realized gains (0.05) -- -- Total dividends and distributions (0.90) (1.04) (0.08) Net asset value, end of period $8.80 $9.22 $9.88 TOTAL RETURN++ 5.69% 3.99% (0.33)% ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $31,551 $8,344 $371 Ratio of operating expenses to average net assets 1.18% 1.18% 1.18%+ Ratio of net investment income to average net assets 9.50% 10.72% 6.78%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25% 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 Year ended Period ended INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/01*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.21 $9.88 $10.00 Net investment income 0.76 0.92 0.07 Net realized and unrealized gain/ (loss) on investments (0.33) (0.62) (0.12) Net increase/(decrease) in net asset value from operations 0.43 0.30 (0.05) LESS DISTRIBUTIONS: Dividends from net investment income (0.79) (0.97) (0.07) Distributions from net realized gains (0.05) -- -- Total dividends and distributions (0.84) (0.97) (0.07) Net asset value, end of period $8.80 $9.21 $9.88 TOTAL RETURN++ 5.06% 3.29% (0.47)% ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $64,091 $22,106 $3,426 Ratio of operating expenses to average net assets 1.93% 1.93% 1.93%+ Ratio of net investment income to average net assets 8.75% 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 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. 37 NATIONS HIGH YIELD BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.19 $9.87 $10.02 Net investment income 0.76 0.90 0.04 Net realized and unrealized gain/(loss) on investments (0.34) (0.61) (0.12) Net increase/(decrease) in net asset value from operations 0.42 0.29 (0.08) LESS DISTRIBUTIONS: Dividends from net investment income (0.79) (0.97) (0.07) Distributions from net realized gains (0.05) -- -- Total dividends and distributions (0.84) (0.97) (0.07) Net asset value, end of period $8.77 $9.19 $9.87 TOTAL RETURN++ 4.96% 3.20% (0.76)% =--------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $15,213 $1,891 $59 Ratio of operating expenses to average net assets 1.93% 1.93% 1.93%+ Ratio of net investment income to average net assets 8.75% 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 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. 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. Bond - 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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 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 U.S. Treasury obligations and commercial paper. 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 principal 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 an NRSRO such as S&P or 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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 Credit 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. 42 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. Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 43 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. 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. 44 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. 45 [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.nationsfunds.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. [LOGO] Nations Funds SEC file number: Nations Funds Trust, 811-09645 HYPROIX-0802 [GRAPHIC] International/Global Stock Funds Prospectus -- Investor A, B and C Shares August 1, 2002 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 [LOGO] 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 71. 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 International/Global Stock Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. Subject to certain limited exceptions, Nations International Value Fund is no longer accepting new investments from current or prospective investors. Please see the Fund's description for more information. 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. 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. 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 generally focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with foreign securities .you have short-term investment goals .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 35. [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 15 Sub-advisers: Marsico Capital Management, LLC, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management, LLC ------------------------------------------------------------------- NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND 21 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- NATIONS EMERGING MARKETS FUND 27 Sub-adviser: Gartmore Global Partners ------------------------------------------------------------------- OTHER IMPORTANT INFORMATION 33 ------------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 35
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 40 About Investor A Shares 41 Front-end sales charge 41 Contingent deferred sales charge 42 About Investor B Shares 42 Contingent deferred sales charge 42 About Investor C Shares 44 Contingent deferred sales charge 44 Redemption fees 44 When you might not have to pay a sales charge or redemption fee 45 Buying, selling and exchanging shares 49 How orders are processed 51 How selling and servicing agents are paid 57 Distributions and taxes 59 ----------------------------------------------------------------- FINANCIAL HIGHLIGHTS 62 ----------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 71 ----------------------------------------------------------------- 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 36. [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 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. 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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or 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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR .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). .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: .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. .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. .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. .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] 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] 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (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 0.73% 0.73% 0.73% ----- ----- ----- Total annual Fund operating expenses 1.88% 2.63% 2.63% Fee waivers and/or reimbursements (0.23)% (0.23)% (0.23)% ------- ------- ------- Total net expenses/6/ 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. /5/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. /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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . the Fund's operating expenses remain the same as shown in the table above . the waivers and/or reimbursements shown above expire July 31, 2003 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 $733 $1,112 $1,514 $2,636 Investor B Shares $743 $1,096 $1,575 $2,765 Investor C Shares $343 $796 $1,375 $2,947
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 $243 $796 $1,375 $2,765 Investor C Shares $243 $796 $1,375 $2,947
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 36. [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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or 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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR .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). .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 Subject to certain limited exceptions discussed below, Nations International Value Fund is no longer accepting new investments from current or prospective investors. Shares of Nations International Value Fund currently may only be purchased through reinvestment of distributions, by certain qualified retirement plans on behalf of plan participants, by investors who purchase shares through accounts established with certain investment advisers or financial planners, including certain wrap fee accounts, and by investors who purchase shares through an account established with a selling agent that has available purchasing capacity based on policies established by the Fund. Nations International Value Fund has the following risks: .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. .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. .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. .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. 9 .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. [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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------- ------- 15.32% 20.38% 11.82% 52.43% 2.94% (11.99)% *Year-to-date return as of June 30, 2002: -2.59% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD BEST: 4TH QUARTER 1999: 24.15% Worst: 3rd quarter 1998: -16.57%
11 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -17.05% 11.88% 12.32% Investor A Shares Returns After Taxes on Distributions -17.83% 9.89% 10.59% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -10.09% 8.99% 9.55% Investor B Shares Returns Before Taxes -16.96% -- 6.99% Investor C Shares Returns Before Taxes -13.57% -- 10.71% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% 0.89% 1.74%
*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. 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 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (Expenses that are deducted from the Fund's assets)/6/ Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% 0.33% 0.33% 0.33% Other expenses ------- ----- ----- 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. /5/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. /6/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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
14 [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. MARSICO CAPITAL MANAGEMENT, LLC (MARSICO CAPITAL), 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. JAMES G. GENDELMAN OF MARSICO CAPITAL, 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 INVESCO AND PUTNAM ON PAGE 38 AND MARSICO CAPITAL AND MR. GENDELMAN ON PAGE 39. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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: .Marsico Capital combines "top-down" allocation among sectors and regions around the world with a "bottom-up" analysis that focuses on investing in securities with earnings growth potential that may not be realized by other investors. .INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. .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 a target set by the manager, if the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, or 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 International Equity Fund has the following risks: .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. .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. .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. .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. .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. 16 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. EFFECTIVE JANUARY 15, 2002, MARSICO CAPITAL REPLACED GARTMORE GLOBAL PARTNERS (GARTMORE) AS CO-INVESTMENT SUB-ADVISER FOR A PORTION OF THE MASTER PORTFOLIO'S ASSETS. MARSICO CAPITAL HAS A DIFFERENT INVESTMENT STYLE THAN GARTMORE. [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ----- ----- ----- ----- ------ ------ -------- -------- 26.90% 2.21% 8.21% 8.14% 1.04% 16.40% 39.13% (15.33)% (20.84)% *Year-to-date return as of June 30, 2002: 0.55% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 28.40% Worst: 3rd quarter 2001: -14.08%
17 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -25.36% 0.66% 3.81% Investor A Shares Returns After Taxes on Distributions -25.37% -1.37% 2.43% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -15.45% 0.11% 2.77% Investor B Shares Returns Before Taxes -25.36% 0.72% 3.96% Investor C Shares Returns Before Taxes -22.24% 1.05% 3.98% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% 0.89% 5.28%
*Theinception 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. 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 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (Expenses that are deducted from the Fund's assets)/6/ Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% 0.36% 0.36% 0.36% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.41% 2.16% 2.16% ===== ===== =====
/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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. /5/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. /6/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. 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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $710 $996 $1,303 $2,172 Investor B Shares $719 $976 $1,359 $2,303 Investor C Shares $319 $676 $1,159 $2,493
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 $219 $676 $1,159 $2,303 Investor C Shares $219 $676 $1,159 $2,493
20 [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 G. 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 39. [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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico International Opportunities Fund has the following risks: .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. .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. .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. .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. 22 [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. [CHART] 2001 -------- (14.74)% *Year-to-date return as of June 30, 2002: 6.02% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.01% Worst: 3rd quarter 2001: -18.23%
23 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -19.64% -18.19% Investor A Shares Returns After Taxes on Distributions -19.64% -18.19% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.96% -14.42% Investor B Shares Returns Before Taxes -19.66% -17.78% Investor C Shares Returns Before Taxes -16.37% -15.38% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% -19.64%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is August 1, 2000. The return for the index show 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 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (Expenses that are deducted from the Fund's assets)/6/ Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% 3.20% 3.20% 3.20% Other expenses ----- ----- ----- Total annual Fund operating expenses 4.25% 5.00% 5.00% (2.50)% (2.50)% (2.50)% Fee waivers and/or reimbursements ------- ------- ------- Total net expenses/7/ 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. /5/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. /6/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/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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $1,578 $2,425 $4,600 Investor B Shares $753 $1,578 $2,503 $4,718 Investor C Shares $353 $1,278 $2,303 $4,866
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 $1,278 $2,303 $4,718 Investor C Shares $253 $1,278 $2,303 $4,866
26 [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 38. [Graphic] WHAT'S AN EMERGING MARKET? THIS FUND CONSIDERS A COUNTRY TO BE AN EMERGING MARKET IF: .THE INTERNATIONAL FINANCE CORPORATION HAS DEFINED IT AS AN EMERGING MARKET, .IT HAS A LOW-TO-MIDDLE INCOME ECONOMY ACCORDING TO THE WORLD BANK, OR .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 Under normal circumstances, vest at least 80% 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: .uses fundamental research to select stocks, looking at earnings growth, financial resources, marketability, and other factors .visits companies to confirm the corporate and industry factors that led to a stock's selection as a potential investment .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 a target set by the portfolio manager, if there is a deterioration in the growth prospects of the company or its industry, when the portfolio manager believes other investments are more attractive, or 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 Emerging Markets Fund has the following risks: .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. .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. .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. .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. .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. 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 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. [CHART] 1996 1997 1998 1999 2000 2001 ----- ------- -------- ------ -------- ------- 8.50% (3.20)% (25.78)% 96.09% (35.30)% (4.13)% *Year-to-date return as of June 30, 2002: 2.83% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 48.17% Worst: 3rd quarter 2001: -28.54%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -9.61% -3.81% -2.06% Investor A Shares Returns After Taxes on Distributions -9.62% -3.90% -2.20% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -5.85% -3.02% -1.68% Investor B Shares Returns Before Taxes -9.55% -3.72% -1.88% Investor C Shares Returns Before Taxes -5.76% -3.31% -1.80% S&P/IFC Investables Index (reflects no deductions for fees, expenses or taxes) 1.51% -4.69% -4.67%
*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. 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 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (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% 1.04% 1.04% 1.04% Other expenses ----- ----- ----- Total annual Fund operating expenses/6/ 2.29% 3.04% 3.04% ===== ===== =====
/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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. /5/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. /6/The Fund's investment adviser and/or some of its other service providers have voluntarily agreed to limit total annual operating expenses to 2.15% for Investor A Shares and 2.90% for Investor B and Investor C Shares, as a percentage of the average daily net assets of the Fund. There is no guarantee that these limitations will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $794 $1,250 $1,731 $3,053 Investor B Shares $807 $1,239 $1,796 $3,181 Investor C Shares $407 $939 $1,596 $3,355
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 $307 $939 $1,596 $3,181 Investor C Shares $307 $939 $1,596 $3,355
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 4. The following are some other risks and information you should consider before you invest: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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 .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. .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 34 [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 70 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, 2003. 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 paid advisory fee last fiscal year Nations Global Value Fund 0.90% N/A Nations International Value Fund/1/ 0.90% 0.87% Nations International Equity Fund/1/ 0.80% 0.80% Nations Marsico International Opportunities Fund/1/ 0.80% 0.00% Nations Emerging Markets Fund 1.00% 0.77%
/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. 35 [Graphic] BRANDES INVESTMENT PARTNERS, L.P. 11988 EL CAMINO REAL SUITE 500 SAN DIEGO, CALIFORNIA 92130 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. BRANDES INVESTMENT PARTNERS, L.P. Founded in 1974, Brandes is an investment advisory firm with 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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 ACCOUNTS MANAGED BY BRANDES Nations Global Value Fund commenced its operations on April 16, 2001. 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. 36 The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2002 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, 2002
Brandes Global Equity MSCI World Composite (%) Index (%) one year 5.49% (4.23)% three years 12.84% (4.39)% five years 15.25% 5.38% ten years 16.62% 9.02%
ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes Global Equity MSCI World Composite (%) Index (%) 2001 (0.66)% (16.82)% 2000 34.46% (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. 37 [Graphic] GARTMORE GLOBAL PARTNERS GARTMORE HOUSE 8 FENCHURCH PLACE LONDON EC3M 4PH, ENGLAND [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 GARTMORE GLOBAL PARTNERS Gartmore Global Partners is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore Global Partners was formed in 1995 as a registered investment adviser and manages more than $1 billion in assets. Gartmore Global Partners is 100% owned by Gartmore Investment Management plc whose advisory affiliates are members of Gartmore Group. Gartmore Group, the brand name of Nationwide Mutual Insurance Company's (Nationwide Mutual) asset management business, represents a unified global marketing and investment platform featuring nine affiliated investment advisors collectively managing over $75 billion in assets. Gartmore Group encompasses 170 portfolio managers, analysts and traders supported by approximately 1,000 professionals working in offices strategically located in the United States, United Kingdom, Sweden, Italy, Spain, Germany and Japan. Gartmore Global Partners generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore Global Partners is the investment sub-adviser to Nations Emerging Markets Fund. 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 Global Partners in 1995 and is a senior investment manager on the Gartmore Global Partners Emerging Markets Team. Before he joined Gartmore Global Partners, 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust 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] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico International Opportunities Master Portfolio Marsico Capital is a co-investment sub-adviser to: .Nations International Equity Master Portfolio James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio and Marsico Capital's portion of Nations International Equity 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. 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. 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] 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 Shares Investor B Shares Investor C 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/ Redemption fee/4/ 2.00% 2.00% 2.00% Maximum annual 0.75% 0.75% distribution 0.25% distribution distribution and shareholder distribution (12b-1) fee and (12b-1) fee and servicing fees (12b-1)/service fee 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES 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. 40 [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: .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 or redemption fee - Front end sales charges .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. 41 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 or redemption fee - Contingent deferred sales charges and redemption fees. 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ----------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
42 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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. .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. .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. .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. .Conversions are free from federal tax. 43 [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: .you received the shares from reinvested distributions .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 or redemption fee -- Contingent deferred sales charges and redemption fees. The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. REDEMPTION FEES (Investor A, Investor B and Investor C Shares) The International/Global Stock Funds may assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. The redemption fee is paid to the Fund, and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the Funds. The redemption fee is imposed to the extent that Fund shares redeemed exceed Fund shares that have been held more than 90 days. For shares of the Funds acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to apply the redemption fee. The redemption fee may not be imposed if you qualify for a waiver. You can find out if you qualify for a waiver in the section When you might not have to pay a sales charge or redemption fee -- Contingent deferred sales charges and redemption fees. 44 [Graphic] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT REDUCTIONS AND WAIVERS OF SALES CHARGES AND REDEMPTION FEES. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR A REDUCTION OR A WAIVER BEFORE BUYING OR SELLING 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 OR REDEMPTION FEE 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions, acting as fiduciaries 45 .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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 46 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 AND REDEMPTION FEES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC or redemption fee on the following transactions: .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .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 .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 You won't pay a redemption fee on Investor A, Investor B or Investor C Shares redeemed from accounts where by agreement with Nations 47 Funds short-term trading activity is permitted, including shares sold as part of an automatic rebalancing within an asset allocation program. 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. You also won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 48 [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 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. 49
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 .$1,000 for regular accounts in Investor A and C Shares. You can invest up .$500 for traditional and Roth to $250,000 in Investor B Shares. IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic .$100 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. .$50 - ------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum .you can sell up to $50,000 of We'll deduct any CDSC from the amount your shares by telephone, you're selling and send you or your selling otherwise there are no limits agent the balance, usually within three to the amount you can sell business days of receiving your order. .other restrictions may apply to withdrawals from If you paid for your shares with a check that retirement plan 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. The International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. Using our .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 .minimum $1,000 per You can exchange your Investor A Shares for exchange 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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. The International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see CHOOSING A SHARE CLASS -- REDEMPTION FEES for details. Using our .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.
50 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 51 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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. 52 [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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. .The International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. 53 [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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. 54 .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges by any person, group or account that is believed to be a market timer. .In order to limit excessive exchange activity and otherwise promote the best interests of the Funds, the International/Global Stock Funds may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations Fund. 55 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 56 [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: .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 .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 .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. 57 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 58 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of declaration and payment of Fund income distributions Nations Global Value Fund annually Nations International Value Fund annually Nations International Equity Fund annually Nations Marsico International Opportunities Fund annually Nations Emerging Markets 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 paid (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. 59 [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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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 the Funds 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. 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 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: .include in your gross income your proportional amount of foreign income taxes paid by the fund .treat this amount as foreign income taxes you paid directly .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 income taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .the IRS informs us that you're otherwise subject to backup withholding 60 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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 61 [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, 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. 62 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.04 Net realized and unrealized gain/(loss) on investments 0.45 Net increase/(decrease) in net asset value from operations 0.49 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.02) Total dividends and distributions (0.02) Net asset value, end of period $10.47 Total return++ 4.92% ============================================================ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $26,172 Ratio of operating expenses to average net assets 1.65%+(a) Ratio of net investment income to average net assets 0.41%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.88%+(a)
* Global Value Investor A Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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 GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain/(loss) on investments 0.45 Net increase/(decrease) in net asset value from operations 0.42 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.02) Net asset value, end of period $10.40 TOTAL RETURN++ 4.18% ============================================================ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $11,804 Ratio of operating expenses to average net assets 2.40%+(a) Ratio of net investment income/(loss) to average net assets (0.34)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.63%+(a)
* Global Value Investor B Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 63 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 3/31/02*# Net assets value, beginning of period $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain (loss) on investments 0.45 Net increase (decrease) in net asset value from operations 0.42 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.02) Net assets value, end of period $10.40 TOTAL RETURN++ 4.18% ============================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets value end of period (in 000's) $30,914 Ratio of operating expenses to average net assets 2.40%+(a) Ratio of net investment income/(loss) to average net assets (0.34)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.63%+(a)
* Global Value Investor C Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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 than 0.01%. NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED INVESTOR A SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 05/15/98 11/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $17.26 $18.77 $14.43 $15.44 $13.13 $11.29 Net investment income 0.18 0.27 0.36 0.14 0.08 0.01 Net realized and unrealized gain/(loss) on investments (0.29) (0.39) 4.72 0.36 2.52 1.91 Net increase/(decrease) in net asset value from operations (0.11) (0.12) 5.08 0.50 2.60 1.92 LESS DISTRIBUTIONS: Dividends from net investment income (0.18) (0.19) (0.25) (0.17) -- (0.06) Distributions from net realized capital gains (0.36) (1.20) (0.49) (1.34) (0.29) (0.02) Total dividends and distributions (0.54) (1.39) (0.74) (1.51) (0.29) (0.08) Net asset value, end of period $16.61 $17.26 $18.77 $14.43 $15.44 $13.13 TOTAL RETURN++ (0.46)% (0.72)% 35.86% 1.75% 20.22% 17.11% ================================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $798,587 $353,646 $186,649 $5,960 $5,128 $4,259 Ratio of operating expenses to average net assets 1.44% 1.38% 1.49%(a) 1.55%+ 1.81%+ 1.73% Ratio of net investment income to average net assets 1.11% 1.64% 1.86% 1.11%+ 1.21%+ 0.26% PORTFOLIO TURNOVER RATE -- -- 12%(b) 44% 88% 29% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.48% 1.48% 1.59%(a) 1.64%+ 1.82%+ 1.93%
* 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. + 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. 64 NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99*# OPERATING PERFORMANCE: Net asset value, beginning of period $17.07 $18.64 $14.40 $14.33 Net investment income 0.07 0.16 0.22 0.06 Net realized and unrealized gain/(loss) on investments (0.30) (0.40) 4.66 0.76 Net increase/(decrease) in net asset value from operations (0.23) (0.24) 4.88 0.82 LESS DISTRIBUTIONS: Dividends from net investment income (0.09) (0.13) (0.15) (0.13) Distributions from net realized capital gains (0.36) (1.20) (0.49) (0.62) Total dividends and distributions (0.45) (1.33) (0.64) (0.75) Net asset value, end of period $ 16.39 $17.07 $18.64 $14.40 TOTAL RETURN++ (1.16)% (1.42)% 34.51% 1.25% ================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $116,374 $80,655 $50,999 $4,296 Ratio of operating expenses to average net assets 2.19% 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.36% 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% 2.23% 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. NATIONS INTERNATIONAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99*# OPERATING PERFORMANCE: Net asset value, beginning of period $17.07 $18.65 $14.41 $13.33 Net investment income 0.04 0.16 0.21 0.06 Net realized and unrealized gain/(loss) on investments (0.27) (0.41) 4.69 1.77 Net increase/(decrease) in net asset value from operations (0.23) (0.25) 4.90 1.83 LESS DISTRIBUTIONS: Dividends from net investment income (0.09) (0.13) (0.17) (0.13) Distributions from net realized capital gains (0.36) (1.20) (0.49) (0.62) Total dividends and distributions (0.45) (1.33) (0.66) (0.75) Net asset value, end of period $16.39 $17.07 $18.65 $14.41 TOTAL RETURN++ (1.16)% (1.45)% 34.64% 3.98% ================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $149,979 $48,784 $13,725 $182 Ratio of operating expenses to average net assets 2.19% 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.36% 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% 2.23% 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. 65 NATIONS INTERNATIONAL EQUITY FUNDFOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.95 $16.51 $13.97 $14.67 $13.01 Net investment income 0.06 0.07 0.06 0.08 0.07 Net realized and unrealized gain/(loss) on investments (0.71) (4.38) 4.86 0.40 1.94 Net increase/(decrease) in net asset value from operations (0.65) (4.31) 4.92 0.48 2.01 LESS DISTRIBUTIONS: Dividends from net investment income -- (0.09) (0.05) (0.11) (0.19) Distributions from net realized capital gains -- (1.16) (2.33) (1.07) (0.16) Total dividends and distributions -- (1.25) (2.38) (1.18) (0.35) Net asset value, end of year $10.30 $10.95 $16.51 $13.97 $14.67 TOTAL RETURN++ (5.94)% (27.54)% 39.54% 3.59% 15.77% ================================================================================== ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $30,067 $46,770 $43,111 $12,785 $13,477 Ratio of operating expenses to average net assets 1.41% 1.40% 1.39% 1.38% 1.39% Ratio of net investment income to average net assets 0.63% 0.64% 0.44% 0.54% 0.51% Portfolio turnover rate -- -- 129%## 146% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.41% 1.41% 1.43% 1.38% 1.39%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents results prior to conversion to a master-feeder structure. NATIONS INTERNATIONAL EQUITY FUNDFOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.56 $16.06 $13.75 $14.56 $12.83 Net investment income/(loss) (0.01) -- (0.05) (0.03) (0.03) Net realized and unrealized gain/(loss) on investments (0.68) (4.27) 4.72 0.38 1.92 Net increase/(decrease) in net asset value from operation (0.69) (4.27) 4.67 0.35 1.89 LESS DISTRIBUTIONS: Dividends from net investment income -- (0.07) (0.03) (0.09) -- Distributions from net realized capital gains -- (1.16) (2.33) (1.07) (0.16) Total dividends and distributions -- (1.23) (2.36) (1.16) (0.16) Net asset value, end of year $9.87 $10.56 $16.06 $13.75 $14.56 TOTAL RETURN++ (6.53)% (28.11)% 38.14% 2.65% 14.93% ================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $14,408 $20,747 $32,073 $28,266 $34,119 Ratio of operating expenses to average net assets 2.16% 2.15% 2.14% 2.13% 2.14% Ratio of net investment income/(loss) to average net assets (0.12)% (0.11)% (0.31)% (0.21)% (0.24)% Portfolio turnover rate -- -- 129%## 146% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.16% 2.18% 2.13% 2.14%
++ 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/(loss) has been calculated using the monthly average shares method. ## Amount represents results prior to conversion to a master-feeder structure. 66 NATIONS INTERNATIONAL EQUITY FUNDFOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.30 $15.72 $13.52 $14.34 $12.74 Net investment income/(loss) (0.01) (0.02) (0.03) (0.03) (0.01) Net realized and unrealized gain/(loss) on investments (0.66) (4.17) 4.60 0.37 1.89 Net increase/(decrease) in net asset value from operations (0.67) (4.19) 4.57 0.34 1.88 LESS DISTRIBUTIONS: Dividends from net investment income -- (0.07) (0.04) (0.09) (0.12) Distributions from net realized capital gains -- (1.16) (2.33) (1.07) (0.16) Total dividends and distributions -- (1.23) (2.37) (1.16) (0.28) Net asset value, end of year $9.63 $10.30 $15.72 $13.52 $14.34 TOTAL RETURN++ (6.50)% (28.22)% 38.12% 2.63% 15.05% ======================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,245 $1,166 $987 $824 $933 Ratio of operating expenses to average net assets 2.16% 2.15% 2.14% 2.13% 1.97% Ratio of net investment income/(loss) to average net assets (0.12)% (0.11)% (0.31)% (0.21)% (0.07)% Portfolio turnover rate -- -- 129%## 146% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.16% 2.18% 2.13% 1.97%
++ Total return represents aggregate total return for 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 MARSICO INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $8.01 $10.00 Net investment income/(loss) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments 0.32 (1.98) Net increase/(decrease) in net asset value from operations 0.31 (1.99) Net asset value, end of period $8.32 $8.01 TOTAL RETURN++ 3.87% (19.90)% ========================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1,526 $2,797 Ratio of operating expenses to average net assets 1.67%(a)(b) 1.72%+ Ratio of net investment income/(loss) to average net assets (0.33)% (0.13)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.27%(a) 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. (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%. 67 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $7.97 $10.00 Net investment income/(loss) (0.07) (0.08) Net realized and unrealized gain/(loss) on investments 0.32 (1.95) Net increase/(decrease) in net asset value from operations 0.25 (2.03) Net asset value, end of period $8.22 $7.97 TOTAL RETURN++ 3.14% (20.30)% ======================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1,951 $2,031 Ratio of operating expenses to average net assets 2.42%(a)(b) 2.47%+ Ratio of net investment income/(loss) to average net assets (1.08)% (0.88)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 5.02%(a) 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. (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 INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $7.97 $10.00 Net investment income/(loss) (0.07) (0.09) Net realized and unrealized gain/(loss) on investments 0.32 (1.94) Net increase/(decrease) in net asset value from operations 0.25 (2.03) Net asset value, end of period $8.22 $7.97 TOTAL RETURN++ 3.14% (20.30)% =========================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $869 $974 Ratio of operating expenses to average net assets 2.42%(a)(b) 2.47%+ Ratio of net investment income/(loss) to average net assets (1.08)% (0.88)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 5.02%(a) 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. (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%. 68 NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.84 $15.65 $8.09 $10.57 $11.39 Net investment income/(loss) 0.01 (0.04) (0.09) 0.10 0.01 Net realized and unrealized gain/(loss) on investments 1.52 (6.75) 7.65 (2.52) (0.75) Net increase/(decrease) in net asset value from operations 1.53 (6.79) 7.56 (2.42) (0.74) LESS DISTRIBUTIONS: Dividends from net investment income -- (0.02) -- (0.06) (0.08) Net asset value, end of year $10.37 $8.84 $15.65 $8.09 $10.57 TOTAL RETURN++ 17.31% (43.38)% 93.33% (22.90)% (6.60)% ========================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,354 $3,851 $3,087 $951 $652 Ratio of operating expenses to average net assets 2.05% 2.05% 2.15% 2.03%(a) 1.82% Ratio of operating expenses to average net assets including interest expense 2.10% 2.09% 2.16% --(b) -- Ratio of net investment income/(loss) to average net assets 0.29% (0.65)% (0.65)% 1.41% 0.11% Portfolio turnover rate 102% 97% 61% 71% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.33% 2.11% 2.79% 2.23%(a) 1.82%
++ 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/(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 B SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.62 $15.32 $7.99 $10.49 $11.31 Net investment income/(loss) (0.06) (0.17) (0.16) 0.05 (0.07) Net realized and unrealized gain/(loss) on investments 1.48 (6.53) 7.49 (2.50) (0.75) Net increase/(decrease) in net asset value from operations 1.42 (6.70) 7.33 (2.45) (0.82) LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- (0.05) -- Net asset value, end of year $10.04 $8.62 $15.32 $7.99 $10.49 Total return++ 16.47% (43.73)% 91.74% (23.42)% (7.25)% ========================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,961 $1,728 $3,468 $1,579 $1,247 Ratio of operating expenses to average net assets 2.80% 2.80% 2.90% 2.78%(a) 2.57% Ratio of operating expenses to average net assets including interest expense 2.85% 2.84% 2.91% --(b) -- Ratio of net investment income/(loss) to average net assets (0.46)% (1.40)% (1.40)% 0.66% (0.64)% Portfolio turnover rate 102% 97% 61% 71% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.08% 2.86% 3.54% 2.98%(a) 2.57%
++ Total return represents aggregate total return for 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%. 69 NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.61 $15.31 $7.98 $10.47 $11.34 Net investment income/(loss) (0.06) (0.16) (0.14) 0.05 (0.05) Net realized and unrealized gain/(loss) on investments 1.47 (6.54) 7.47 (2.49) (0.75) Net increase/(decrease) in net asset value from operations 1.41 (6.70) 7.33 (2.44) (0.80) LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- (0.05) (0.07) Net asset value, end of year $10.02 $8.61 $15.31 $7.98 $10.47 Total return++ 16.38% (43.73)% 91.73% (23.37)% (7.17)% ========================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $167 $65 $120 $86 $293 Ratio of operating expenses to average net assets 2.80% 2.80% 2.90% 2.78%(a) 2.40% Ratio of operating expenses to average net assets including interest expense 2.85% 2.84% 2.91% --(b) -- Ratio of net investment income/(loss) to average net assets (0.46)% (1.40)% (1.40)% 0.66% (0.47)% Portfolio turnover rate 102% 97% 61% 71% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.08% 2.86% 3.54% 2.98%(a) 2.40%
++ Total return represents aggregate total return for 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%. 70 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 71 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 U.S Treasury obligations and commercial paper. 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%. 72 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 principal 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 an NRSRO such as S&P or 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. 73 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, high quality debt security. 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. 74 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. 75 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 76 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 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. 77 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, S&P SMALLCAP 600, OR S&P MIDCAP 400 INDEX FOR ITS INVESTMENT MERIT. S&P DETERMINES AND CALCULATES ITS INDICES INDEPENDENTLY OF THE FUNDS AND IS NOT A SPONSOR OR AFFILIATE OF THE FUNDS. S&P GIVES NO INFORMATION AND MAKES NO STATEMENTS ABOUT THE SUITABILITY OF INVESTING IN THE FUNDS OR THE ABILITY OF ITS INDICES TO TRACK STOCK MARKET PERFORMANCE. S&P MAKES NO GUARANTEES ABOUT THE INDICES, ANY DATA INCLUDED IN THEM AND THE SUITABILITY OF THE INDICES OR ITS DATA FOR ANY PURPOSE. "STANDARD AND POOR'S," "S&P 500" AND "S&P 600" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. 78 [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.nationsfunds.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 number: Nations Funds Trust, 811-09645 INTERPROIX-0802 [LOGO] Nations Funds [GRAPHIC] Stock Funds - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Classic Value Fund Nations Value Fund Nations LargeCap Value Fund Nations MidCap Value Fund Nations Strategic Growth Fund Nations Marsico Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations SmallCap Value 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 - ----------------- [LOGO] 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 140. 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 generally focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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: .you're looking for both long-term growth and income .you want a diversified portfolio in a single mutual fund It may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities .you have short-term investment goals .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 86. [Graphic] About the Funds NATIONS CONVERTIBLE SECURITIES FUND 6 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS ASSET ALLOCATION FUND 12 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS CLASSIC VALUE FUND 19 Sub-adviser: Brandes Investment Partners, L.P. -------------------------------------------------------- NATIONS VALUE FUND 23 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS LARGECAP VALUE FUND 28 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MIDCAP VALUE FUND 32 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS STRATEGIC GROWTH FUND 36 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO GROWTH FUND 41 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS CAPITAL GROWTH FUND 47 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO FOCUSED EQUITIES FUND 52 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS MIDCAP GROWTH FUND 58 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS MARSICO 21ST CENTURY FUND 64 Sub-adviser: Marsico Capital Management, LLC -------------------------------------------------------- NATIONS SMALLCAP VALUE FUND 70 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS SMALL COMPANY FUND 74 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- NATIONS FINANCIAL SERVICES FUND 80 Sub-adviser: Banc of America Capital Management, LLC -------------------------------------------------------- OTHER IMPORTANT INFORMATION 84 -------------------------------------------------------- HOW THE FUNDS ARE MANAGED 86
4 [Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 91 About Investor A Shares 92 Front-end sales charge 92 Contingent deferred sales charge 93 About Investor B Shares 93 Contingent deferred sales charge 93 About Investor C Shares 95 Contingent deferred sales charge 95 When you might not have to pay a sales charge 95 Buying, selling and exchanging shares 100 How orders are processed 102 How selling and servicing agents are paid 108 Distributions and taxes 110 -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 113 -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 140 -------------------------------------------------------------- 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 87. [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: .HAVE HIGHER INCOME POTENTIAL THAN THE UNDERLYING COMMON STOCK .ARE AFFECTED LESS BY CHANGES IN THE STOCK MARKET THAN THE UNDERLYING COMMON STOCK .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 Under normal circumstances, the Fund will invest at least 80% of its assets in convertible securities. Most convertible securities are 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: .the issuer's financial strength and revenue outlook .earnings trends, including changes in earnings estimates .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: .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. .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. .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. .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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------ ------- ------ ------ ------ ----- ------ ------ -------- 21.34% 22.71% (5.85)% 24.11% 19.45% 21.96% 6.58% 26.76% 14.86% (7.90)%
*Year-to-date return as of June 30, 2002: -3.02% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 17.39% Worst: 3rd quarter 1998: -9.41%
8 AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the 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, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes -13.19% 10.44% 13.06% 13.20% Investor A Shares Returns After Taxes on Distributions -14.34% 6.11% 9.48% 9.90% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.99% 6.64% 9.30% 9.66% Investor B Shares Returns Before Taxes -13.05% -- -- 7.29% Investor C Shares Returns Before Taxes -9.49% 11.12% -- 11.24% CSFB Convertible Securities Index (reflects no deductions for fees, expenses or taxes) -6.41% 8.89% 11.10% 9.55%
*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. [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, TAXES OR OTHER EXPENSES OF INVESTING. 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 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% 0.35% 0.35% 0.35% Other expenses ----- ----- ----- 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. 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] 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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] ABOUT THE SUB-ADVISERS BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES 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 STARTING ON PAGE 87. [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 which are often referred to as "junk bonds". 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 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: .the growth prospects of the company's industry .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. 12 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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 sell a security when the Fund's asset allocation changes, if there is a deterioration in the issuer's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Asset Allocation Fund has the following risks: .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. .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. .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. .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. 13 .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. .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. .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. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. EFFECTIVE JANUARY 1, 2002, BACAP REPLACED CHICAGO EQUITY PARTNERS, LLC (CHICAGO EQUITY) AS INVESTMENT SUB-ADVISER FOR THE EQUITY PORTION OF THE FUND. BACAP HAS A DIFFERENT EQUITY INVESTMENT STYLE THAN CHICAGO EQUITY. [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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ ------- -------- 26.90% 15.66% 21.38% 21.09% 11.11% (0.75)% (6.57)% *Year-to-date return as of June 30, 2002: -9.41% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 12.77% Worst: 3rd quarter 2001: -8.47%
15 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -11.94% 7.37% 9.56% Investor A Shares Returns After Taxes on Distributions -12.64% 5.29% 7.48% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.25% 5.30% 7.07% Investor B Shares Returns Before Taxes -11.82% -- 0.91% Investor C Shares Returns Before Taxes -8.22% 7.91% 7.93% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.65% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 6.79%
*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. 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 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% 0.38% 0.38% 0.38% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.28% 2.03% 2.03% ===== ===== =====
/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. 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. 17 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $698 $958 $1,238 $2,034 Investor B Shares $706 $937 $1,293 $2,166 Investor C Shares $306 $637 $1,093 $2,358
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 $206 $637 $1,093 $2,166 Investor C Shares $206 $637 $1,093 $2,358
18 [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 89. [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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 19 [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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE INDUSTRY, OR .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] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER STOCK ACCOUNTS MANAGED BY BRANDES, SEE How the Funds are managed. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Classic Value Fund has the following risks: .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. .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] 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. 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. [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 Investor A Investor B Investor C 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% 0.39% 0.39% 0.39% Other expenses ----- ----- ----- Total annual Fund operating 1.29% 2.04% 2.04% expenses/5/ ===== ===== =====
/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. 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 limit total annual operating expenses to 1.38% for Investor A Shares and 2.13% for Investor B and Investor C Shares until July 31, 2003. There is no guarantee that these limitations will continue. Because these limitations are higher than the current total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 21 [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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $699 $961 $1,243 $2,045 Investor B Shares $707 $940 $1,298 $2,176 Investor C Shares $307 $640 $1,098 $2,369
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 $207 $640 $1,098 $2,176 Investor C Shares $207 $640 $1,098 $2,369
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 87. [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. 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 80% 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 23 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Value Fund has the following risks: .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. .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] 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------- ------ ------ ------ ------ ----- ----- ------- 7.12% 16.06% (3.08)% 35.78% 20.85% 26.30% 17.14% 0.99% 3.66% (7.45)% *Year-to-date return as of June 30, 2002: 5.61% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 19.39% Worst: 3rd quarter 1998: -12.32%
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 INDICES DO NOT REFLECT SALES CHARGES, FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Russell 1000 Value Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with lower price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to August 1, 2002, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Value Index is considered a more appropriate comparison. These indices are weighted by market capitalization and are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes -12.77% 6.20% 10.32% 10.92% Investor A Shares Returns After Taxes on Distributions -14.50% 2.69% 7.36% 8.26% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -6.45% 4.71% 7.90% 8.56% Investor B Shares Returns Before Taxes -12.31% 6.49% -- 10.62% Investor C Shares Returns Before Taxes -8.94% 6.81% -- 11.00% Russell 1000 Value Index (reflects no deductions for fees, expenses or taxes) -5.59% 11.13% 14.13% 13.02% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 12.93% 12.97%
*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. 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 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% 0.30% 0.30% 0.30% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.20% 1.95% 1.95% ===== ===== =====
/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. 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. 26 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $690 $935 $1,198 $1,949 Investor B Shares $698 $912 $1,252 $2,080 Investor C Shares $298 $612 $1,052 $2,275
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 $198 $612 $1,052 $2,080 Investor C Shares $198 $612 $1,052 $2,275
27 [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 87. [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. NATIONS LARGECAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 1000 Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 28 [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 Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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. 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 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/ 0.42% 0.42% 0.42% ------- ----- ----- Total annual Fund operating expenses/5/ 1.32% 2.07% 2.07% ===== ===== =====
/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. 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, 2003. There is no guarantee that these limitations will continue. Because these limitations equal the estimates of total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 30 [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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $702 $970 Investor B Shares $710 $949 Investor C Shares $310 $649
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 $210 $649 Investor C Shares $210 $649
31 [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 87. [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. NATIONS MIDCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 32 [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 Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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. [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/ 0.50% 0.50% 0.50% ----- ----- ----- Total annual Fund operating expenses/5/ 1.50% 2.25% 2.25% ===== ===== =====
/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. 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, 2003. There is no guarantee that these limitations will continue. Because these limitations equal the estimates of total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $719 $1,023 Investor B Shares $728 $1,003 Investor C Shares $328 $703 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 $228 $703 Investor C Shares $228 $703
35 [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. BACAP IS THE MASTER PORTFOLIO'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 87. [Graphic] MINIMIZING TAXES THE MASTER PORTFOLIO'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 growth of capital. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations Strategic Growth 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 companies that it selects from most major industry sectors. The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. 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 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: .the growth prospects of the company's industry .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 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, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: .will focus on long-term investments to try to limit the number of buy and sell transactions .may try to sell securities that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss .invests primarily in securities with lower dividend yields .may use options, instead of selling securities While the Master Portfolio may try 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. 36 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Strategic Growth Fund has the following risks: . 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. . 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. . 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. .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 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. [CHART] 2000 2001 -------- -------- (12.55)% (12.42)% *Year-to-date return as of June 30, 2002: -16.42% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 12.41% Worst: 3rd quarter 2001: -16.05%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -17.43% -6.62% Investor A Shares Returns After Taxes on Distributions -17.46% -6.68% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -10.62% -5.25% Investor B Shares Returns Before Taxes -17.45% -5.91% Investor C Shares Returns Before Taxes -13.97% -6.05% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% -4.69%
*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. 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. [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% 0.29% 0.29% 0.29% Other expenses ----- ----- ----- 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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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
40 [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 88. [Graphic] WHY INVEST IN 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. 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 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 Growth 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 generally holds 35 to 50 securities. It may hold 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico Growth Fund has the following risks: .Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. .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. . 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. .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. .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. 42 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. PRIOR TO JANUARY 1, 2002, THE FUND HAD A DIFFERENT NAME, 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. [CHART] 1998 1999 2000 2001 ------ ------ -------- -------- 38.62% 52.11% (15.47)% (19.76)% *Year-to-date return as of June 30, 2002: -0.21% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 35.19% Worst: 3rd quarter 2001: -17.33%
43 [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 COMMISSION, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -24.36% 7.75% Investor A Shares Returns After Taxes on Distributions -24.36% 7.64% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.83% 6.29% Investor B Shares Returns Before Taxes -24.32% 8.03% Investor C Shares Returns Before Taxes -21.17% 8.64% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*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. 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. [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% 0.39% 0.39% 0.39% Other expenses ---- ---- ---- Total annual Fund operating expenses 1.39% 2.14% 2.14% ==== ==== ====
/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. 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] 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $990 $1,293 $2,151 Investor B Shares $717 $970 $1,349 $2,282 Investor C Shares $317 $670 $1,149 $2,472
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 $217 $670 $1,149 $2,282 Investor C Shares $217 $670 $1,149 $2,472
46 [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 87. [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: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth 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. 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: .the growth prospects of the company's industry .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 1000 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 team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 47 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Capital Growth Fund has the following risks: .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. .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. .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. [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- 7.53% (1.55)% 28.56% 18.29% 30.36% 29.73% 23.57% (12.17)% (15.75)% *Year-to-date return as of June 30, 2002: -21.14% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 28.21% Worst: 3rd quarter 2001: -18.79%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Russell 1000 Growth Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to October 1, 2001, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Growth Index is considered a more appropriate comparison. These indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -20.61% 7.83% 10.55% Investor A Shares Returns After Taxes on Distributions -21.04% 4.21% 7.30% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -12.03% 6.22% 8.19% Investor B Shares Returns Before Taxes -20.38% 8.10% 10.61% Investor C Shares Returns Before Taxes -17.18% 8.37% 10.53% Russell 1000 Growth Index (reflects no deductions for fees, expenses or taxes) -20.42% 8.27% 11.94% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.75%
*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 returns for the indices shown are from inception of Investor A Shares. 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 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.22% 1.97% 1.97% ===== ===== =====
/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. 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] 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $692 $941 $1,208 $1,970 Investor B Shares $700 $918 $1,262 $2,102 Investor C Shares $300 $618 $1,062 $2,296
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 $200 $618 $1,062 $2,102 Investor C Shares $200 $618 $1,062 $2,296
51 [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 88. [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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in equity securities. The investments will mostly consist of equity securities of large capitalization 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 that Marsico Capital has 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 Marsico Capital 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, or for other reasons. 52 [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: .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. .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. .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. . 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. .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. .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. 53 [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. [CHART] 1998 1999 2000 2001 ------ ------ -------- -------- 50.14% 52.85% (17.32)% (19.11)% *Year-to-date return as of June 30, 2002: 1.13% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 33.11% Worst: 1st quarter 2001: -17.77%
54 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -23.77% 9.67% Investor A Shares Returns After Taxes on Distributions -23.77% 9.50% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.48% 7.87% Investor B Shares Returns Before Taxes -23.75% 10.03% Investor C Shares Returns Before Taxes -20.54% 10.66% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*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. 55 [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% 0.36% 0.36% 0.36% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.36% 2.11% 2.11% ===== ===== =====
/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. 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. 56 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $706 $982 $1,278 $2,119 Investor B Shares $714 $961 $1,334 $2,250 Investor C Shares $314 $661 $1,134 $2,441
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 $214 $661 $1,134 $2,250 Investor C Shares $214 $661 $1,134 $2,441
57 [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 87. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. companies whose market capitalizations are within the range of companies within the Russell MidCap Growth Index and that are believed to have the potential for long-term growth of capital. 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: .the growth prospects of the company's industry .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 MidCap 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 team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 MidCap Growth Fund has the following risks: . 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. . 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. . 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 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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ------ ----- ----- ---- ----- ----- ----- 11.66% 0.39% 29.71% 18.32% 20.48% 3.30% 43.45% 14.30% (20.18)% *Year-to-date return as of June 30, 2002: -26.76% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 32.63% Worst: 3rd quarter 2001: -30.72%
60 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Russell MidCap Growth Index, an unmanaged index which measures the performance of those Russell MidCap Index companies with lower price-to-book ratios and forecasted growth values. Prior to August 1, 2002, the Fund compared its performance to the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The Fund changed the index to which it compares its performance because the Russell MidCap Growth Index is considered a more appropriate comparison. The indices are weighted by market value, are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -24.76% 8.95% 11.90% Investor A Shares Returns After Taxes on Distributions -24.76% 6.54% 9.45% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -15.08% 7.02% 9.27% Investor B Shares Returns Before Taxes -24.78% 9.16% 12.55% Investor C Shares Returns Before Taxes -21.62% 9.50% 11.90% Russell MidCap Growth Index (reflects no deductions for fees, expenses or taxes) -20.15% 9.02% 11.50% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 16.11% 15.63%
*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 returns for the indices shown are from inception of Investor A Shares. 61 [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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.22% 1.97% 1.97% ===== ===== =====
/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. 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. 62 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $692 $941 $1,208 $1,970 Investor B Shares $700 $918 $1,262 $2,102 Investor C Shares $300 $618 $1,062 $2,296
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 $200 $618 $1,062 $2,102 Investor C Shares $200 $618 $1,062 $2,296
63 [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 88. [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 that Marsico Capital has 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 Marsico Capital 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, or for other reasons. 64 [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: .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. .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. .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. . 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. .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. .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. 65 [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 bart 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. [CHART] 2001 - -------- (18.64)% *Year-to-date return as of June 30, 2002: 1.44% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 16.84% Worst: 3rd quarter 2001: -18.96%
66 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -23.31% -21.80% Investor A Shares Returns After Taxes on Distributions -23.31% -21.80% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.20% -17.11% Investor B Shares Returns Before Taxes -23.26% -21.56% Investor C Shares Returns Before Taxes -20.03% -19.68% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% -13.04%
* The inception date of Investor A Shares, Investor B Shares and Investor C Shares is April 10, 2000. The return for the index shown is from that date. 67 [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% 0.62% 0.62% 0.62% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.62% 2.37% 2.37% ===== ===== =====
/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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $730 $1,058 $1,407 $2,390 Investor B Shares $740 $1,039 $1,465 $2,520 Investor C Shares $340 $739 $1,265 $2,706
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 $240 $739 $1,265 $2,520 Investor C Shares $240 $739 $1,265 $2,706
69 [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 VALUE STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 87. [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. NATIONS SMALLCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing in companies believed to be undervalued. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations SmallCap Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital. The Master Portfolio may also invest in real estate investment trusts. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow, price to earnings, price to sales and price to book. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 SmallCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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. .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. .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. .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] 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. 71 [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 (Expenses that are deducted from the Fund's assets)/4/ Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses/5/ 0.48% 0.48% 0.48% ------- ------- ------- Total annual Fund operating expenses 1.63% 2.38% 2.38% Fee waivers and/or reimbursements (0.08)% (0.08)% (0.08)% ------- ------- ------- Total net expenses/6/ 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. 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/ These fees and expenses and the examples below include the Fund's portion of the fees and expenses deducted from the Master Portfolio. /5/ Other expenses are based on estimates for the current fiscal year. /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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 72 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year examples 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 $1,053 Investor B Shares $733 $1,035 Investor C Shares $333 $735
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 $735 Investor C Shares $233 $735
73 [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 87. [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 Under normal circumstances, the Fund will invest at least 80% 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: .company meetings/conferences .independent industry analysis .quantitative analysis .Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: .gaining an in-depth understanding of the company's business .evaluating the company's growth potential, risks and competitive strengths .discussing its growth strategy with company management .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 sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 74 [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: .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. .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. .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. .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. 75 [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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ----- ------ ------- -------- 19.92% 19.47% 1.22% 54.51% (1.83)% (12.22)% *Year-to-date return as of June 30, 2002: -12.48% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 43.14% Worst: 3rd quarter 1998: -25.80%
76 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not revelant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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. The index is unmanaged, weighted by market capitalization, is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -17.27% 8.69% 10.18% Investor A Shares Returns After Taxes on Distributions -17.27% 7.40% 9.03% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -10.52% 6.92% 8.24% Investor B Shares Returns Before Taxes -17.21% 8.94% 10.54% Investor C Shares Returns Before Taxes -13.73% - 4.65% Russell 2000 Growth Index (reflects no deductions for fees, expenses or taxes) -9.23% 2.87% 4.54%
*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. 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. 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 0.32% 0.32% 0.32% ----- ----- ----- Total annual Fund operating expenses 1.47% 2.22% 2.22% (0.07)% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $1,007 $1,327 $2,229 Investor B Shares $718 $988 $1,383 $2,360 Investor C Shares $318 $688 $1,183 $2,549
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 $688 $1,183 $2,360 Investor C Shares $218 $688 $1,183 $2,549
79 [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 87. [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: .are increasing their revenues along with their earnings .can grow their revenues and earnings in a variety of interest rate environments .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, or 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 Financial Services Fund has the following risks: .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. .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. .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. .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. .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. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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/4/ (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 3.02% 3.02% 3.02% ----- ----- ----- Total annual Fund operating expenses 4.02% 4.77% 4.77% Fee waivers and/or reimbursements (2.47)% (2.47)% (2.47)% ------- ------- ------- Total net 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 82 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $724 $1,517 $2,326 $4,418 Investor B Shares $733 $1,515 $2,402 $4,537 Investor C Shares $333 $1,215 $2,202 $4,688
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 $233 $1,215 $2,202 $4,537 Investor C Shares $233 $1,215 $2,202 $4,688
83 [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: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. 84 .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. .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. .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. .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. .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. When distributed these gains are taxable to shareholders as ordinary income, which generally are taxed 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 SmallCap Value Master Portfolio is expected to be no more than 100%. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 85 [Graphic] BANK 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 70 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, 2003. 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% 0.65% Nations Classic Value Fund 0.65% N/A Nations Value Fund 0.65% 0.65% Nations LargeCap Value Fund 0.65% N/A Nations MidCap Value Fund 0.75% N/A Nations Strategic Growth Fund/1/ 0.65% 0.65% Nations Marsico Growth Fund/1/ 0.75% 0.75% Nations Capital 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% 0.75% Nations SmallCap Value Fund/1/ 0.90% N/A Nations Small Company Fund 0.90% 0.83% Nations Financial Services Fund 0.75% 0.00%
/1/ These Funds don't have their own investment adviser because they invest in Nations Strategic Growth Master Portfolio, Nations Marsico Growth Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico 21st Century Master Portfolio and Nations SmallCap Value Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 86 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 87 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 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 Growth Strategies Team for the equity portion of the Fund. Fixed Income Management Team for the fixed income and money market portions of the Fund Nations Value Fund Value Strategies Team Nations LargeCap Value Fund Value Strategies Team Nations MidCap Value Fund Value Strategies Team Nations Strategic Growth Fund/1/ Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations SmallCap Value Fund/1/ Value Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Financial Services Fund Growth Strategies Team
/1/ These Funds don't have their own investment sub-adviser because they invest in Nations Strategic Growth Master Portfolio and Nations SmallCap Value Master Portfolio, respectively. BACAP is the investment sub-adviser to each Master Portfolio. 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Growth Master Portfolio .Nations Marsico Focused Equities Master Portfolio .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 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. 88 [Graphic] BRANDES INVESTMENT PARTNERS, L.P. 11988 EL CAMINO REAL SUITE 500 SAN DIEGO, CALIFORNIA 92130 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. BRANDES INVESTMENT PARTNERS, L.P. Founded in 1974, Brandes is an investment advisory firm with 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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, 2002 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, 2002
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 21.49% 4.39% three years 14.09% 3.63% five years 13.17% 11.46% since inception (6/30/91) 15.60% 14.46%
89 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2001 16.09% (5.59)% 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. 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. 90 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 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 distribution 0.25% distribution 0.75% distribution 0.75% distribution and shareholder (12b-1)/ service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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. 91 [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: .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 .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. 92 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
93 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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. .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. .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. .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. .Conversions are free from federal tax. 94 [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: .you received the shares from reinvested distributions .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 net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. 95 .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions acting as fiducuaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 96 .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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. 97 CONTINGENT DEFERRED SALES CHARGES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 98 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 99 [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. 100
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know --------------- ------------------------------------------ --------------------------------------- Buying shares In a lump sum minimuminitial investment: There is no limit to the amount you can .$1,000 for regular accounts invest in Investor A and C Shares. You .$500 for traditional and Roth IRAs, and can invest up to $250,000 in Investor B Coverdell Education Savings Accounts Shares. .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimumadditional investment: .$100 for all accounts Using our minimuminitial investment: You can buy shares twice a month, Systematic .$100 monthly or quarterly, using automatic Investment Plan minimumadditional investment: transfers from your bank account. .$50 - --------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .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 are no limits to the amount you can sell selling agent the balance, usually .other restrictions may apply to within three business days of receiving withdrawals from retirement plan your order. accounts 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. Using our .minimum $25 per withdrawal Your account balance must be at least Automatic $10,000 to set up the plan. You can Withdrawal Plan 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 .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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 .minimum $25 per exchange You must already have an investment in Automatic the Funds into which you want to Exchange exchange. You can make exchanges Feature monthly or quarterly.
101 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 102 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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. 103 [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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 104 [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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 105 .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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. 106 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 107 [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: .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 .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 .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. 108 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 109 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of declaration and payment of Fund income distributions Nations Convertible Securities Fund quarterly Nations Asset Allocation Fund quarterly Nations Classic Value Fund annually Nations Value Fund quarterly Nations LargeCap Value Fund quarterly Nations MidCap Value Fund quarterly Nations Strategic Growth Fund annually Nations Marsico Growth Fund annually Nations Capital Growth Fund annually Nations Marsico Focused Equities Fund annually Nations MidCap Growth Fund annually Nations Marsico 21st Century Fund annually Nations SmallCap Value Fund annually Nations Small Company Fund annually 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 paid (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. 110 [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. 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 Fund shares shortly before the Fund 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. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. 111 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 112 [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. Financial highlights for Investor A, Investor B and Investor C Shares of Nations SmallCap 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 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. 113 NATIONS CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $16.04 $22.17 $18.31 $17.34 $17.28 $17.35 Net investment income 0.59 0.51 0.46 0.12 0.51 0.58 Net realized and unrealized gain/(loss) on investments (0.04) (2.05) 5.26 0.96 0.25 2.89 Net increase/(decrease) in net asset value from operations 0.55 (1.54) 5.72 1.08 0.76 3.47 LESS DISTRIBUTIONS: Dividends from net investment income (0.52) (0.55) (0.45) (0.11) (0.52) (0.59) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) (2.95) Total dividends and distributions (0.57) (4.59) (1.86) (0.11) (0.70) (3.54) Net asset value, end of period $16.02 $16.04 $22.17 $18.31 $17.34 $17.28 TOTAL RETURN++ 3.48% (7.88)% 33.68% 6.25% 4.64% 21.54% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $321,858 $315,857 $369,488 $352,000 $356,000 $391,000 Ratio of operating expenses to average net assets 1.25%(a)(b) 1.24%(a)(b) 1.22%+(b) 1.30%+ 1.15%(a) 1.10%(a) Ratio of net investment income to average net assets 3.53% 2.86% 1.96%+ 3.07%+ 2.97% 3.35% Portfolio turnover rate 50% 73% 65% 16% 66% 69% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 1.25%(a) 1.25%(a) 1.23%+ 1.32%+ 1.16%(a) 1.12%(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. + 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 CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED INVESTOR B SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99** OPERATING PERFORMANCE: Net asset value, beginning of period $15.92 $22.06 $18.27 $17.30 $17.67 Net investment income 0.45 0.35 0.44 0.09 0.22 Net realized and unrealized gain/(loss) on investments (0.03) (2.00) 5.12 0.96 (0.17) Net increase/(decrease) in net asset value from operations 0.42 (1.65) 5.56 1.05 0.05 LESS DISTRIBUTIONS: Dividends from net investment income (0.41) (0.45) (0.36) (0.08) (0.24) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) Total dividends and distributions (0.46) (4.49) (1.77) (0.08) (0.42) Net asset value, end of period $15.88 $15.92 $22.06 $18.27 $17.30 TOTAL RETURN++ 2.68% (8.49)% 32.76% 6.10% 0.44% - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $90,408 $49,763 $11,175 $4,000 $3,000 Ratio of operating expenses to average net assets 2.00%(a)(b) 1.99%(a)(b) 1.97%+(b) 2.06%+ 1.96%+(a) Ratio of net investment income to average net assets 2.78% 2.08% 1.21%+ 2.34%+ 2.14%+ Portfolio turnover rate 50% 73% 65% 16% 66% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 2.00%(a) 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%. 115 NATIONS CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $16.08 $22.23 $18.35 $17.37 $17.24 $17.30 Net investment income 0.45 0.35 0.38 0.10 0.40 0.48 Net realized and unrealized gain/(loss) on investments (0.03) (2.02) 5.22 0.97 0.31 2.89 Net increase/(decrease) in net asset value from operations 0.42 (1.67) 5.60 1.07 0.71 3.37 LESS DISTRIBUTIONS: Dividends from net investment income (0.41) (0.44) (0.31) (0.09) (0.40) (0.48) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) (2.95) Total dividends and distributions (0.46) (4.48) (1.72) (0.09) (0.58) (3.43) Net asset value, end of period $16.04 $16.08 $22.23 $18.35 $17.37 $17.24 TOTAL RETURN++ 2.66% (8.50)% 32.81% 6.17% 4.29% 20.97% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $20,370 $9,827 $3,033 $4,000 $4,000 $3,000 Ratio of operating expenses to average net assets 2.00%(a)(b) 1.99%(a)(b) 1.97%+(b) 1.80%+ 1.65%(a) 1.60% Ratio of net investment income to average net assets 2.78% 2.08% 1.21%+ 2.56%+ 2.45% 2.85% Portfolio turnover rate 50% 73% 65% 16% 66% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 2.00%(a) 1.98%+ 2.07%+ 1.91%(a) 1.86%
* 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. + 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 YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES* 03/31/02# 03/31/01# 03/31/00# 05/14/99 2/28/99 2/28/98 2/28/97** OPERATING PERFORMANCE: Net asset value, beginning of period $20.32 $24.35 $23.40 $22.50 $21.41 $19.40 $17.52 Net investment income 0.39 0.50 0.43 0.10 0.55 0.52 0.48 Net realized and unrealized gain/(loss) on investments (0.40) (2.82) 1.59 0.91 2.48 3.72 2.50 Net increase/(decrease) in net asset value from operations (0.01) (2.32) 2.02 1.01 3.03 4.24 2.98 LESS DISTRIBUTIONS: Dividends from net investment income (0.36) (0.50) (0.35) (0.11) (0.45) (0.47) (0.46) Distributions from net realized capital gains (0.03) (1.21) (0.72) -- (1.49) (1.76) (0.64) Total dividends and distributions (0.39) (1.71) (1.07) (0.11) (1.94) (2.23) (1.10) Net asset value, end of period $19.92 $20.32 $24.35 $23.40 $22.50 $21.41 $19.40 TOTAL RETURN++ (0.05)% (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) $223,579 $231,520 $83,412 $72,000 $72,000 $49,000 $35,000 Ratio of operating expenses to average net assets 1.28%(a) 1.23%(a)(b) 1.20%+(a)(b) 1.18%+ 0.94% 1.03% 1.25% Ratio of net investment income to average net assets 1.85% 2.20% 1.60%+ 2.01%+ 2.64% 2.67% 2.59% Portfolio turnover rate 226% 88% 84% 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.28%(a) 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. + 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 ASSET ALLOCATION FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED INVESTOR B SHARES* 03/31/02# 03/31/01# 03/31/00# 05/14/99 02/28/99** OPERATING PERFORMANCE: Net asset value, beginning of period $20.22 $24.24 $23.32 $22.45 $23.17 Net investment income 0.23 0.33 0.47 0.06 0.22 Net realized and unrealized gain/(loss) on investments (0.39) (2.81) 1.39 0.89 0.75 Net increase/(decrease) in net asset value from operations (0.16) (2.48) 1.86 0.95 0.97 LESS DISTRIBUTIONS: Dividends from net investment income (0.22) (0.33) (0.22) (0.08) (0.20) Distributions from net realized capital gains (0.03) (1.21) (0.72) -- (1.49) Total dividends and distributions (0.25) (1.54) (0.94) (0.08) (1.69) Net asset value, end of period $19.81 $20.22 $24.24 $23.32 $22.45 TOTAL RETURN++ (0.77)% (10.73)% 8.31% 4.26% 4.59% - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $124,983 $104,745 $121,644 $10,000 $6,000 Ratio of operating expenses to average net assets 2.03%(a) 1.98%(a)(b) 1.95%+(a)(b) 1.95%+ 1.74%+ Ratio of net investment income to average net assets 1.10% 1.45% 0.85%+ 1.26%+ 1.92%+ Portfolio turnover rate 226% 88% 84% 20% 114% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.03%(a) 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%. 118 NATIONS ASSET ALLOCATION FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES* 03/31/02# 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 $20.22 $24.27 $23.33 $22.45 $21.36 $19.40 $17.23 Net investment income 0.24 0.33 0.42 0.05 0.44 0.41 0.19 Net realized and unrealized gain/(loss) on investments (0.38) (2.82) 1.43 0.92 2.49 3.66 2.80 Net increase/(decrease) in net asset value from operations (0.14) (2.49) 1.85 0.97 2.93 4.07 2.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.21) (0.33) (0.19) (0.09) (0.35) (0.36) (0.18) Distributions from net realized capital gains (0.03) (1.21) (0.72) -- (1.49) (1.75) (0.64) Total dividends and distributions (0.24) (1.54) (0.91) (0.09) (1.84) (2.11) (0.82) Net asset value, end of period $19.84 $20.24 $24.27 $23.33 $22.45 $21.36 $19.40 TOTAL RETURN++ (0.78)% (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) $3,220 $2,532 $2,305 $2,000 $2,000 $2,000 $1,000 Ratio of operating expenses to average net assets 2.03%(a) 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 1.10% 1.45% 0.85%+ 1.52%+ 2.14% 2.17% 2.31%+ Portfolio turnover rate 226% 88% 84% 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.03%(a) 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%. 119 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.10 Net realized and unrealized gain/(loss) on investments 2.09 Net increase/(decrease) in net asset value from operations 2.19 LESS DISTRIBUTIONS: Dividends from net investment income (0.03) Distributions from net realized capital gains (0.10) Total dividends and distributions (0.13) Net asset value, end of period $12.06 TOTAL RETURN++ 22.00% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net asset at end of period (in 000's) $17,128 Ratio of operating expenses to average net assets 1.29%+(a) Ratio of net investment income to average net assets 0.81%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.29%+(a)
* Classic Value Investor A Shares commenced operations on April 16, 2001. + Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 120 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.00## Net realized and unrealized gain/(loss) on investments 2.10 Net increase/(decrease) in net asset value from operations 2.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.10) Total dividends and distributions (0.10) Net asset value, end of period $12.00 TOTAL RETURN++ 21.08% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net asset at end of period (in 000's) $36,511 Ratio of operating expenses to average net assets 2.04%+(a) Ratio of net investment income to average net assets 0.06%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.04%+(a)
* Classic Value Investor B Shares commenced operations on April 16, 2001. + Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # 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%. 121 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.01 Net realized and unrealized gain/(loss) on investments 2.09 Net increase/(decrease) in net asset value from operations 2.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.10) Total dividends and distributions (0.10) Net asset value, end of period $12.00 TOTAL RETURN++ 21.08% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net asset at end of period (in 000's) $40,916 Ratio of operating expenses to average net assets 2.04%+(a) Ratio of net investment income to average net assets 0.06%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.04%+(a)
* Classic Value Investor C Shares commenced operations on April 16, 2001. + Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # 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%. 122 NATIONS VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.38 $16.24 $18.16 $19.92 $17.87 Net investment income 0.09 0.14 0.07 0.09 0.15 Net realized and unrealized gain/(loss) on investments 0.58 (0.43) (0.07) 0.63 5.98 Net increase/(decrease) in net asset value from operations 0.67 (0.29) 0.00 0.72 6.13 LESS DISTRIBUTIONS: Dividends from net investment income (0.08) (0.15) (0.06) (0.09) (0.14) Distributions from net realized capital gains (1.03) (3.42) (1.86) (2.39) (3.94) Total dividends and distributions (1.11) (3.57) (1.92) (2.48) (4.08) Net asset value, end of year $11.94 $12.38 $16.24 $18.16 $19.92 TOTAL RETURN++ 5.33% (2.29)% (0.47)% 3.96% 38.22% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $58,144 $65,975 $94,256 $136,691 $149,167 Ratio of operating expenses to average net assets 1.20%(a)(b) 1.19%(a)(b) 1.18%(a)(b) 1.19%(a)(b) 1.20%(a) Ratio of net investment income to average net assets 0.77% 1.03% 0.40% 0.51% 0.79% Portfolio turnover rate 135% 181% 95% 38% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%(a) 1.19%(a) 1.18%(a) 1.19%(a) 1.20%(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 INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.13 $16.00 $18.00 $19.81 $17.81 Net investment income/(loss) 0.00## 0.04 (0.06) (0.05) 0.02 Net realized and unrealized gain/(loss) on investments 0.59 (0.43) (0.08) 0.63 5.96 Net increase/(decrease) in net asset value from operations 0.59 (0.39) (0.14) 0.58 5.98 LESS DISTRIBUTIONS: Dividends from net investment income (0.03) (0.06) (0.00)## -- (0.04) Distributions from net realized capital gains (1.03) (3.42) (1.86) (2.39) (3.94) Total dividends and distributions (1.06) (3.48) (1.86) (2.39) (3.98) Net asset value, end of year $11.66 $12.13 $16.00 $18.00 $19.81 TOTAL RETURN++ 4.66% (3.05)% (1.24)% 3.11% 37.29% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $80,162 $93,064 $124,000 $154,025 $149,635 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.94%(a)(b) 1.93%(a)(b) 1.94%(a)(b) 1.87%(a) Ratio of net investment income/(loss) to average net assets 0.02% 0.28% (0.35)% (0.24)% 0.12% Portfolio turnover rate 135% 181% 95% 38% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.94%(a) 1.93%(a) 1.94%(a) 1.87%(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%. 123 NATIONS VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.13 $15.99 $17.98 $19.75 $17.75 Net investment income/(loss) 0.00## 0.04 (0.06) (0.02) 0.04 Net realized and unrealized gain/(loss) on investments 0.58 (0.42) (0.07) 0.65 5.95 Net increase/(decrease) in net asset value from operations 0.58 (0.38) (0.13) 0.63 5.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.03) (0.06) (0.00)## (0.01) (0.05) Distributions from net realized capital gains (1.03) (3.42) (1.86) (2.39) (3.94) Total dividends and distributions (1.06) (3.48) (1.86) (2.40) (3.99) Net asset value, end of year $11.65 $12.13 $15.99 $17.98 $19.75 TOTAL RETURN++ 4.58% (2.98)% (1.18)% 3.39% 37.55% - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $7,496 $8,479 $10,042 $12,106 $13,969 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.94%(a)(b) 1.93%(a)(b) 1.70%(a)(b) 1.78%(a) Ratio of net investment income/(loss) to average net assets 0.02% 0.28% (0.32)% 0.00% 0.21% Portfolio turnover rate 135% 181% 95% 38% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.94%(a) 1.93%(a) 1.94%(a) 1.78%(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 LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.07 Net realized and unrealized gain/(loss) on investments 0.63 Net increase/(decrease) in net asset value from operations 0.70 LESS DISTRIBUTIONS: Dividends from net investment income (0.01) Net asset value, end of period $10.69 TOTAL RETURN++ 7.03% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $315 Ratio of operating expenses to average net assets 1.32%+(a) Ratio of net investment income to average net assets 0.63%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.56%+(a)
* LargeCap Value Investor A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 124 NATIONS LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) 0.00## Net realized and unrealized gain/(loss) on investments 0.67 Net increase/(decrease) in net asset value from operations 0.67 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of period $10.67 TOTAL RETURN++ 6.74% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $290 Ratio of operating expenses to average net assets 2.07%+(a) Ratio of net investment income/(loss) to average net assets (0.12)%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.31%+(a)
* LargeCap Value Investor B Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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 LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) 0.00## Net realized and unrealized gain/(loss) on investments 0.67 Net increase/(decrease) in net asset value from operations 0.67 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of period $10.67 TOTAL RETURN++ 6.74% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $21 Ratio of operating expenses to average net assets 2.07%+(a) Ratio of net investment income/(loss) to average net assets (0.12)%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.31%+(a)
* LargeCap Value Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 125 NATIONS MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.04 Net realized and unrealized gain/(loss) on investments 1.30 Net increase/(decrease) in net asset value from operations 1.34 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) Net asset value, end of period $11.30 TOTAL RETURN++ 13.37% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $573 Ratio of operating expenses to average net assets 1.50%+(a) Ratio of net investment income to average net assets 0.39%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.28%+(a)
* MidCap Value Investor A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. NATIONS MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.04) Net realized and unrealized gain/(loss) on investments 1.35 Net increase/(decrease) in net asset value from operations 1.31 LESS DISTRIBUTIONS: Dividends from net investment income (0.02) Net asset value, end of period $11.29 TOTAL RETURN++ 13.14% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $524 Ratio of operating expenses to average net assets 2.25%+(a) Ratio of net investment income/(loss) to average net assets (0.36)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.03%+(a)
* MidCap Value Investor B Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 126 NATIONS MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.05) Net realized and unrealized gain/(loss) on investments 1.36 Net increase/(decrease) in net asset value from operations 1.31 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of period $11.31 TOTAL RETURN++ 13.10% - ------------------------------------------------------------ - ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $93 Ratio of operating expenses to average net assets 2.25%+(a) Ratio of net investment income/(loss) to average net assets (0.36)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.03%+(a)
* MidCap Value Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. NATIONS STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.44 $16.98 $13.88 Net investment income/(loss) (0.01) (0.04) (0.03) Net realized and unrealized gain/(loss) on investments (0.11) (4.47) 3.19 Net increase/(decrease) in net asset value from operations (0.12) (4.51) 3.16 LESS DISTRIBUTIONS: Dividends from net investment income (0.01) -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.01) (0.03) (0.06) Net asset value, end of period $12.31 $12.44 $16.98 TOTAL RETURN++ (0.97)% (26.62)% 22.86% - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $26,742 $11,895 $5,503 Ratio of operating expenses to average net assets 1.19%(a) 1.19%(a)(b) 1.22%+ Ratio of net investment income/(loss) to average net assets (0.05)% (0.34)% (0.35)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 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/(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%. 127 NATIONS STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED Investor B Shares 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.29 $16.90 $13.88 Net investment income/(loss) (0.10) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (0.12) (4.44) 3.18 Net increase/(decrease) in net asset value from operations (0.22) (4.58) 3.08 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.00)## (0.03) (0.06) Net asset value, end of period $12.07 $12.29 $16.90 TOTAL RETURN++ (1.78)% (27.16)% 22.29% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $8,358 $6,758 $4,934 Ratio of operating expenses to average net assets 1.94%(a) 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (0.80)% (1.09)% (1.10)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 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. ## 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 STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.30 $16.92 $13.88 Net investment income/(loss) (0.10) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (0.12) (4.45) 3.20 Net increase/(decrease) in net asset value from operations (0.22) (4.59) 3.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.00)## (0.03) (0.06) Net asset value, end of period $12.08 $12.30 $16.92 TOTAL RETURN++ (1.78)% (27.14)% 22.36% - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,645 $2,137 $1,706 Ratio of operating expenses to average net assets 1.94%(a) 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (0.80)% (1.09)% (1.10)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 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. ## 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%. 128 NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.87 $21.62 $14.95 $12.02 $10.00 Net investment income/(loss) (0.09) (0.05) (0.11) (0.03) 0.00(b) Net realized and unrealized gain/(loss) on investments (0.06) (6.54) 6.82 2.97 2.02 Net increase/(decrease) in net asset value from operations (0.15) (6.59) 6.71 2.94 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of the period $14.72 $14.87 $21.62 $14.95 $12.02 TOTAL RETURN++ (1.01)% (30.63)% 45.01% 24.38% 20.20% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $217,963 $164,031 $175,859 $43,392 $1,141 Ratio of operating expenses to average net assets 1.39% 1.35% 1.48%(a) 1.50%(a) 1.34%+(a) Ratio of net investment income/(loss) to average net assets (0.64)% (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 1.39% 1.35% 1.48%(a) 1.50%(a) 2.22%+(a)
* Nations Marsico Growth 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) Amout represents results prior to conversion to a master-feeder structure. NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.55 $21.31 $14.85 $12.02 $10.00 Net investment income/(loss) (0.20) (0.18) (0.24) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (0.06) (6.42) 6.74 2.96 2.04 Net increase/(decrease) in net asset value from operations (0.26) (6.60) 6.50 2.84 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of period $14.29 $14.55 $21.31 $14.85 $12.02 TOTAL RETURN++ (1.79)% (31.13)% 43.90% 23.55% 20.20% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $209,503 $239,621 $305,607 $99,257 $7,907 Ratio of operating expenses to average net assets 2.14% 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.39)% (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 2.14% 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth 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 GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.57 $21.34 $14.86 $12.02 $10.00 Net investment income/(loss) (0.20) (0.17) (0.25) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (0.06) (6.44) 6.77 2.97 2.04 Net increase/(decrease) in net asset value from operations (0.26) (6.61) 6.52 2.85 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of period $14.31 $14.57 $21.34 $14.86 $12.02 TOTAL RETURN++ (1.78)% (31.10)% 43.93% 23.63% 20.20% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $31,886 $32,365 $34,785 $3,233 $518 Ratio of operating expenses to average net assets 2.14% 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.39)% (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 2.14% 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth 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. NATIONS CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.16 $14.43 $11.97 $13.26 $11.67 Net investment income/(loss) (0.03) (0.07) (0.08) (0.03) (0.01) Net realized and unrealized gain/(loss) on investments (0.22) (3.84) 3.42 1.58 5.28 Net increase/(decrease) in net asset value from operations (0.25) (3.91) 3.34 1.55 5.27 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $7.65 $8.16 $14.43 $11.97 $13.26 TOTAL RETURN++ (3.62)% (30.91)% 29.41% 14.70% 53.83% - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $28,994 $32,519 $61,756 $52,987 $43,380 Ratio of operating expenses to average net assets 1.22%(a)(b) 1.20%(a)(b) 1.21%(a)(b) 1.21%(a) 1.20%(a)(b) Ratio of net investment income/(loss) to average net assets (0.37)% (0.53)% (0.63)% (0.29)% (0.12)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.20%(a) 1.21%(a) 1.21%(a) 1.20%(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 CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $7.51 $13.58 $11.39 $12.83 $11.47 Net investment income/(loss) (0.08) (0.14) (0.17) (0.11) (0.10) Net realized and unrealized gain/(loss) on investments (0.20) (3.57) 3.24 1.51 5.14 Net increase/(decrease) in net asset value from operations (0.28) (3.71) 3.07 1.40 5.04 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $6.97 $7.51 $13.58 $11.39 $12.83 TOTAL RETURN++ (4.35)% (31.37)% 28.42% 13.86% 52.52% - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $37,767 $45,832 $75,844 $66,338 $59,496 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.95%(a)(b) Ratio of net investment income/(loss) to average net assets (1.12)% (1.28)% (1.38)% (1.04)% (0.87)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.95%(a) 1.96%(a) 1.96%(a) 1.95%(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. (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 C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $7.59 $13.70 $11.48 $12.92 $11.50 Net investment income/(loss) (0.08) (0.13) (0.16) (0.11) (0.08) Net realized and unrealized gain/(loss) on investments (0.20) (3.62) 3.26 1.51 5.18 Net increase/(decrease) in net asset value from operations (0.28) (3.75) 3.10 1.40 5.10 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $7.05 $7.59 $13.70 $11.48 $12.92 TOTAL RETURN++ (4.31)% (31.38)% 28.46% 13.76% 53.02% - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $4,538 $3,338 $4,883 $3,862 $6,176 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.78%(a)(b) Ratio of net investment income/(loss) to average net assets (1.12)% (1.28)% (1.38)% (1.04)% (0.70)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.95%(a) 1.96%(a) 1.96%(a) 1.78%(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 FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.31 $22.56 $16.73 $12.14 $10.00 Net investment income/(loss) (0.09) (0.06) (0.03) (0.04) (0.01) Net realized and unrealized gain/(loss) on investments 0.55 (7.11) 6.09 4.64 2.15 Net increase/(decrease) in net asset value from operations 0.46 (7.17) 6.06 4.60 2.14 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.77 $15.31 $22.56 $16.73 $12.14 TOTAL RETURN++ 3.00% (31.80)% 36.62% 37.94% 21.40% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $507,590 $491,437 $690,166 $238,137 $6,056 Ratio of operating expenses to average net assets 1.36% 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) Ratio of net investment income/(loss) to average net assets (0.58)% (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 1.36% 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 YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.00 $22.26 $16.62 $12.13 $10.00 Net investment income/(loss) (0.20) (0.20) (0.09) (0.12) (0.04) Net realized and unrealized gain/(loss) on investments 0.53 (6.98) 5.96 4.62 2.17 Net increase/(decrease) in net asset value from operations 0.33 (7.18) 5.87 4.50 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.33 $15.00 $22.26 $16.62 $12.13 TOTAL RETURN ++ 2.20% (32.32)% 35.71% 37.15% 21.30% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $679,688 $741,285 $1,003,840 $306,365 $20,446 Ratio of operating expenses to average net assets 2.11% 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.33)% (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 2.11% 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. 132 NATIONS MARSICO FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.05 $22.33 $16.67 $12.13 $10.00 Net investment income/(loss) (0.20) (0.20) (0.08) (0.14) (0.04) Net realized and unrealized gain/(loss) on investments 0.53 (7.00) 5.97 4.69 2.17 Net increase/(decrease) in net asset value from operations 0.33 (7.20) 5.89 4.55 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.38 $15.05 $22.33 $16.67 $12.13 TOTAL RETURN++ 2.19% (32.31)% 35.72% 37.56% 21.30% - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $188,842 $203,642 $247,509 $13,682 $469 Ratio of operating expenses to average net assets 2.11% 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.33)% (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 2.11% 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 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $14.14 $21.87 $13.04 $16.30 $12.69 Net investment income/(loss) (0.09) (0.09) (0.12) (0.07) (0.10) Net realized and unrealized gain/(loss) on investments (1.32) (3.91) 9.59 (0.92) 5.50 Net increase/(decrease) in net asset value from operations (1.41) (4.00) 9.47 (0.99) 5.40 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $12.73 $14.14 $21.87 $13.04 $16.30 TOTAL RETURN++ (9.97)% (20.98)% 74.82% (7.41)% 44.86% - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $32,138 $16,536 $22,741 $18,042 $21,591 Ratio of operating expenses to average net assets 1.22%(a)(b) 1.23%(a) 1.25%(a)(b) 1.23%(a)(b) 1.23%(a) Ratio of net investment income/(loss) to average net assets (0.64)% (0.52)% (0.70)% (0.54)% (0.67)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.23%(a) 1.25%(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%. 133 NATIONS MIDCAP GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.87 $20.38 $12.28 $15.58 $12.29 Net investment income/(loss) (0.17) (0.19) (0.22) (0.15) (0.20) Net realized and unrealized gain/(loss) on investments (1.19) (3.59) 8.96 (0.88) 5.28 Net increase/(decrease) in net asset value` from operations (1.36) (3.78) 8.74 (1.03) 5.08 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $11.51 $12.87 $20.38 $12.28 $15.58 TOTAL RETURN++ (10.57)% (21.51)% 73.47% (8.10)% 43.64% - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $45,368 $44,261 $49,606 $33,245 $45,451 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.98%(a) 2.00%(a)(b) 1.98%(a)(b) 1.98%(a) Ratio of operating expenses including interest expense to average net assets -- -- -- -- 1.99% Ratio of net investment income/(loss) to average net assets (1.39)% (1.27)% (1.45)% (1.29)% (1.42)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.98%(a) 2.00%(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 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.95 $20.47 $12.33 $15.63 $12.31 Net investment income/(loss) (0.17) (0.17) (0.22) (0.15) (0.18) Net realized and unrealized gain/(loss) on investments (1.21) (3.62) 9.00 (0.88) 5.29 Net increase/(decrease) in net asset value from operations (1.38) (3.79) 8.78 (1.03) 5.11 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $11.57 $12.95 $20.47 $12.33 $15.63 TOTAL RETURN++ (10.66)% (21.46)% 73.50% (8.08)% 43.80% - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,024 $3,248 $2,628 $1,383 $2,266 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.98%(a) 2.00%(a)(b) 1.98%(a)(b) 1.81%(a) Ratio of operating expenses including interest expense to average net assets -- -- -- -- 1.82% Ratio of net investment income/(loss) to average net assets (1.39)% (1.27)% (1.45)% (1.29)% (1.25)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.98%(a) 2.00%(a) 1.98%(a) 1.81%(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. (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 NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.97 $10.00 Net investment income/(loss) (0.07) (0.06) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.09 (3.03) Net asset value, end of period $7.06 $6.97 TOTAL RETURN++ 1.29% (30.30)% - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $14,741 $19,644 Ratio of operating expenses to average net assets 1.62%(a) 1.60%+ Ratio of net investment income/(loss) to average net assets (0.97)% (0.66)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 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. # 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%. NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.92 $10.00 Net investment income/(loss) (0.12) (0.11) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.04 (3.08) Net asset value, end of period $6.96 $6.92 TOTAL RETURN++ 0.58% (30.80)% - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $43,187 $50,404 Ratio of operating expenses to average net assets 2.37%(a) 2.35%+ Ratio of net investment income/(loss) to average net assets (1.72)% (1.41)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37%(a) 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. # 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%. 135 NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR C SHARES 3/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.92 $10.00 Net investment income/(loss) (0.12) (0.11) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.04 (3.08) Net asset value, end of period $6.96 $6.92 TOTAL RETURN++ 0.58% (30.80)% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $4,660 $6,557 Ratio of operating expenses to average net assets 2.37%(a) 2.35%+ Ratio of net investment income/(loss) to average net assets (1.72)% (1.41)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37%(a) 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. # 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%. NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED INVESTOR A SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 OPERATING PERFORMANCE: Net asset value, beginning of period $13.52 $22.44 $11.43 $15.74 $12.05 $10.64 Net investment income/(loss) (0.10) (0.14) (0.15) (0.07) (0.02) 0.03 Net realized and unrealized gain/(loss) on investments 1.42 (6.58) 11.19 (3.11) 4.42 1.46 Net increase/(decrease) in net asset value from operations 1.32 (6.72) 11.04 (3.18) 4.40 1.49 LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- -- (0.03) 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) Net asset value, end of period $14.84 $13.52 $22.44 $11.43 $15.74 $12.05 TOTAL RETURN++ 9.76% (31.96)% 96.91% (21.32)% 37.02% 13.98% - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $157,759 $146,457 $245,425 $16,143 $6,772 $3,697 Ratio of operating expenses to average net assets 1.40%(a)(b) 1.40%(a)(b) 1.38%(a)(b) 1.20%(a) 1.20%+(a) 1.23%+ Ratio of net investment income/(loss) to average net assets (0.73)% (0.77)% (0.90)% (0.67)% (0.20)%+ 0.30%+ Portfolio turnover rate 35% 48% 63% 87% 59% 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.46%(a) 1.45%(a) 1.47%(a) 1.47%(a) 1.51%+(a) 1.66%+
* 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 became Banc of America Capital Management, LLC. + 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%. 136 NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED INVESTOR B SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 OPERATING PERFORMANCE: Net asset value, beginning of period $13.08 $21.94 $11.23 $15.59 $12.03 $10.65 Net investment income/(loss) (0.20) (0.23) (0.25) (0.11) (0.08) (0.03) Net realized and unrealized gain/(loss) on investments 1.37 (6.43) 10.99 (3.12) 4.35 1.46 Net increase/(decrease) in net asset value from operations 1.17 (6.66) 10.74 (3.23) 4.27 1.43 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (2.20) (0.03) (1.13) (0.71) (0.05) Net asset value, end of period $14.25 $13.08 $21.94 $11.23 $15.59 $12.03 TOTAL RETURN++ 8.94% (32.45)% 95.79% (21.86)% 36.06% 13.43% - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $17,484 $11,744 $13,839 $5,127 $3,384 $2,635 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.15%(a)(b) 2.13%(a)(b) 1.95%(a) 1.87%+(a) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.48)% (1.52)% (1.65)% (1.42)% (0.87)%+ (0.45)%+ Portfolio turnover rate 35% 48% 63% 87% 59% 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.21%(a) 2.20%(a) 2.22%(a) 2.22%(a) 2.18%+(a) 2.41%+
* 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 became Banc of America Capital Management, LLC. + 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 YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98* OPERATING PERFORMANCE: Net asset value, beginning of period $13.26 $22.21 $11.38 $15.74 $15.18 Net investment income/(loss) (0.20) (0.25) (0.23) (0.12) (0.08) Net realized and unrealized gain/(loss) on investments 1.39 (6.50) 11.09 (3.11) 1.35 Net increase/(decrease) in net asset value from operations 1.19 (6.75) 10.86 (3.23) 1.27 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (2.20) (0.03) (1.13) (0.71) Net asset value, end of period $14.45 $13.26 $22.21 $11.38 $15.74 TOTAL RETURN ++ 8.97% (32.46)% 95.76% (21.66)% 8.75% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,871 $2,813 $3,588 $1,951 $3,122 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.15%(a)(b) 2.13%(a)(b) 1.70%(a) 1.95%+(a) Ratio of net investment income/(loss) to average net assets (1.48)% (1.52)% (1.65)% (1.17)% (0.95)%+ Portfolio turnover rate 35% 48% 63% 87% 59% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.21%(a) 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%. 137 NATIONS FINANCIAL SERVICES FUND FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
YEAR ENDED INVESTOR A SHARES 03/31/02# OPERATING PERFORMANCE: Net asset value, beginning of year $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain/(loss) on investments 0.37 Net increase/(decrease) in net asset value from operations 0.34 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of year $10.34 TOTAL RETURN++ 3.41% ---------------------------------------------- ---------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of year (in 000's) $307 Ratio of operating expenses to average net assets 1.56%(a) Ratio of net investment income/(loss) to average net assets (0.15)% Portfolio turnover rate 89% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.03%(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 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 FINANCIAL SERVICES FUND FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
YEAR ENDED INVESTOR B SHARES 03/31/02# OPERATING PERFORMANCE: Net asset value, beginning of year $10.00 Net investment income/(loss) (0.11) Net realized and unrealized gain/(loss) on investments 0.38 Net increase/(decrease) in net asset value from operations 0.27 Net asset value, end of year $10.27 TOTAL RETURN++ 2.70% ---------------------------------------------- ---------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of year (in 000's) $268 Ratio of operating expenses to average net assets 2.31%(a) Ratio of net investment income/(loss) to average net assets (1.10)% Portfolio turnover rate 89% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.78%(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%. 138 NATIONS FINANCIAL SERVICES FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# OPERATING PERFORMANCE: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.04) Net realized and unrealized gain/(loss) on investments 0.34 Net increase/(decrease) in net asset value from operations 0.30 Net asset value, end of period $10.30 TOTAL RETURN++ 5.86% ------------------------------------------------ ------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $45 Ratio of operating expenses to average net assets 2.31%+(a) Ratio of net investment income/(loss) to average net assets (1.10)%+ Portfolio turnover rate 89% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.78%+(a)
* Financial Services Investor C Shares commenced operations on December 13, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (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%. 139 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 140 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 U.S. Treasury obligations and commerical paper. 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%. 141 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 principal 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 an NRSRO such as S&P or 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. 142 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, high quality debt security. 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. 143 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. 144 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 145 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 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. 146 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, S&P SMALLCAP 600 OR S&P MIDCAP 400 INDEX FOR ITS INVESTMENT MERIT. S&P DETERMINES AND CALCULATES ITS INDICES INDEPENDENTLY OF THE FUNDS AND IS NOT A SPONSOR OR AFFILIATE OF THE FUNDS. S&P GIVES NO INFORMATION AND MAKES NO STATEMENTS ABOUT THE SUITABILITY OF INVESTING IN THE FUNDS OR THE ABILITY OF ITS INDICES TO TRACK STOCK MARKET PERFORMANCE. S&P MAKES NO GUARANTEES ABOUT THE INDICES, ANY DATA INCLUDED IN THEM AND THE SUITABILITY OF THE INDICES OR ITS DATA FOR ANY PURPOSE. "STANDARD AND POOR'S," "S&P 500" AND "S&P 600" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. 147 SEC file number: Nations Funds Trust, 811-09645 COMEQPROIX-0802 [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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Government & Corporate Bond Funds Prospectus -- Investor A, B and C Shares August 1, 2002 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 [LOGO] 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 92. 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: .you're looking for income .you have longer-term investment goals They may not be suitable for you if: .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 53.
[Graphic] About the Funds NATIONS SHORT-TERM INCOME FUND 4 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND 11 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS GOVERNMENT SECURITIES FUND 17 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS INTERMEDIATE BOND FUND 24 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS BOND FUND 31 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS STRATEGIC INCOME FUND 38 Sub-adviser: Banc of America Capital Management, LLC --------------------------------------------------------------- NATIONS HIGH YIELD BOND FUND 45 Sub-adviser: MacKay Shields LLC --------------------------------------------------------------- OTHER IMPORTANT INFORMATION 51 --------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 53 [Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 57 About Investor A Shares 59 Front-end sales charge 59 Contingent deferred sales charge 61 About Investor B Shares 61 Contingent deferred sales charge 61 About Investor C Shares 64 Contingent deferred sales charge 64 When you might not have to pay a sales charge 64 Buying, selling and exchanging shares 68 How orders are processed 70 How selling and servicing agents are paid 76 Distributions and taxes 78 --------------------------------------------------------------- FINANCIAL HIGHLIGHTS 80 --------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 92 --------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 54. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in income-producing securities. 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: .corporate debt securities, including bonds, notes and debentures .mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Short-Term Income Fund has the following risks: .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. .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. .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. .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. .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 .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. .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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ ------ ------ ------ ------ 7.33% (0.48)% 11.08% 4.68% 5.82% 6.08% 3.00% 6.90% 8.45% *Year-to-date return as of June 30, 2002: 2.01% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 3.47% Worst: 1st quarter 1994: -1.00%
7 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 7.34% 5.82% 5.46% Investor A Shares Returns After Taxes on Distributions 5.24% 3.55% 3.22% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 4.43% 3.51% 3.23% Investor B Shares Returns Before Taxes 2.55% 5.27% 5.34% Investor C Shares Returns Before Taxes 6.64% 5.51% 5.20% Merrill Lynch 1-3 Treasury Index (reflects no deductions for fees, expenses or taxes) 8.30% 6.59% 5.92%
*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. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS. 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.87% 1.62% 1.62% (0.10)% (0.10)% (0.10)% Fee waivers ------- ------- ------- Total net expenses/4/ 0.77% 1.52% 1.52% ===== ===== =====
/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 until July 31, 2003. The figures shown here are after waivers. There is no guarantee that these waivers will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $178 $365 $568 $1,153 Investor B Shares $155 $501 $872 $1,713 Investor C Shares $255 $501 $872 $1,914
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 $155 $501 $872 $1,914
10 [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 54. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations and repurchase agreements secured by these securities. 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Short-Intermediate Government Fund has the following risks: .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. .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. .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. .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. .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. .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 [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ------- ------ ----- ----- ----- ----- ----- ----- 5.69% 7.84% (2.59)% 12.22% 2.98% 7.03% 6.39% 0.23% 9.32% 7.35% *Year-to-date return as of June 30, 2002: 3.75% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1992: 4.44% Worst: 1st quarter 1994: -1.78%
13 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes 3.80% 5.30% 5.22% 5.91% Investor A Shares Returns After Taxes on Distributions 1.92% 3.16% 3.01% 3.68% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.28% 3.15% 3.06% 3.65% Investor B Shares Returns Before Taxes 3.55% 5.33% -- 4.73% Investor C Shares Returns Before Taxes 5.53% 5.40% -- 5.06% Lehman Intermediate Government Bond Index (reflects no deductions for fees, expenses or taxes) 8.42% 7.06% 6.65% 7.22%
*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. 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 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.87% 1.62% 1.62% ===== ===== =====
/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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $411 $594 $792 $1,364 Investor B Shares $465 $711 $881 $1,721 Investor C Shares $265 $511 $881 $1,922
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 $165 $511 $881 $1,721 Investor C Shares $165 $511 $881 $1,922
16 [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 54. [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 Under normal circumstances, the Fund will invest at least 80% 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: .mortgage-backed securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities or municipal securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Government Securities Fund has the following risks: .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. .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. .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. .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. .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. .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. 18 .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. 19 [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 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ------- ------ ----- ----- ----- ------- ------ ------ 5.08% 7.61% (5.32)% 14.99% 2.28% 8.29% 8.16% (3.29)% 11.91% 6.42% *Year-to-date return as of June 30, 2002: 3.97%
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2001: 5.02% Worst: 1st quarter 1994: -3.04%
20 [Graphic] THE FUND'S RETRUNS IN THIS TABLE REFLECT SALES CHARGE, 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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes 1.33% 5.15% 4.93% 5.66% Investor A Shares Returns After Taxes on Distributions -0.55% 2.89% 2.58% 3.30% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.79% 2.96% 2.74% 3.36% Investor B Shares Returns Before Taxes 0.62% 5.18% -- 4.68% Investor C Shares Returns Before Taxes 4.75% 5.46% -- 4.81% Lehman Government Bond Index (reflects no deductions for fees, expenses or taxes) 7.23% 7.40% 7.14% 7.79%
*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. 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. [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% 0.38% 0.38% 0.38% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.13% 1.88% 1.88% (0.15)% (0.15)% (0.15)% Fee waivers ------- ------- ------- 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. 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 until July 31, 2003. The figures shown here are after waivers. There is no guarantee that these waivers will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $803 $1,055 $1,774 Investor B Shares $676 $876 $1,202 $1,993 Investor C Shares $276 $576 $1,002 $2,189
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 $576 $1,002 $1,993 Investor C Shares $176 $576 $1,002 $2,189
23 [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 54. [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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in bonds. 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: .looks at a fixed income security's potential to generate both income and price appreciation .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 .selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows .tries to maintain a duration that is similar to the duration of the Master Portfolio's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or 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 Intermediate Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. 25 .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. .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. 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ ------ ------ 14.54% 3.14% 6.54% 7.32% 0.02% 7.96% 8.23% *Year-to-date return as of June 30, 2002: 2.44% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 4.50% Worst: 1st quarter 1996: -1.06%
27 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman Intermediate Government Credit Index (formerly called 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 4.75% 5.35% 5.25% Investor A Shares Returns After Taxes on Distributions 2.62% 2.98% 2.79% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.86% 3.09% 2.93% Investor B Shares Returns Before Taxes 4.41% -- 6.08% Investor C Shares Returns Before Taxes 6.32% 6.86% 6.67% Lehman Intermediate Government Credit Index (reflects no deductions for fees, expenses or taxes) 8.96% 7.10 6.45%
*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. 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. 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)/5/ Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% 0.46% 0.46% 0.46% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.11% 1.86% 1.86% Fee waivers and/or reimbursements (0.05)% (0.05)% (0.05)% ------- ------- ------- Total net 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $430 $662 $913 $1,630 Investor B Shares $484 $780 $1,001 $1,980 Investor C Shares $284 $580 $1,001 $2,176
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 $580 $1,001 $1,980 Investor C Shares $184 $580 $1,001 $2,176
30 [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 54. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in bonds. 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: .corporate debt securities, including bonds, notes and debentures .U.S. government obligations .foreign debt securities denominated in U.S. dollars .mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations .asset-backed securities .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: .looks at a fixed income security's potential to generate both income and price appreciation .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 31 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. .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 .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Bond Fund has the following risks: .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. .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. .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. .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. 32 .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. .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. .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. 33 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 10.61% (3.51)% 17.05% 1.92% 8.26% 6.94% (1.45)% 9.83% 7.60% *Year-to-date return as of June 30, 2002: 2.05% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 5.90% Worst: 1st quarter 1994: -2.85%
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 INDEX DO NOT REFLECT SALES CHARGES, FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period of the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 4.15% 5.46% 5.85% Investor A Shares Returns After Taxes on Distributions 1.86% 3.01% 3.30% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 2.49% 3.14% 3.39% Investor B Shares Returns Before Taxes 3.79% 5.47% 5.19% Investor C Shares Returns Before Taxes 5.80% 5.48% 5.70% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.33%
*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. 35 [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% 0.28% 0.28% 0.28% Other expenses ----- ----- ----- Total annual Fund operating expenses 0.93% 1.68% 1.68% ===== ===== =====
/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. 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. 36 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $417 $612 $824 $1,432 Investor B Shares $471 $730 $913 $1,788 Investor C Shares $271 $530 $913 $1,987
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 $171 $530 $913 $1,788 Investor C Shares $171 $530 $913 $1,987
37 [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 54. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in income-producing securities. The Fund normally invests at least 65% of its assets in investment grade debt securities. The Fund may invest in: .corporate debt securities .U.S. government obligations .foreign debt securities denominated in U.S. dollars or foreign currencies .mortgage-related securities issued by governments and non-government issuers .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 Service, 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: .looks at a fixed income security's potential to generate both income and price appreciation 38 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. .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 .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 .tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk .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, if there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Strategic Income Fund has the following risks: .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. .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. .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. .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. 39 .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. .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. .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. .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. .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 may be entitled to reimbursement for certain expenses from High Yield Portfolio and International Bond Portfolio 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. 40 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ------ ------- ------ ----- ----- ----- ------- ----- ----- 15.62% (2.74)% 20.61% 2.21% 8.32% 7.27% (2.93)% 7.77% 6.40% *Year-to-date return as of June 30, 2002: 0.46% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 7.42% Worst: 1st quarter 1996: -3.24%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Lehman Aggregate Bond Index, an unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. All dividends are reinvested. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 1.38% 4.25% 6.22% Investor A Shares Returns After Taxes on Distributions -1.01% 1.66% 3.39% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.81% 2.08% 3.56% Investor B Shares Returns Before Taxes 0.71% 4.29% 5.39% Investor C Shares Returns Before Taxes 4.60% 4.60% 6.28% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.33%
*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. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS. [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% 0.41% 0.41% 0.41% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.16% 1.91% 1.91% (0.10)% (0.10)% (0.10)% Fee waivers ------- ------- ------- Total net expenses/5/ 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. 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 until July 31, 2003. The figures shown here are after waivers. There is no guarantee that these waivers will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $578 $817 $1,075 $1,811 Investor B Shares $684 $890 $1,222 $2,029 Investor C Shares $284 $590 $1,022 $2,225
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year years 5 years 10 years Investor B Shares $184 $590 $1,022 $2,029 Investor C Shares $184 $590 $1,022 $2,225
44 [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 55. [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. Under normal circumstances, the Master Portfolio will invest at least 80% 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 Investors Service, 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: .Domestic corporate high yield debt securities, including private placements .U.S. dollar-denominated foreign corporate high yield debt securities, including private placements .Zero-coupon bonds .U.S. government obligations .Equity securities (up to 20% 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: .focuses on individual security selection ("bottom-up" analysis) .uses fundamental credit analysis .emphasizes current income while attempting to minimize risk to principal .seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring .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, if 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, or 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 High Yield Bond Fund has the following risks: .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. .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. .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. .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. .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. .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. .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. 46 [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. 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 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. [CHART] 2001 ----- 8.28% *Year-to-date return as of June 30, 2002: -0.91% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 7.35% Worst: 3rd quarter 2001: -3.77%
47 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the CSFB Global High Yield Index, an unmanaged index that mirrors the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes 3.10% 0.63% Investor A Shares Returns After Taxes on Distributions -1.06% -3.45% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 1.82% -1.52% Investor B Shares Returns Before Taxes 2.78% 0.77% Investor C Shares Returns Before Taxes 6.48% 2.41% CSFB Global High Yield Index (reflects no deductions for fees, expenses or taxes) 6.76% 0.04%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are February 14, 2000, February 17, 2000 and March 8, 2000, respectively. The return for the index shown is from inception of Investor A Shares. 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 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% 0.45% 0.45% 0.45% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.25% 2.00% 2.00% (0.07)% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. 49 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $847 $1,123 $1,911 Investor B Shares $696 $921 $1,271 $2,128 Investor C Shares $296 $621 $1,071 $2,322
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 $621 $1,071 $2,128 Investor C Shares $196 $621 $1,071 $2,322
50 [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: .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. .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 Fund that is not already in feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. 51 .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. .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. .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. .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 52 [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 70 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, 2003. 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% 0.32% Nations Bond Fund 0.40% 0.40% Nations Strategic Income Fund 0.50% 0.40% Nations High Yield Bond Fund/1/ 0.55% 0.48%
/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. 53 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Fund/1/ 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. 54 [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 $32 billion in assets, including over $10.5 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, 2001. 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, 2001
CSFB MacKay Shields Global High Yield Composite (%) Index (%) one year 9.12% 5.78% three years 5.45% 1.17% five years 7.57% 3.24% ten years 12.79% 7.83%
55 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
CSFB MacKay Shields Global High Yield Composite (%) Index (%) 2001 9.1% 5.7% 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. 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%
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. 56 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 Nations Government Short-Intermediate Securities Fund, Government Fund, Nations Strategic Nations Nations Intermediate Income Fund, Short-Term Bond Fund, Nations High Yield Investor A Shares Income Fund Nations Bond Fund Bond Fund Maximum amount you can buy no limit no limit no limit Maximum front-end sales charge 1.00% 3.25% 4.75% Maximum deferred sales charge/1/ none none none Maximum annual distribution 0.25% 0.25% 0.25% and shareholder distribution (12b-1)/ distribution (12b-1)/ distribution (12b-1)/ servicing fees service fee/2/ service fee service fee 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. 57
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 you can buy $250,000 $250,000 $250,000 Maximum front-end sales charge none none none Maximum deferred sales charge none 3.00%/1/ 5.00%/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 0.2% service fee 0.25% service fee 0.25% service fee Conversion feature none yes yes
/1/This charge decreases over time. 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 you can buy no limit no limit no limit Maximum front-end sales charge none none none Maximum deferred sales charge/1/ 1.00% 1.00% 1.00% 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. 58 [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. 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] 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: .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 .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. 59
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. 60 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 61 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------- $500,000 - $0 - $499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% the second year you own them 3.0% 2.0% 1.0% the third year you own them 2.0% 1.0% none the fourth year you own them 1.0% none none the fifth year you own them none none none the sixth year you own them none none none after six years of owning them 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------------- $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% the second year you own them 4.0% 3.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 2.0% none none the fifth year you own them 2.0% 1.0% none none the sixth year you own them 1.0% none none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 62 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 Investor B Shares you A Shares after you've bought 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 Investor B Shares you A Shares after you've bought 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: .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. .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. .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. .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. .Conversions are free from federal tax. 63 [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: .you received the shares from reinvested distributions .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 net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 64 .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 65 The following plans can buy Investor A Shares without paying a front-end sales charge: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: 66 .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 67 [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. 68
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 .$1,000 for regular accounts in Investor A and C Shares. You can invest up to .$500 for traditional and Roth IRAs, $250,000 in Investor B Shares. and Coverdell Education Savings Investor B Shares are only available to existing Accounts customers of Nations Short-Term Income Fund. .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic .$ 100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. .$ 50 - ---------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .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. .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 .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 .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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 .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.
69 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 70 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 71 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act 72 [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. 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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. 73 .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. .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: .Investor B Shares of any other Nations Fund, except Nations Money Market Funds; or .Investor B Shares of Nations 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 Investor B Shares of any other Nations 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 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. 74 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 75 [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: .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 .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 .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/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. 76 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 77 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, 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 normally declare and pay distributions of net investment income monthly. The Funds may, however, declare and pay distributions of net investment income more frequently. Zero coupon bonds generate taxable income each year without generating cash for distributions. The Funds may be required to prematurely sell investments to make distributions or pay for redemptions. 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 paid (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 Fund shares shortly before the Fund 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. 78 [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 of a Fund's ordinary income and net short-term capital gain 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. We'll send you a notice every year that tells you how much you've received in distributions during the year, their federal tax status and how much of the income from zero coupon bonds has been allocated to you. Foreign, state and local taxes may also apply to distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 79 [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, 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. 80 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 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.81 $9.51 $9.79 $9.77 $9.68 Net investment income 0.45 0.56 0.54 0.54 0.54 Net realized and unrealized gain/(loss) on investments 0.02 0.30 (0.28) 0.02 0.09 Net increase/(decrease) in net asset value from operations 0.47 0.86 0.26 0.56 0.63 LESS DISTRIBUTIONS: Dividends from net investment income (0.45) (0.56) (0.54) (0.54) (0.54) Net asset value, end of year $9.83 $9.81 $9.51 $9.79 $9.77 TOTAL RETURN++ 4.91% 9.28% 2.76% 5.85% 6.67% ===================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $99,453 $7,658 $11,831 $14,652 $13,688 Ratio of operating expenses to average net assets 0.77%(a) 0.76%(a) 0.73%(a) 0.70%(a) 0.76%(a)(b) Ratio of net investment income to average net assets 4.54% 5.79% 5.63% 5.50% 5.55% Portfolio turnover rate 80% 42% 62% 64% 66% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.86%(a) 0.88%(a) 1.05%(a) 1.06%(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-TERM INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.80 $9.51 $9.79 $9.77 $9.68 Net investment income 0.38 0.48 0.51 0.52 0.53 Net realized and unrealized gain/(loss) on investments 0.03 0.29 (0.28) 0.02 0.09 Net increase/(decrease) in net asset value from operations 0.41 0.77 0.23 0.54 0.62 LESS DISTRIBUTIONS: Dividends from net investment income (0.38) (0.48) (0.51) (0.52) (0.53) Net asset value, end of year $9.83 $9.80 $9.51 $9.79 $9.77 TOTAL RETURN++ 4.25% 8.36% 2.40% 5.70% 6.51% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,511 $2,515 $2,914 $5,825 $4,602 Ratio of operating expenses to average net assets 1.52%(a) 1.51%(a) 1.05%(a) 0.85%(a) 0.91%(a)(b) Ratio of net investment income to average net assets 3.79% 5.04% 5.31% 5.35% 5.40% Portfolio turnover rate 80% 42% 62% 64% 66% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 1.61%(a) 1.63%(a) 1.80%(a) 1.21%(a)
++ 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%. 81 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 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.80 $9.51 $9.79 $9.77 $9.68 Net investment income 0.38 0.48 0.47 0.52 0.53 Net realized and unrealized gain/(loss) on investments 0.03 0.29 (0.28) 0.02 0.09 Net increase/(decrease) in net asset value from operations 0.41 0.77 0.19 0.54 0.62 LESS DISTRIBUTIONS: Dividends from net investment income (0.38) (0.48) (0.47) (0.52) (0.53) Net asset value, end of year $9.83 $9.80 $9.51 $9.79 $9.77 TOTAL RETURN++ 4.23% 8.37% 1.97% 5.64% 6.51% ===================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $39,515 $833 $987 $1,744 $2,992 Ratio of operating expenses to average net assets 1.52%(a) 1.51%(a) 1.50%(a) 1.01%(a) 0.91%(a)(b) Ratio of net investment income to average net assets 3.79% 5.04% 4.86% 5.19% 5.40% Portfolio turnover rate 80% 42% 62% 64% 66% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 1.61%(a) 1.63%(a) 1.80%(a) 1.21%(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 A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $4.15 $3.94 $4.10 $4.12 $3.99 Net investment income 0.17 0.22 0.22 0.21 0.22 Net realized and unrealized gain/(loss) on investments 0.01 0.21 (0.16) (0.02) 0.13 Net increase/(decrease) in net asset value from operations 0.18 0.43 0.06 0.19 0.35 LESS DISTRIBUTIONS: Dividends from net investment income (0.17) (0.22) (0.22) (0.21) (0.22) Net asset value, end of year $4.16 $4.15 $3.94 $4.10 $4.12 TOTAL RETURN++ 4.42% 11.31% 1.43% 4.76% 8.89% ======================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $41,926 $44,244 $45,341 $44,793 $49,478 Ratio of operating expenses to average net assets 0.87%(a) 0.82%(a) 0.80%(a) 0.78%(a) 0.81% Ratio of net investment income to average net assets 4.10% 5.54% 5.39% 5.16% 5.33% Portfolio turnover rate 486% 108% 177% 242% 538% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.84%(a) 0.90%(a) 1.03%(a) 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 the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 82 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 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $4.15 $3.94 $4.10 $4.12 $3.99 Net investment income 0.13 0.19 0.19 0.19 0.20 Net realized and unrealized gain/(loss) on investments 0.01 0.21 (0.16) (0.02) 0.13 Net increase/(decrease) in net asset value from operations 0.14 0.40 0.03 0.17 0.33 LESS DISTRIBUTIONS: Dividends from net investment income (0.13) (0.19) (0.19) (0.19) (0.20) Net asset value, end of year $4.16 $4.15 $3.94 $4.10 $4.12 TOTAL RETURN++ 3.64% 10.46% 0.70% 4.14% 8.35% ======================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $17,474 $8,199 $8,400 $9,591 $9,815 Ratio of operating expenses to average net assets 1.62%(a) 1.59%(a) 1.51%(a) 1.38%(a) 1.34% Ratio of net investment income to average net assets 3.35% 4.77% 4.68% 4.56% 4.80% Portfolio turnover rate 486% 108% 177% 242% 538% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 1.59%(a) 1.65%(a) 1.78%(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%. 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 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $4.14 $3.93 $4.09 $4.12 $3.99 Net investment income 0.12 0.19 0.19 0.19 0.20 Net realized and unrealized gain/(loss) on investments 0.01 0.21 (0.16) (0.03) 0.13 Net increase/(decrease) in net asset value from operations 0.13 0.40 0.03 0.16 0.33 LESS DISTRIBUTIONS: Dividends from net investment income (0.12) (0.19) (0.19) (0.19) (0.20) Net asset value, end of year $4.15 $4.14 $3.93 $4.09 $4.12 TOTAL RETURN++ 3.63% 10.49% 0.74% 4.05% 8.45% ======================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $6,820 $1,079 $661 $1,190 $1,808 Ratio of operating expenses to average net assets 1.62%(a) 1.59%(a) 1.54%(a) 1.34%(a) 1.31% Ratio of net investment income to average net assets 3.35% 4.77% 4.65% 4.60% 4.83% Portfolio turnover rate 486% 108% 177% 242% 538% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 1.59%(a) 1.65%(a) 1.78%(a) 1.51%
++ Total return represents aggregate total return for 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%. 83 NATIONS GOVERNMENT SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.86 $9.37 $9.86 $9.90 $9.39 Net investment income 0.42 0.57 0.57 0.56 0.52 Net realized and unrealized gain/(loss) on investments (0.08) 0.49 (0.50) (0.05) 0.51 Net increase/(decrease) in net asset value from operations 0.34 1.06 0.07 0.51 1.03 LESS DISTRIBUTIONS: Dividends from net investment income (0.42) (0.57) (0.56) (0.55) (0.52) Net asset value, end of year $9.78 $9.86 $9.37 $9.86 $9.90 TOTAL RETURN++ 3.45% 11.70% 0.80% 5.16% 11.37% ================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $54,167 $57,641 $57,485 $19,167 $8,509 Ratio of operating expenses to average net assets 0.98%(a) 1.00%(a) 1.03%(b) 0.98%(a) 1.10%(a)(b) Ratio of net investment income to average net assets 4.19% 5.96% 5.92% 5.45% 5.38% Portfolio turnover rate 522% 183% 348% 600% 303% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.11%(a) 1.11%(a) 1.15% 1.09%(a) 1.24%(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 ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.87 $9.38 $9.86 $9.90 $9.39 Net investment income 0.34 0.50 0.49 0.49 0.47 Net realized and unrealized gain/(loss) on investments (0.08) 0.49 (0.48) (0.04) 0.51 Net increase/(decrease) in net asset value from operations 0.26 0.99 0.01 0.45 0.98 LESS DISTRIBUTIONS: Dividends from net investment income (0.34) (0.50) (0.49) (0.49) (0.47) Net asset value, end of year $9.79 $9.87 $9.38 $9.86 $9.90 TOTAL RETURN++ 2.67% 10.86% 0.22% 4.53% 10.78% ================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $49,611 $27,544 $26,988 $30,109 $32,391 Ratio of operating expenses to average net assets 1.73%(a) 1.75%(a) 1.72%(b) 1.58%(a) 1.63%(a)(b) Ratio of net investment income to average net assets 3.44% 5.21% 5.23% 4.85% 4.85% Portfolio turnover rate 522% 183% 348% 600% 303% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.86%(a) 1.90% 1.84%(a) 1.77%(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%. 84 NATIONS GOVERNMENT SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.84 $9.34 $9.86 $9.90 $9.39 Net investment income 0.34 0.52 0.49 0.49 0.48 Net realized and unrealized gain/(loss) on investments (0.08) 0.48 (0.52) (0.04) 0.51 Net increase/(decrease) in net asset value from operations 0.26 1.00 (0.03) 0.45 0.99 LESS DISTRIBUTIONS: Dividends from net investment income (0.34) (0.50) (0.49) (0.49) (0.48) Net asset value, end of year $9.76 $9.84 $9.34 $9.86 $9.90 TOTAL RETURN++ 2.68% 11.03% (0.22)% 4.52% 10.84% ================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,200 $1,213 $238 $213 $735 Ratio of operating expenses to average net assets 1.73%(a) 1.75%(a) 1.78%(b) 1.59%(a) 1.58%(a)(b) Ratio of net investment income to average net assets 3.44% 5.21% 5.17% 4.84% 4.90% Portfolio turnover rate 522% 183% 348% 600% 303% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.86%(a) 1.90% 1.84%(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. (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 YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES* 03/31/02# 03/31/01# 03/31/00 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $9.55 $9.15 $9.50 $9.52 $9.69 $9.54 Net investment income 0.47 0.56 0.46 0.10 0.50 0.49 Net realized and unrealized gain/(loss) on investments (0.12) 0.40 (0.34) (0.04) (0.03) 0.20 Net increase in net asset value from operations 0.35 0.96 0.12 0.06 0.47 0.69 LESS DISTRIBUTIONS: Dividends from net investment income (0.47) (0.56) (0.47) (0.08) (0.53) (0.51) Distributions from net realized capital gains -- -- -- -- (0.11) (0.03) Total dividends and distributions (0.47) (0.56) (0.47) (0.08) (0.64) (0.54) Net asset value, end of period $9.43 $9.55 $9.15 $9.50 $9.52 $9.69 TOTAL RETURN++ 3.66% 10.88% 1.34% 0.66% 4.89% 7.40% ============================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $58,167 $62,617 $45,207 $61,412 $63,404 $41,875 Ratio of operating expenses to average net assets 1.03% 1.03% 1.06%+ 1.09%+ 0.90% 0.90% Ratio of net investment income to average net assets 4.55% 6.06% 5.83%+ 4.90%+ 5.14% 5.50% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.11% 1.06% 1.30%+ 1.12%+ 0.90% 1.21%
* 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. + 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. 85 NATIONS INTERMEDIATE BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/00* OPERATING PERFORMANCE: Net asset value, beginning of period $9.51 $9.13 $9.52 Net investment income 0.40 0.47 0.22 Net realized and unrealized gain/(loss) on investments (0.12) 0.42 (0.36) Net increase/(decrease) in net asset value from operations 0.28 0.89 (0.14) LESS DISTRIBUTIONS: Dividends from net investment income (0.40) (0.51) (0.25) Net asset value, end of period $9.39 $9.51 $9.13 TOTAL RETURN++ 2.94% 9.99% 1.33% ================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $7,003 $1,290 $256 Ratio of operating expenses to average net assets 1.78% 1.78% 1.81%+ Ratio of net investment income to average net assets 3.80% 5.31% 5.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86% 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
INVESTOR C YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED SHARES* 03/31/02# 03/31/01# 03/31/00 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $10.47 $9.32 $9.56 $9.59 $9.72 $9.54 Net investment income 0.39 0.47 0.34 0.09 0.46 0.44 Net realized and unrealized gain/(loss) on Investments (0.08) 1.09 (0.23) (0.04) -- 0.19 Net increase in net asset value from operations 0.31 1.56 0.11 0.05 0.46 0.63 LESS DISTRIBUTIONS: Dividends from net investment income (0.39) (0.41) (0.35) (0.08) (0.48) (0.42) Distributions from net realized capital gains -- -- -- -- (0.11) (0.03) Total dividends and distributions (0.39) (0.41) (0.35) (0.08) (0.59) (0.45) Net asset value, end of period $10.39 $10.47 $9.32 $9.56 $9.59 $9.72 TOTAL RETURN++ 2.94% 17.06% 1.18% 0.47% 4.76% 6.80% ========================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,586 $797 $15 $469 $495 $513 Ratio of operating expenses to average net assets 1.78% 1.78% 1.81%+ 1.57%+ 1.39% 1.39% Ratio of net investment income to average net assets 3.80% 5.31% 5.08%+ 4.42%+ 4.67% 4.99% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86% 1.81% 2.05%+ 1.84%+ 1.65% 1.73%
* 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. + 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. 86 NATIONS BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.78 $9.37 $9.93 $10.03 $9.62 Net investment income 0.51 0.60 0.57 0.57 0.56 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.52) (0.04) 0.41 Net increase/(decrease) in net asset value from operations 0.38 1.01 0.05 0.53 0.97 LESS DISTRIBUTIONS: Dividends from net investment income (0.51) (0.60) (0.57) (0.57) (0.56) Distributions from net realized capital gains -- -- (0.04) (0.06) -- Total dividends and distributions (0.51) (0.60) (0.61) (0.63) (0.56) Net asset value, end of year $9.65 $9.78 $9.37 $9.93 $10.03 TOTAL RETURN++ 3.96% 11.11% 0.74% 5.40% 10.30% ========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $40,902 $27,220 $23,420 $32,119 $26,054 Ratio of operating expenses to average net assets 0.93%(a)(b) 0.92%(a) 0.90% 0.88%(a) 0.92%(a)(b) Ratio of net investment income to average net assets 5.16% 6.28% 5.97% 5.66% 5.66% Portfolio turnover rate 314% 120% 63% 107% 244% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93%(a) 0.92%(a) 0.94% 1.03%(a) 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%. NATIONS BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.78 $9.37 $9.93 $10.03 $9.62 Net investment income 0.44 0.52 0.50 0.51 0.51 Net realized and unrealized gain/(loss) on investments (0.12) 0.41 (0.52) (0.04) 0.41 Net increase/(decrease) in net asset value from operations 0.32 0.93 (0.02) 0.47 0.92 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.52) (0.50) (0.51) (0.51) Distributions from net realized capital gains -- -- (0.04) (0.06) -- Total dividends and distributions (0.44) (0.52) (0.54) (0.57) (0.51) Net asset value, end of year $9.66 $9.78 $9.37 $9.93 $10.03 TOTAL RETURN++ 3.29% 10.29% 0.05% 4.76% 9.73% ========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $16,877 $6,994 $5,637 $5,440 $2,662 Ratio of operating expenses to average net assets 1.68%(a)(b) 1.67%(a) 1.59% 1.48%(a) 1.47%(a)(b) Ratio of net investment income to average net assets 4.41% 5.53% 5.28% 5.06% 5.11% Portfolio turnover rate 314% 120% 63% 107% 244% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68%(a) 1.67%(a) 1.69% 1.78%(a) 1.58%(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%. 87 NATIONS BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.78 $9.37 $9.93 $10.03 $9.62 Net investment income 0.44 0.52 0.48 0.51 0.52 Net realized and unrealized gain/(loss) on investments (0.13) 0.41 (0.52) (0.04) 0.41 Net increase/(decrease) in net asset value from operations 0.31 0.93 (0.04) 0.47 0.93 LESS DISTRIBUTIONS: Dividends from net investment income (0.44) (0.52) (0.48) (0.51) (0.52) Distributions from net realized capital gains -- -- (0.04) (0.06) -- Total dividends and distributions (0.44) (0.52) (0.52) (0.57) (0.52) Net asset value, end of year $9.65 $9.78 $9.37 $9.93 $10.03 TOTAL RETURN++ 3.18% 10.28% (0.24)% 4.90% 9.87% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,387 $1,321 $934 $1,137 $943 Ratio of operating expenses to average net assets 1.68%(a)(b) 1.67%(a) 1.67% 1.40%(a) 1.42%(a)(b) Ratio of net investment income to average net assets 4.41% 5.53% 5.20% 5.14% 5.16% Portfolio turnover rate 314% 120% 63% 107% 244% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68%(a) 1.67%(a) 1.69% 1.78%(a) 1.53%(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 STRATEGIC INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.88 $9.52 $10.31 $10.55 $10.11 Net investment income 0.57 0.63 0.65 0.63 0.63 Net realized and unrealized gain/(loss) on investments (0.28) 0.36 (0.79) (0.14) 0.44 Net increase/(decrease) in net asset value from operations 0.29 0.99 (0.14) 0.49 1.07 LESS DISTRIBUTIONS: Dividends from net investment income (0.57) (0.63) (0.65) (0.63) (0.63) Distributions from net realized capital gains -- -- (0.00)## (0.10) -- Total dividends and distributions (0.57) (0.63) (0.65) (0.73) (0.63) Net asset value, end of year $9.60 $9.88 $9.52 $10.31 $10.55 TOTAL RETURN++ 3.05% 10.80% (1.30)% 4.74% 10.80% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $26,543 $29,102 $30,870 $12,954 $11,946 Ratio of operating expenses to average net assets 1.06%(a) 0.97% 0.96%(a) 0.95%(a) 0.98%(a) Ratio of net investment income to average net assets 5.51% 6.51% 6.55% 6.02% 6.02% Portfolio turnover rate 199% 238% 107% 94% 203% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16%(a) 1.09% 1.15%(a) 1.05%(a) 1.08%(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%. 88 NATIONS STRATEGIC INCOME FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.89 $9.52 $10.31 $10.55 $10.11 Net investment income 0.50 0.56 0.59 0.57 0.57 Net realized and unrealized gain/(loss) on investments (0.28) 0.37 (0.79) (0.14) 0.44 Net increase/(decrease) in net asset value from operations 0.22 0.93 (0.20) 0.43 1.01 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.56) (0.59) (0.57) (0.57) Distributions from net realized capital gains -- -- (0.00)## (0.10) -- Total dividends and distributions (0.50) (0.56) (0.59) (0.67) (0.57) Net asset value, end of year $9.61 $9.89 $9.52 $10.31 $10.55 TOTAL RETURN++ 2.28% 10.08% (1.98)% 4.11% 10.18% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $45,960 $50,251 $55,946 $67,651 $65,248 Ratio of operating expenses to average net assets 1.81%(a) 1.72% 1.65%(a) 1.55%(a) 1.55%(a) Ratio of net investment income to average net assets 4.76% 5.76% 5.86% 5.42% 5.45% Portfolio turnover rate 199% 238% 107% 94% 203% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.91%(a) 1.84% 1.90%(a) 1.80%(a) 1.65%(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 YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $9.88 $9.52 $10.31 $10.55 $10.11 Net investment income 0.50 0.56 0.58 0.57 0.58 Net realized and unrealized gain/(loss) on investments (0.28) 0.36 (0.79) (0.14) 0.44 Net increase/(decrease) in net asset value from operations 0.22 0.92 (0.21) 0.43 1.02 LESS DISTRIBUTIONS: Dividends from net investment income (0.50) (0.56) (0.58) (0.57) (0.58) Distributions from net realized capital gains -- -- (0.00)## (0.10) -- Total dividends and distributions (0.50) (0.56) (0.58) (0.67) (0.58) Net asset value, end of year $9.60 $9.88 $9.52 $10.31 $10.55 TOTAL RETURN++ 2.28% 9.98% (2.04)% 4.09% 10.27% - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,997 $1,527 $1,202 $1,474 $2,090 Ratio of operating expenses to average net assets 1.81%(a) 1.72% 1.71%(a) 1.56%(a) 1.46%(a) Ratio of net investment income to average net assets 4.76% 5.76% 5.80% 5.41% 5.54% Portfolio turnover rate 199% 238% 107% 94% 203% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.91%(a) 1.84% 1.90%(a) 1.80%(a) 1.56%(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%. 89 NATIONS HIGH YIELD BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.22 $9.88 $10.00 Net investment income 0.80 0.96 0.08 Net realized and unrealized gain/(loss) on investments (0.32) (0.58) (0.12) Net increase/(decrease) in net asset value from operations 0.48 0.38 (0.04) LESS DISTRIBUTIONS: Dividends from net investment income (0.85) (1.04) (0.08) Distributions from net realized capital gains (0.05) -- -- Total dividends and distributions (0.90) (1.04) (0.08) Net asset value, end of period $8.80 $9.22 $9.88 TOTAL RETURN++ 5.69% 3.99% (0.33)% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $31,551 $8,344 $371 Ratio of operating expenses to average net assets 1.18% 1.18% 1.18%+ Ratio of net investment income to average net assets 9.50% 10.72% 6.78%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25% 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 YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.21 $9.88 $10.00 Net investment income 0.76 0.92 0.07 Net realized and unrealized gain/(loss) on investments (0.33) (0.62) (0.12) Net increase/(decrease) in net asset value from operations 0.43 0.30 (0.05) LESS DISTRIBUTIONS: Dividends from net investment income (0.79) (0.97) (0.07) Distributions from net realized capital gains (0.05) -- -- Total dividends and distributions (0.84) (0.97) (0.07) Net asset value, end of period $8.80 $9.21 $9.88 TOTAL RETURN++ 5.06% 3.29% (0.47)% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $64,091 $22,106 $3,426 Ratio of operating expenses to average net assets 1.93% 1.93% 1.93%+ Ratio of net investment income to average net assets 8.75% 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 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. 90 NATIONS HIGH YIELD BOND FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $9.19 $9.87 $10.02 Net investment income 0.76 0.90 0.04 Net realized and unrealized gain/(loss) on investments (0.34) (0.61) (0.12) Net increase/(decrease) in net asset value from operations 0.42 0.29 (0.08) LESS DISTRIBUTIONS: Dividends from net investment income (0.79) (0.97) (0.07) Distributions from net realized capital gains (0.05) -- -- Total dividends and distributions (0.84) (0.97) (0.07) Net asset value, end of period $8.77 $9.19 $9.87 TOTAL RETURN++ 4.96% 3.20% (0.76)% - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $15,213 $1,891 $59 Ratio of operating expenses to average net assets 1.93% 1.93% 1.93%+ Ratio of net investment income to average net assets 8.75% 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 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. 91 [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. Bond - 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 U.S. Treasury obligations and commerical paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 92 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 U.S. Treasury obligations and commerical paper. 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. 93 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 principal 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 an NRSRO such as S&P or 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 1-Year Municipal Bond Index - a broad-based, unmanaged index consisting of tax free bonds with maturities greater than 1 year but less than 2 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of greater than two years and less than four 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. 94 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 Credit 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. Lehman Quality Intermediate Municipal Index - a broad-based, unmanaged index consisting of tax free bonds with a minimum quality rating of A3 from Moody's and having a maturity range between 2 and 11 years. 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, high quality debt security. 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. 95 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. 96 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. 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. 97 SEC file number: Nations Funds Trust, 811-09645 BONDPROIX-0802 [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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Nations Marsico Funds - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 Nations Marsico Growth Fund Nations Marsico Focused Equities Fund Nations Marsico 21st Century Fund Nations Marsico International Opportunities 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 - ----------------- [LOGO] 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 68. 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 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. Nations Marsico International Opportunities Fund invests 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. There's always a risk that you'll lose money or you may not earn as much as you expect. 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 Nations Marsico Funds generally focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities or foreign securities .you have short-term investment goals .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 30. [Graphic] ABOUT THE FUNDS NATIONS MARSICO GROWTH FUND 4 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- NATIONS MARSICO FOCUSED EQUITIES FUND 10 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- NATIONS MARSICO 21ST CENTURY FUND 16 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND 22 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------- OTHER IMPORTANT INFORMATION 28 ------------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 30
[Graphic] ABOUT YOUR INVESTMENT INFORMATION FOR INVESTORS Choosing a share class 33 About Investor A Shares 34 Front-end sales charge 34 Contingent deferred sales charge 35 About Investor B Shares 35 Contingent deferred sales charge 35 About Investor C Shares 37 Contingent deferred sales charge 37 Redemption fees 37 When you might not have to pay a sales charge or redemption fee 37 Buying, selling and exchanging shares 42 How orders are processed 44 How selling and servicing agents are paid 50 Distributions and taxes 52 ----------------------------------------------------------------- FINANCIAL HIGHLIGHTS 55 ----------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 68 ----------------------------------------------------------------- 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 31. [Graphic] WHY INVEST IN 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. 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 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 Growth 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 generally holds 35 to 50 securities. It may hold 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Fund has the following risks: .Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. .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. . 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. .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. .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. PRIOR TO JANUARY 1, 2002, THE FUND HAD A DIFFERENT NAME, 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. [CHART] 1998 1999 2000 2001 ------ ------ ------- ------- 38.62% 52.11% (15.47)% (19.76)% *Year-to-date return as of June 30, 2002: -0.21% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 35.19% Worst: 3rd quarter 2001: -17.33%
6 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -24.36% 7.75% Investor A Shares Returns After Taxes on Distributions -24.36% 7.64% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.83% 6.29% Investor B Shares Returns Before Taxes -24.32% 8.03% Investor C Shares Returns Before Taxes -21.17% 8.64% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*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. 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. [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% 0.39% 0.39% 0.39% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.39% 2.14% 2.14% ===== ===== =====
/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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $990 $1,293 $2,151 Investor B Shares $717 $970 $1,349 $2,282 Investor C Shares $317 $670 $1,149 $2,472
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 $217 $670 $1,149 $2,282 Investor C Shares $217 $670 $1,149 $2,472
9 [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 31. [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. Under normal circumstances, the Master Portfolio will invest at least 80% of its assets in equity securities. The investments will mostly consist of equity securities of large capitalization 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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico Focused Equities Fund has the following risks: .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. .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. .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. . 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. .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. .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. 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 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. [CHART] 1998 1999 2000 2001 ------ ------ -------- -------- 50.14% 52.85% (17.32)% (19.11)% *Year-to-date return as of June 30, 2002: 1.13% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 33.11% Worst: 1st quarter 2001: -17.77%
12 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 investments and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -23.77% 9.67% Investor A Shares Returns After Taxes on Distributions -23.77% 9.50% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.48% 7.87% Investor B Shares Returns Before Taxes -23.75% 10.03% Investor C Shares Returns Before Taxes -20.54% 10.66% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 5.67%
*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. 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. [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% 0.36% 0.36% 0.36% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.36% 2.11% 2.11% ===== ===== =====
/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. 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. 14 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $706 $982 $1,278 $2,119 Investor B Shares $714 $961 $1,334 $2,250 Investor C Shares $314 $661 $1,134 $2,441
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 $214 $661 $1,134 $2,250 Investor C Shares $214 $661 $1,134 $2,441
15 [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 31. [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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico 21st Century Fund has the following risks: .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. .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. .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. . 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. .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. .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. 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 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. [CHART] 2001 -------- (18.64)% *Year-to-date return as of June 30, 2002: 1.44% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 16.84% Worst: 3rd quarter 2001: -18.96%
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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -23.31% -21.80% Investor A Shares Returns After Taxes on Distributions -23.31% -21.80% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -14.20% -17.11% Investor B Shares Returns Before Taxes -23.26% -21.56% Investor C Shares Returns Before Taxes -20.03% -19.68% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% -13.04%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is April 10, 2000. 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. [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% 0.62% 0.62% 0.62% OTHER EXPENSES ----- ----- ----- Total annual Fund operating expenses 1.62% 2.37% 2.37% ===== ===== =====
/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. 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. 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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $730 $1,058 $1,407 $2,390 Investor B Shares $740 $1,039 $1,465 $2,520 Investor C Shares $340 $739 $1,265 $2,706
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 $240 $739 $1,265 $2,520 Investor C Shares $240 $739 $1,265 $2,706
21 [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 G. 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 31. [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 that Marsico Capital has 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 Marsico Capital 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, or 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 Marsico International Opportunities Fund has the following risks: .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. .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. .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. .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. [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. [CHART] 2001 -------- (14.74)% *Year-to-date return as of June 30, 2002: 6.02% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.01% Worst: 3rd quarter 2001: -18.23%
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, TAXES, FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns show for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -19.64% -18.19% Investor A Shares Returns After Taxes on Distributions -19.64% -18.19% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -11.96% -14.42% Investor B Shares Returns Before Taxes -19.66% -17.78% Investor C Shares Returns Before Taxes -16.37% -15.38% MSCI EAFE Index (reflects no deductions for fees, expenses or taxes) -21.44% -19.64%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is August 1, 2000. The return for the index shown is 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. 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (Expenses that are deducted from the Fund's assets)/6/ Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% 3.20% 3.20% 3.20% Other expenses ----- ----- ----- Total annual Fund operating expenses 4.25% 5.00% 5.00% (2.50)% (2.50)% (2.50)% Fee waivers and/or reimbursements ----- ----- ----- Total net expenses/7/ 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see Choosing a share class -- Redemption fees for details. /5/ 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. /6/ 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/ 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. 26 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $1,578 $2,425 $4,600 Investor B Shares $753 $1,578 $2,503 $4,718 Investor C Shares $353 $1,278 $2,303 $4,866
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 $1,278 $2,303 $4,718 Investor C Shares $253 $1,278 $2,303 $4,866
27 [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: .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. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Master Portfolios may invest 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. .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. .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. .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. 28 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 29 [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 70 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. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2003. 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 Marsico Growth Fund/1/ 0.75% 0.75% Nations Marsico Focused Equities Fund/1/ 0.75% 0.75% Nations Marsico 21st Century Fund/1/ 0.75% 0.75% Nations Marsico International Opportunities Fund/1/ 0.80% 0.00%
/1/ These Funds don't have their own investment adviser because they invest in Nations Marsico Growth Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico 21st Century Master Portfolio, and Nations Marsico International Opportunities 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .materially change a sub-advisory agreement with a sub-adviser. 30 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 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. 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Growth Master Portfolio .Nations Marsico Focused Equities Master Portfolio .Nations Marsico 21st Century Master Portfolio .Nations Marsico International Opportunities 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. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio and Marsico Capital's portion of Nations International Equity 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. 31 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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, except Nations Marsico International Opportunities Fund which pays a fee of 0.22%. 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. 32 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 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/ Redemption fee/4/ 2.00% 2.00% 2.00% Maximum annual distribution and 0.25% distribution 0.75% distribution 0.75% distribution shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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 redemption fee may apply to shares of Nations Marsico International Opportunities Fund purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see Choosing a share class -- Redemption fees 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. 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. 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: .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 or redemption fee - Front end sales charges .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. 34 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 or redemption fee - Contingent deferred sales charges and redemption fees 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ----------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
35 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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. .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. .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. .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. .Conversions are free from federal tax. 36 [Graphic] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT REDUCTIONS AND WAIVERS OF SALES CHARGES AND REDEMPTION FEES. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR A REDUCTION OR A WAIVER BEFORE BUYING OR SELLING 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: .you received the shares from reinvested distributions .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 or redemption fee - Contingent deferred sales charges and redemption fees The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. REDEMPTION FEES (Investor A, Investor B and Investor C Shares) Nations Marsico International Opportunities Fund may assess, subject to limited exceptions, a 2.00% redemption fee on proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. The redemption fee is paid to the Fund, and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the Fund. The redemption fee is imposed to the extent that Fund shares redeemed exceed Fund shares that have been held more than 90 days. For shares of the Fund acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to apply the redemption fee. The redemption fee may not be imposed if you qualify for a waiver. You can find out if you qualify for a waiver in the section When you might not have to pay a sales charge or redemption fee -Contingent deferred sales charges and redemption fees. WHEN YOU MIGHT NOT HAVE TO PAY A SALES CHARGE OR REDEMPTION FEE 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: .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 Money Market Funds, don't qualify for rights of accumulation. 37 .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 38 the employing broker/dealer as long as these purchases are made for their own investment purposes .employees or partners of any service provider to the Funds .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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 AND REDEMPTION FEES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC or redemption fee on the following transactions: .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 39 .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .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 .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 You won't pay a redemption fee on Investor A, Investor B or Investor C Shares redeemed from accounts where by agreement with Nations Funds short-term trading activity is permitted, including shares sold as part of an automatic rebalancing within an asset allocation program. 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. You also won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement 40 with Nations Funds not to receive (or to return if received) all or any applicable portion of any up-front commission .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 41 [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. 42
Ways to buy, sell or How much you can buy, sell or exchange exchange --------------- ----------------------------- Buying shares In a lump sum minimum initial investment: . $1,000 for regular accounts .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: Systematic . $100 Investment Plan minimum additional investment: . $50 - -------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your shares by telephone, otherwise there are no limits to the amount you can sell .other restrictions may apply to withdrawals from retirement plan accounts Using our .minimum $25 per withdrawal Automatic Withdrawal Plan - -------------------------------------------------------------------------------- Exchanging shares In a lump sum .minimum $1,000 per exchange Using our . minimum $25 per exchange Automatic Exchange Feature
Other things to know -------------------- Buying shares There is no limit to the amount you can invest in Investor A and C Shares. You can invest up to $250,000 in Investor B Shares. You can buy shares twice a month, monthly or quarterly, using automatic transfers from your bank account. - ------------------------------------------------------------------------- Selling shares We'll deduct any CDSC from the amount you're selling and send you or your selling agent the balance, usually within three business days of receiving your order. 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. Nations Marsico International Opportunities Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. 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. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------- Exchanging shares 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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. Nations Marsico International Opportunities Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. You must already have an investment in the Funds into which you want to exchange. You can make exchanges monthly or quarterly.
43 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 44 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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. 45 [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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 46 [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. .Nations Marsico International Opportunities Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. 47 .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges by any person, group or account that is believed to be a market timer. .In order to limit excessive exchange activity and otherwise promote the best interests of the Fund, Nations Marsico International Opportunities Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. 48 EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 49 [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: .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 .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 .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. 50 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 51 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of declaration and payment of Fund income distributions Nations Marsico Growth Fund annually Nations Marsico Focused Equities Fund annually Nations Marsico 21st Century Fund annually Nations Marsico International Opportunities 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 paid (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. 52 [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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. FOREIGN TAXES Mutual funds that maintain most of their portfolio in foreign securities -- like Nations Marsico International Opportunities Fund -- have special tax considerations. You'll generally be required to: .include in your gross income your proportional amount of foreign income taxes paid by the fund .treat this amount as foreign income taxes you paid directly .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 income taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 53 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 54 [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. 55 NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.87 $21.62 $14.95 $12.02 $10.00 Net investment income/(loss) (0.09) (0.05) (0.11) (0.03) 0.00(b) Net realized and unrealized gain/(loss) on investments (0.06) (6.54) 6.82 2.97 2.02 Net increase/(decrease) in net asset value from operations (0.15) (6.59) 6.71 2.94 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of the period $14.72 $14.87 $21.62 $14.95 $12.02 TOTAL RETURN++ (1.01)% (30.63)% 45.01% 24.38% 20.20% ================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $217,963 $164,031 $175,859 $43,392 $1,141 Ratio of operating expenses to average net assets 1.39% 1.35% 1.48%(a) 1.50%(a) 1.34%+(a) Ratio of net investment income/(loss) to average net assets (0.64)% (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 1.39% 1.35% 1.48%(a) 1.50%(a) 2.22%+(a)
* Nations Marsico Growth 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. 56 NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.55 $21.31 $14.85 $12.02 $10.00 Net investment income/(loss) (0.20) (0.18) (0.24) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (0.06) (6.42) 6.74 2.96 2.04 Net increase/(decrease) in net asset value from operations (0.26) (6.60) 6.50 2.84 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of period $14.29 $14.55 $21.31 $14.85 $12.02 TOTAL RETURN++ (1.79)% (31.13)% 43.90% 23.55% 20.20% ================================================================================================ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $209,503 $239,621 $305,607 $99,257 $7,907 Ratio of operating expenses to average net assets 2.14% 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.39)% (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 2.14% 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth 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. 57 NATIONS MARSICO GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $14.57 $21.34 $14.86 $12.02 $10.00 Net investment income/(loss) (0.20) (0.17) (0.25) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (0.06) (6.44) 6.77 2.97 2.04 Net increase/(decrease) in net asset value from operations (0.26) (6.61) 6.52 2.85 2.02 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.16) (0.04) (0.01) -- Net asset value, end of period $14.31 $14.57 $21.34 $14.86 $12.02 TOTAL RETURN++ (1.78)% (31.10)% 43.93% 23.63% 20.20% =================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $31,886 $32,365 $34,785 $3,233 $518 Ratio of operating expenses to average net assets 2.14% 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.39)% (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 2.14% 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth 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. 58 NATIONS MARSICO FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.31 $22.56 $16.73 $12.14 $10.00 Net investment income/(loss) (0.09) (0.06) (0.03) (0.04) (0.01) Net realized and unrealized gain/(loss) on investments 0.55 (7.11) 6.09 4.64 2.15 Net increase/(decrease) in net asset value from operations 0.46 (7.17) 6.06 4.60 2.14 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.77 $15.31 $22.56 $16.73 $12.14 TOTAL RETURN++ 3.00% (31.80)% 36.62% 37.94% 21.40% =============================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $507,590 $491,437 $690,166 $238,137 $6,056 Ratio of operating expenses to average net assets 1.36% 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) Ratio of net investment income/(loss) to average net assets (0.58)% (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 1.36% 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. 59 NATIONS MARSICO FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.00 $22.26 $16.62 $12.13 $10.00 Net investment income/(loss) (0.20) (0.20) (0.09) (0.12) (0.04) Net realized and unrealized gain/(loss) on investments 0.53 (6.98) 5.96 4.62 2.17 Net increase/(decrease) in net asset value from operations 0.33 (7.18) 5.87 4.50 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.33 $15.00 $22.26 $16.62 $12.13 TOTAL RETURN ++ 2.20% (32.32)% 35.71% 37.15% 21.30% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $679,688 $741,285 $1,003,840 $306,365 $20,446 Ratio of operating expenses to average net assets 2.11% 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.33)% (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 2.11% 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. 60 NATIONS MARSICO FOCUSED EQUITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98*# OPERATING PERFORMANCE: Net asset value, beginning of period $15.05 $22.33 $16.67 $12.13 $10.00 Net investment income/(loss) (0.20) (0.20) (0.08) (0.14) (0.04) Net realized and unrealized gain/(loss) on investments 0.53 (7.00) 5.97 4.69 2.17 Net increase/(decrease) in net asset value from operations 0.33 (7.20) 5.89 4.55 2.13 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (0.08) (0.23) (0.01) -- Net asset value, end of period $15.38 $15.05 $22.33 $16.67 $12.13 TOTAL RETURN++ 2.19% (32.31)% 35.72% 37.56% 21.30% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $188,842 $203,642 $247,509 $13,682 $469 Ratio of operating expenses to average net assets 2.11% 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.33)% (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 2.11% 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. 61 NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.97 $10.00 Net investment income/(loss) (0.07) (0.06) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.09 (3.03) Net asset value, end of period $7.06 $6.97 TOTAL RETURN++ 1.29% (30.30)% ======================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $14,741 $19,644 Ratio of operating expenses to average net assets 1.62%(a) 1.60%+ Ratio of net investment income/(loss) to average net assets (0.97)% (0.66)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62%(a) 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. # 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%. 62 NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.92 $10.00 Net investment income/(loss) (0.12) (0.11) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.04 (3.08) Net asset value, end of period $6.96 $6.92 TOTAL RETURN++ 0.58% (30.80)% ======================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $43,187 $50,404 Ratio of operating expenses to average net assets 2.37%(a) 2.35%+ Ratio of net investment income/(loss) to average net assets (1.72)% (1.41)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37%(a) 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. # 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%. 63 NATIONS MARSICO 21ST CENTURY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01* OPERATING PERFORMANCE: Net asset value, beginning of period $6.92 $10.00 Net investment income/(loss) (0.12) (0.11) Net realized and unrealized gain/(loss) on investments 0.16 (2.97) Net increase/(decrease) in net asset value from operations 0.04 (3.08) Net asset value, end of period $6.96 $6.92 TOTAL RETURN++ 0.58% (30.80)% ================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $4,660 $6,557 Ratio of operating expenses to average net assets 2.37%(a) 2.35%+ Ratio of net investment income/(loss) to average net assets (1.72)% (1.41)%+ Portfolio turnover rate 419% 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37%(a) 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. # 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%. 64 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $8.01 $10.00 Net investment income/(loss) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments 0.32 (1.98) Net increase/(decrease) in net asset value from operations 0.31 (1.99) Net asset value, end of period $8.32 $8.01 TOTAL RETURN++ 3.87% (19.90)% =================================================================== RATIOS TO AVERAGE NET ASSETS SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1,526 $2,797 Ratio of operating expenses to average net assets 1.67%(a)(b) 1.72%+ Ratio of net investment income/(loss) to average net assets (0.33)% (0.13)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.27%(a) 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. (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%. 65 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $7.97 $10.00 Net investment income/(loss) (0.07) (0.08) Net realized and unrealized gain/(loss) on investments 0.32 (1.95) Net increase/(decrease) in net asset value from operations 0.25 (2.03) Net asset value, end of period $8.22 $7.97 TOTAL RETURN++ 3.14% (20.30)% ======================================================================== RATIOS TO AVERAGE NET ASSETS SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1,951 $2,031 Ratio of operating expenses to average net assets 2.42%(a)(b) 2.47%+ Ratio of net investment income/(loss) to average net assets (1.08)% (0.88)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 5.02%(a) 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. (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%. 66 NATIONS MARSICO INTERNATIONAL OPPORTUNITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01#* OPERATING PERFORMANCE: Net asset value, beginning of period $7.97 $10.00 Net investment income/(loss) (0.07) (0.09) Net realized and unrealized gain/(loss) on investments 0.32 (1.94) Net increase/(decrease) in net asset value from operations 0.25 (2.03) Net asset value, end of period $8.22 $7.97 TOTAL RETURN++ 3.14% (20.30)% =================================================================== RATIOS TO AVERAGE NET ASSETS SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $869 $974 Ratio of operating expenses to average net assets 2.42%(a)(b) 2.47%+ Ratio of net investment income/(loss) to average net assets (1.08)% (0.88)%+ Portfolio turnover rate 307% 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 5.02%(a) 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. (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%. 67 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 68 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 U.S. Treasury obligations and commercial paper. 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%. 69 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 principal 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 an NRSRO such as S&P or 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. 70 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, high quality debt security. 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. 71 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. 72 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. 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. 73 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion: the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 74 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 75 [Graphic] Where to find more information You'll find more information about Nations Marisco 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.nationsfunds.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 number: Nations Funds Trust, 811-09645 NMCMBOPROIX-0802 [LOGO] Nations Funds [GRAPHIC] Growth Funds - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 Nations Strategic Growth Fund Nations Capital Growth Fund Nations MidCap Growth 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 [LOGO] 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 56. 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. 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. ARE THESE FUNDS 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. These Funds focus on long-term growth. They may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 these 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 THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUNDS. [Graphic] YOU'LL FIND MORE ABOUT BA ADVISORS AND BACAP STARTING ON PAGE 23. [Graphic] About the Funds NATIONS STRATEGIC GROWTH FUND 4 Sub-adviser: BACAP ----------------------------------------------------------- NATIONS CAPITAL GROWTH FUND Sub-adviser: BACAP 9 ----------------------------------------------------------- NATIONS MIDCAP GROWTH FUND Sub-adviser: BACAP 15 ----------------------------------------------------------- OTHER IMPORTANT INFORMATION 21 ----------------------------------------------------------- HOW THE FUNDS ARE MANAGED 23
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 25 About Investor A Shares 26 Front-end sales charge 26 Contingent deferred sales charge 27 About Investor B Shares 27 Contingent deferred sales charge 27 About Investor C Shares 29 Contingent deferred sales charge 29 When you might not have to pay a sales charge 30 Buying, selling and exchanging shares 34 How orders are processed 36 How selling and servicing agents are paid 42 Distributions and taxes 44 -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 46 -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 56 -------------------------------------------------------------- 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. BACAP IS THE MASTER PORTFOLIO'S SUB-ADVISER. BACAP'S GROWTH STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. [Graphic] MINIMIZING TAXES THE MASTER PORTFOLIO'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 growth of capital. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations Strategic Growth 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 companies that it selects from most major industry sectors. The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. 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 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: .the growth prospects of the company's industry .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 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, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: .will focus on long-term investments to try to limit the number of buy and sell transactions .may try to sell securities that have the lowest tax burden on shareholders 4 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. .may offset capital gains by selling securities to realize a capital loss .invests primarily in securities with lower dividend yields .may use options, instead of selling securities While the Master Portfolio may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Strategic Growth Fund has the following risks: .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. .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. .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. .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. [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. [CHART] 2000 2001 -------- -------- (12.55)% (12.42)% *Year-to-date return as of June 30, 2002: -16.42% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 12.41% Worst: 3rd quarter 2001: -16.05%
6 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -17.43% -6.62% Investor A Shares Returns After Taxes on Distributions -17.46% -6.68% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -10.62% -5.25% Investor B Shares Returns Before Taxes -17.45% -5.91% Investor C Shares Returns Before Taxes -13.97% -6.05% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 4.69%
* The inception date of Investor A, Investor B and Investor C Shares is August 2, 1999. 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 FUND'S ASSETS. [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. [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 0.29% 0.29% 0.29% ----- ----- ----- 1.19% 1.94% 1.94% Total annual Fund operating expenses ===== ===== =====
/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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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
8 [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 24. [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: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth 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. 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: .the growth prospects of the company's industry .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 1000 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 team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or 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. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Capital Growth Fund has the following risks: .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. .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. .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. 10 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ------ ------ ------ ------ ------ ------ ------- -------- 7.53% (1.55)% 28.56% 18.29% 30.36% 29.73% 23.57% (12.17)% (15.75)% *Year-to-date return as of June 30, 2002: -21.14% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 28.21% Worst: 3rd quarter 2001: -18.79%
11 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Russell 1000 Growth Index, an unmanaged index which measures the performance of the largest U.S. companies based on total market capitalization, with high price-to-book ratios and forecasted growth rates relative to the Russell 1000 Index as a whole. Prior to October 1, 2001, the Fund compared its performance to the S&P 500. The Fund changed the index to which it compares its performance because the Russell 1000 Growth Index is considered a more appropriate comparison. These indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -20.61% 7.83% 10.55% Investor A Shares Returns After Taxes on Distributions -21.04% 4.21% 7.30% Investor A Shares Returns After Taxes on Distributions -12.03% 6.22% 8.19% Investor B Shares Returns Before Taxes -20.38% 8.10% 10.61% Investor C Shares Returns Before Taxes -17.18% 8.37% 10.53% Russell 1000 Growth Index (reflects no deductions for fees, expenses or taxes) -20.42% 8.27% 11.94% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.75%
*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 returns for the indices shown are 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 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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.22% 1.97% 1.97% ===== ===== =====
/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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $692 $941 $1,208 $1,970 Investor B Shares $700 $918 $1,262 $2,102 Investor C Shares $300 $618 $1,062 $2,296
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 $200 $618 $1,062 $2,102 Investor C Shares $200 $618 $1,062 $2,296
14 [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 24. [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 Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. companies whose market capitalizations are within the range of companies within the Russell MidCap Growth Index and that are believed to have the potential for long-term growth of capital. 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: .the growth prospects of the company's industry .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 MidCap 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 team may sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss 15 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations MidCap Growth Fund has the following risks: .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. .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. .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. 16 [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. [CHART] 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ------ ----- ----- ---- ----- ----- ----- 11.66% 0.39% 29.71% 18.32% 20.48% 3.30% 43.45% 14.30% (20.18)% *Year-to-date return as of June 30, 2002: -26.76% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 32.63% Worst: 3rd quarter 2001: -30.72%
17 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the Russell MidCap Growth Index, an unmanaged index which measures the performance of those Russell MidCap Index companies with lower price-to-book ratios and forecasted growth values. Prior to August 1, 2002, the Fund compared its performance to the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The Fund changed the index to which it compares its performance because the Russell MidCap Growth Index is considered a more appropriate comparison. The indices are weighted by market value, are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -24.76% 8.95% 11.90% Investor A Shares Returns After Taxes on Distributions -24.76% 6.54% 9.45% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -15.08% 7.02% 9.27% Investor B Shares Returns Before Taxes -24.78% 9.16% 12.55% Investor C Shares Returns Before Taxes -21.62% 9.50% 11.90% Russell MidCap Growth Index (reflects no deductions for fees, expenses or taxes) -20.15% 9.02% 11.50% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 16.11% 15.63%
*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 returns for the indices shown are 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. [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% 0.32% 0.32% 0.32% Other expenses ----- ----- ----- Total annual Fund operating expenses 1.22% 1.97% 1.97% ===== ===== =====
/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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $692 $941 $1,208 $1,970 Investor B Shares $700 $918 $1,262 $2,102 Investor C Shares $300 $618 $1,062 $2,296
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 $200 $618 $1,062 $2,102 Investor C Shares $200 $618 $1,062 $2,296
20 [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: .Changing investment objective 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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .Holding other kinds of investments - The Funds may hold investments that aren't part of the 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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 21 .Bank of America and its affiliates - Bank of America and its affiliates currently provide services to 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 doesn't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 22 [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 70 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. 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 Strategic Growth Fund/1/ 0.65% 0.65% Nations Capital Growth Fund 0.65% 0.65% Nations MidCap Growth Fund 0.65% 0.65%
/1/Nations Strategic Growth Fund doesn't have its own investment adviser because it invests in Nations Strategic Growth 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 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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 obtains the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 23 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Strategic Growth Fund/1/ Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team
/1/Nations Strategic Growth Fund doesn't have its own investment sub-adviser because it invests in Nations Strategic Growth Master Portfolio. BACAP is the investment sub-adviser to the Master Portfolio. 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 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 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. 24 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 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 distribution 0.25% distribution 0.75% distribution 0.75% distribution and shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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. 25 [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: .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 .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. 26 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 27 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ----------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 28 Here's how the conversion works: .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. .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. .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. .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. .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: .you received the shares from reinvested distributions .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 net asset 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. 29 [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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 30 .banks, trust companies and thrift institutions acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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 31 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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 32 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 33 [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. 34
Ways to buy, sell or How much you can buy, exchange sell or exchange --------------- ------------------------------------------ Buying shares In a lump sum minimum initial investment: .$1,000 for regular accounts .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimuminitial investment: Systematic .$100 Investment Plan minimumadditional investment: .$50 - ------------------------------------------------------------------------------------------ Selling shares In a lump sum .you can sell up to $50,000 of your shares by telephone, otherwise there are no limits to the amount you can sell .other restrictions may apply to withdrawals from retirement plan accounts Using our .minimum $25 per withdrawal Automatic Withdrawal Plan - ------------------------------------------------------------------------------------------ Exchanging shares In a lump sum .minimum $1,000 per exchange Using our .minimum $25 per exchange Automatic Exchange Feature
Other things to know ------------------------------------------ Buying shares There is no limit to the amount you can invest in Investor A and C Shares. You can invest up to $250,000 in Investor B Shares. You can buy shares twice a month, monthly or quarterly, using automatic transfers from your bank account. - ------------------------------------------------------------------------- Selling shares We'll deduct any CDSC from the amount you're selling and send you or your selling agent the balance, usually within three business days of receiving your order. 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. 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. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------- Exchanging shares 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 must already have an investment in the Funds into which you want to exchange. You can make exchanges monthly or quarterly.
35 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 36 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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. 37 [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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 38 [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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 39 .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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. 40 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 41 [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 the Funds. The amount of this commission depends on which share class you choose: .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 .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 .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. 42 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 43 [Graphic] THE POWER OF COMPOUNDING REINVESTING YOUR DISTRIBUTIONS BUYS YOU MORE SHARES OF THE FUNDS -- 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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. The Funds distribute any net realized capital gain, at least once a year. The Funds normally declare and pay distributions of net investment income annually. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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 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. Some Funds have built up, or have the potential to build up, high levels of unrealized capital gain. 44 [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 of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 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 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. 46 NATIONS STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.44 $16.98 $13.88 Net investment income/(loss) (0.01) (0.04) (0.03) Net realized and unrealized gain/(loss) on investments (0.11) (4.47) 3.19 Net increase/(decrease) in net asset value from operations (0.12) (4.51) 3.16 LESS DISTRIBUTIONS: Dividends from net investment income (0.01) -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.01) (0.03) (0.06) Net asset value, end of period $12.31 $12.44 $16.98 TOTAL RETURN++ (0.97)% (26.62)% 22.86% ================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $26,742 $11,895 $5,503 Ratio of operating expenses to average net assets 1.19%(a) 1.19%(a)(b) 1.22%+ Ratio of net investment income/(loss) to average net assets (0.05)% (0.34)% (0.35)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 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/(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%. 47 NATIONS STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.29 $16.90 $13.88 Net investment income/(loss) (0.10) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (0.12) (4.44) 3.18 Net increase/(decrease) in net asset value from operations (0.22) (4.58) 3.08 LESS DISTRIBUTIONS: Dividend from net investment income (0.00)## -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.00)## (0.03) (0.06) Net asset value, end of period $12.07 $12.29 $16.90 Total return++ (1.78)% (27.16)% 22.29% ================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $8,358 $6,758 $4,934 Ratio of operating expenses to average net assets 1.94%(a) 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (0.80)% (1.09)% (1.10)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 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. ## 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 STRATEGIC GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00*# OPERATING PERFORMANCE: Net asset value, beginning of period $12.30 $16.92 $13.88 Net investment income/(loss) (0.10) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (0.12) (4.45) 3.20 Net increase/(decrease) in net asset value from operations (0.22) (4.59) 3.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## -- -- Distributions from net realized capital gains -- (0.03) (0.06) Total dividends and distributions (0.00)## (0.03) (0.06) Net asset value, end of period $12.08 $12.30 $16.92 TOTAL RETURN++ (1.78)% (27.14)% 22.36% =============================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,645 $2,137 $1,706 Ratio of operating expenses to average net assets 1.94%(a) 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (0.80)% (1.09)% (1.10)%+ Portfolio turnover rate 71% 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 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. ## 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%. 49 NATIONS CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $8.16 $14.43 $11.97 $13.26 $11.67 Net investment income/(loss) (0.03) (0.07) (0.08) (0.03) (0.01) Net realized and unrealized gain/(loss) on investments (0.22) (3.84) 3.42 1.58 5.28 Net increase/(decrease) in net asset value from operations (0.25) (3.91) 3.34 1.55 5.27 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $7.65 $8.16 $14.43 $11.97 $13.26 TOTAL RETURN++ (3.62)% (30.91)% 29.41% 14.70% 53.83% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $28,994 $32,519 $61,756 $52,987 $43,380 Ratio of operating expenses to average net assets 1.22%(a)(b) 1.20%(a)(b) 1.21%(a)(b) 1.21%(a) 1.20%(a)(b) Ratio of net investment income/(loss) to average net assets (0.37)% (0.53)% (0.63)% (0.29)% 0.12)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.20%(a) 1.21%(a) 1.21%(a) 1.20%(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%. 50 NATIONS CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $7.51 $13.58 $11.39 $12.83 $11.47 Net investment income/(loss) (0.08) (0.14) (0.17) (0.11) (0.10) Net realized and unrealized gain/(loss) on investments (0.20) (3.57) 3.24 1.51 5.14 Net increase/(decrease) in net asset value from operations (0.28) (3.71) 3.07 1.40 5.04 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $6.97 $7.51 $13.58 $11.39 $12.83 TOTAL RETURN++ (4.35)% (31.37)% 28.42% 13.86% 52.52% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $37,767 $45,832 $75,844 $66,338 $59,496 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.95%(a)(b) Ratio of net investment income/(loss) to average net assets (1.12)% (1.28)% (1.38)% (1.04)% (0.87)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.95%(a) 1.96%(a) 1.96%(a) 1.95%(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. (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%. 51 NATIONS CAPITAL GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $7.59 $13.70 $11.48 $12.92 $11.50 Net investment income/(loss) (0.08) (0.13) (0.16) (0.11) (0.08) Net realized and unrealized gain/(loss) on investments (0.20) (3.62) 3.26 1.51 5.18 Net increase/(decrease) in net asset value from operations (0.28) (3.75) 3.10 1.40 5.10 LESS DISTRIBUTIONS: Distributions from net realized capital gains (0.26) (2.36) (0.88) (2.84) (3.68) Net asset value, end of year $7.05 $7.59 $13.70 $11.48 $12.92 TOTAL RETURN++ (4.31)% (31.38)% 28.46% 13.76% 53.02% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $4,538 $3,338 $4,883 $3,862 $6,176 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.78%(a)(b) Ratio of net investment income/(loss) to average net assets (1.12)% (1.28)% (1.38)% (1.04)% (0.70)% Portfolio turnover rate 65% 96% 39% 39% 113% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.95%(a) 1.96%(a) 1.96%(a) 1.78%(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%. 52 NATIONS MIDCAP GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $14.14 $21.87 $13.04 $16.30 $12.69 Net investment income/(loss) (0.09) (0.09) (0.12) (0.07) (0.10) Net realized and unrealized gain/(loss) on investments (1.32) (3.91) 9.59 (0.92) 5.50 Net increase/(decrease) in net asset value from operations (1.41) (4.00) 9.47 (0.99) 5.40 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $12.73 $14.14 $21.87 $13.04 $16.30 TOTAL RETURN++ (9.97)% (20.98)% 74.82% (7.41)% 44.86% ============================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $32,138 $16,536 $22,741 $18,042 $21,591 Ratio of operating expenses to average net assets 1.22%(a)(b) 1.23%(a) 1.25%(a)(b) 1.23%(a)(b)1.23%(a) Ratio of net investment income/(loss) to average net assets (0.64)% (0.52)% (0.70)% (0.54)% (0.67)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.23%(a) 1.25%(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%. 53 NATIONS MIDCAP GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.87 $20.38 $12.28 $15.58 $12.29 Net investment income/(loss) (0.17) (0.19) (0.22) (0.15) (0.20) Net realized and unrealized gain/(loss) on investments (1.19) (3.59) 8.96 (0.88) 5.28 Net increase/(decrease) in net asset value from operations (1.36) (3.78) 8.74 (1.03) 5.08 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $11.51 $12.87 $20.38 $12.28 $15.58 TOTAL RETURN++ (10.57)% (21.51)% 73.47% (8.10)% 43.64% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $45,368 $44,261 $49,606 $33,245 $45,451 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.98%(a) 2.00%(a)(b) 1.98%(a)(b)1.98%(a) Ratio of operating expenses including interest expense to average net assets -- -- -- -- 1.99% Ratio of net investment income/(loss) to average net assets (1.39)% (1.27)% (1.45)% (1.29)% (1.42)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.98%(a) 2.00%(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%. 54 NATIONS MIDCAP GROWTH FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $12.95 $20.47 $12.33 $15.63 $12.31 Net investment income/(loss) (0.17) (0.17) (0.22) (0.15) (0.18) Net realized and unrealized gain/(loss) on investments (1.21) (3.62) 9.00 (0.88) 5.29 Net increase/(decrease) in net asset value from operations (1.38) (3.79) 8.78 (1.03) 5.11 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (3.73) (0.64) (2.27) (1.79) Net asset value, end of year $11.57 $12.95 $20.47 $12.33 $15.63 TOTAL RETURN++ (10.66)% (21.46)% 73.50% (8.08)% 43.80% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,024 $3,248 $2,628 $1,383 $2,266 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.98%(a) 2.00%(a)(b) 1.98%(a)(b)1.81%(a) Ratio of operating expenses including interest expense to average net assets -- -- -- -- 1.82% Ratio of net investment income/(loss) to average net assets (1.39)% (1.27)% (1.45)% (1.29)% (1.25)% Portfolio turnover rate 39% 39% 46% 43% 76% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.98%(a) 2.00%(a) 1.98%(a) 1.81%(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. (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%. 55 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 56 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 U.S. Treasury obligations and commercial paper. 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%. 57 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 principal 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 an NRSRO such as S&P or 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. 58 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, high quality debt security. 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. 59 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. 60 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. 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. 61 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 62 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. 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, S&P SMALLCAP 600 OR S&P MIDCAP 400 INDEX FOR ITS INVESTMENT MERIT. S&P DETERMINES AND CALCULATES ITS INDICES INDEPENDENTLY OF THE FUNDS AND IS NOT A SPONSOR OR AFFILIATE OF THE FUNDS. S&P GIVES NO INFORMATION AND MAKES NO STATEMENTS ABOUT THE SUITABILITY OF INVESTING IN THE FUNDS OR THE ABILITY OF INDICES TO TRACK STOCK MARKET PERFORMANCE. S&P MAKES NO GUARANTEES ABOUT THE INDICES, ANY DATA INCLUDED IN THEM AND THE SUITABILITY OF THE INDICES OR ITS DATA FOR ANY PURPOSE. "STANDARD AND POOR'S," "S&P 500" AND "S&P 600" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. 63 [Graphic] Where to find more information You'll find more information about Nations Strategic Growth Fund, Nations Capital Growth Fund and Nations MidCap Growth 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 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.nationsfunds.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 number: Nations Funds Trust, 811-04305 GROWTHPROIX-0802 [LOGO] Nations Funds [GRAPHIC] Nations Classic Value Fund Nations Global Value Fund Prospectus -- Investor A, B and C Shares August 1, 2002 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 [LOGO] 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 49. 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. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUNDS Nations Classic Value Fund invests primarily in equity securities of U.S. companies. Nations Global Value Fund invests primarily in equity securities of U.S. and non-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. 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. 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 Funds may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities or foreign securities .you have short-term investment goals .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 14. [Graphic] ABOUT THE FUNDS NATIONS CLASSIC VALUE FUND 4 Sub-adviser: Brandes Investment Partners, L.P. - -------------------------------------------------- NATIONS GLOBAL VALUE FUND 8 Sub-adviser: Brandes Investment Partners, L.P. - -------------------------------------------------- OTHER IMPORTANT INFORMATION 12 - -------------------------------------------------- HOW THE FUNDS ARE MANAGED 14
[Graphic] ABOUT YOUR INVESTMENT INFORMATION FOR INVESTORS Choosing a share class 19 About Investor A Shares 20 Front-end sales charge 20 Contingent deferred sales charge 21 About Investor B Shares 21 Contingent deferred sales charge 21 About Investor C Shares 23 Contingent deferred sales charge 23 Redemption fees 23 When you might not have to pay a sales charge or redemption fee 24 Buying, selling and exchanging shares 28 How orders are processed 30 How selling and servicing agents are paid 37 Distributions and taxes 39 --------------------------------------------------------------- FINANCIAL HIGHLIGHTS 42 ----------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 49 ----------------------------------------------------------------- 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 15. [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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or 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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE INDUSTRY, OR .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: .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. .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. 5 [Graphic] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER STOCK ACCOUNTS MANAGED BY BRANDES, SEE How the Fund is managed. [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/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% 0.39% 0.39% 0.39% Other expenses ----- ----- ----- Total annual Fund operating expenses/5/ 1.29% 2.04% 2.04% ===== ===== =====
/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. 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 limit total annual operating expenses to 1.38% for Investor A Shares and 2.13% for Investor B and Investor C Shares until July 31, 2003. There is no guarantee that these limitations will continue. Because these limitations are higher than the current total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: . 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 . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . 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 $699 $961 $1,243 $2,045 Investor B Shares $707 $940 $1,298 $2,176 Investor C Shares $307 $640 $1,098 $2,369
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 $207 $640 $1,098 $2,176 Investor C Shares $207 $640 $1,098 $2,369
7 [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 15. [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 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. 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 a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 8 [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: .THE FUND WILL NORMALLY INVEST NO MORE THAN 5% OF ITS ASSETS IN A SINGLE SECURITY. .IT MAY NOT INVEST MORE THAN THE GREATER OF: .20% OF ITS ASSETS IN A SINGLE COUNTRY OR INDUSTRY, OR .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). .IT GENERALLY MAY NOT INVEST MORE THAN 20% OF ITS ASSETS IN EMERGING MARKETS OR DEVELOPING COUNTRIES. [Graphic] FOR INFORMATION ABOUT THE PERFORMANCE OF OTHER GLOBAL STOCK ACCOUNTS MANAGED BY BRANDES, SEE How the Funds are managed. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Global Value Fund has the following risks: .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. .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. .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. .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. [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. 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 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/ Redemption fee (as a percentage of total redemption proceeds)/4/ 2.00% 2.00% 2.00% ANNUAL FUND OPERATING EXPENSES/5/ (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% 0.73% 0.73% 0.73% Other expenses ----- ----- ----- Total annual Fund operating expenses// 1.88% 2.63% 2.63% (0.23)% (0.23)% (0.23)% Fee waivers and/or reimbursements ------- ------- ------- Total net expenses/6/ 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. 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 redemption fee may apply to shares purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see Choosing a share class -- Redemption fees for details. /5/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. /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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $733 $1,112 $1,514 $2,636 Investor B Shares $743 $1,096 $1,575 $2,765 Investor C Shares $343 $796 $1,375 $2,947
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 $243 $796 $1,375 $2,765 Investor C Shares $243 $796 $1,375 $2,947
11 [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: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 12 .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. .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 13 [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 70 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-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, 2003. 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: ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS
Maximum advisory fee Nations Classic Value Fund 0.65% Nations Global Value Fund 0.90%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 14 [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 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to the Funds. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Funds. PERFORMANCE OF OTHER ACCOUNTS MANAGED BY BRANDES Nations Classic Value Fund and Nations Global Value Fund commenced their operations on April 16, 2001. 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. 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, 2002 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, 2002
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 21.49% 4.39% three years 14.09% 3.63% five years 13.17% 11.46% since inception (6/30/91) 15.60% 14.46%
ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2001 16.09% (5.59)% 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%
15 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. The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2002 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, 2002
Brandes Global Equity MSCI World Composite (%) Index (%) one year 5.49% (4.23)% three years 12.84% (4.39)% five years 15.25% 5.38% ten years 16.62% 9.02%
16 ANNUAL TOTAL RETURNS AS OF DECEMBER 31
Brandes Global Equity MSCI World Composite (%) Index (%) 2001 (0.66)% (16.82)% 2000 34.46% (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. 17 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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. Nations Global Value Fund pays BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses and Nations Classic Value Fund pays a fee of 0.23%. 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. 18 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 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/ Redemption fee/4/ 2.00% 2.00% 2.00% Maximum annual 0.75% 0.75% distribution 0.25% distribution distribution and shareholder distribution (12b-1) fee and (12b-1) fee and servicing fees (12b-1)/service fee 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. 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 redemption fee may apply to shares of Nations Global Value Fund purchased after August 1, 2002 that are redeemed (either by selling your shares or exchanging into another Fund) within 90 days of purchase. Please see Choosing a share class -- Redemption fees 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. 19 [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: .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 or redemption fee - Front end sales charges .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 Sales charge Sales charge retained by selling as a % of the as a % of the agents as a % of offering price net asset value the 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. 20 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 or redemption fee - Contingent deferred sales charges and redemption fees. 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 Shares you bought between bought after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ------------ ---------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
21 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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. .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. .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. .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. .Conversions are free from federal tax. 22 [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: .you received the shares from reinvested distributions .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 or redemption fee -- Contingent deferred sales charges and redemption fees. The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. REDEMPTION FEES (Investor A, Investor B and Investor C Shares) Nations Global Value Fund may assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. The redemption fee is paid to the Fund, and is intended to offset the trading costs, market impact and other costs associated with short-term money movements in and out of the Fund. The redemption fee is imposed to the extent that Fund shares redeemed exceed Fund shares that have been held more than 90 days. For shares of the Fund acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to apply the redemption fee. The redemption fee may not be imposed if you qualify for a waiver. You can find out if you qualify for a waiver in the section When you might not have to pay a sales charge or redemption fee -- Contingent deferred sales charges and redemption fees. 23 [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 OR REDEMPTION FEE 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 24 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Fund .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 25 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 AND REDEMPTION FEES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC or redemption fee on the following transactions: .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .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 .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 26 You won't pay a redemption fee on Investor A, Investor B or Investor C Shares redeemed from accounts where by agreement with Nations Funds short-term trading activity is permitted, including shares sold as part of an automatic rebalancing within an asset allocation program. 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. You also won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 27 [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 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. 28
Ways to buy, sell or How much you can buy, exchange sell or exchange ------------- ------------------------------------------ Buying shares In a lump sum minimum initial investment: .$1,000 for regular accounts .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: Systematic .$100 Investment minimum additional investment: Plan .$50 - ---------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your shares by telephone, otherwise there are no limits to the amount you can sell .other restrictions may apply to withdrawals from retirement plan accounts Using our .minimum $25 per withdrawal Automatic Withdrawal Plan - ---------------------------------------------------------------------------------------- Exchanging shares In a lump sum .minimum $1,000 per exchange Using our .minimum $25 per exchange Automatic Exchange Feature
Other things to know -------------------------------------------- Buying shares There is no limit to the amount you can invest in Investor A and C Shares. You can invest up to $250,000 in Investor B Shares. You can buy shares twice a month, monthly or quarterly, using automatic transfers from your bank account. - --------------------------------------------------------------------------- Selling shares We'll deduct any CDSC from the amount you're selling and send you or your selling agent the balance, usually within three business days of receiving your order. 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. Nations Global Value Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. 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. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - --------------------------------------------------------------------------- Exchanging shares 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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. Nations Global Value Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. You must already have an investment in the Funds into which you want to exchange. You can make exchanges monthly or quarterly.
29 [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. 30 [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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan 31 .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 32 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. .Nations Global Value Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act 33 [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. 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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject 34 purchase orders and exchanges by any person, group or account that is believed to be a market timer. .In order to limit excessive exchange activity and otherwise promote the best interests of the Fund, Nation's Global Value Fund may assess a 2.00% redemption fee on the proceeds of Fund shares that are purchased after August 1, 2002 and are redeemed (either by selling shares or exchanging into another Fund) within 90 days of their purchase. Please see Choosing a share class -- Redemption fees for details. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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. 35 EXCHANGING INVESTOR C SHARES You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 36 [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: .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 .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 .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 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. 37 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 38 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Each of the Funds distribute any net realized capital gain at least once a year. The Funds normally declare and pay distributions of net investment income annually. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 39 [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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. FOREIGN TAXES Mutual funds that maintain most of their portfolio in foreign securities -- like Nations Global Value Fund -- have special tax considerations. You'll generally be required to: .include in your gross income your proportional amount of foreign income taxes paid by the Fund .treat this amount as foreign income taxes you paid directly .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 income taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 40 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 41 [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. 42 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.10 Net realized and unrealized gain/(loss) on investments 2.09 Net increase/(decrease) in net asset value from operations 2.19 LESS DISTRIBUTIONS: Dividends from net investment income (0.03) Distributions from net realized capital gains (0.10) Total dividends and distributions (0.13) Net asset value, end of period $12.06 TOTAL RETURN++ 22.00% - ---------------------------------------------------------- - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $17,128 Ratio of operating expenses to average net assets 1.29%+(a) Ratio of net investment income to average net assets 0.81%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.29%+(a)
*Classic Value Fund Investor A Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 43 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.00)## Net realized and unrealized gain/(loss) on investments 2.10 Net increase/(decrease) in net asset value from operations 2.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.10) Total dividends and distributions (0.10) Net asset value, end of period $12.00 TOTAL RETURN++ 21.08% ------------------------------------------------------------ ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $36,511 Ratio of operating expenses to average net assets 2.04%+(a) Ratio of net investment income to average net assets 0.06%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.04%+(a)
*Classic Value Fund Investor B Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 44 NATIONS CLASSIC VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.01 Net realized and unrealized gain/(loss) on investments 2.09 Net increase/(decrease) in net asset value from operations 2.10 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.10) Total dividends and distributions (0.10) Net asset value, end of period $12.00 TOTAL RETURN++ 21.08% ------------------------------------------------------------ ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $40,916 Ratio of operating expenses to average net assets 2.04%+(a) Ratio of net investment income to average net assets 0.06%+ Portfolio turnover rate 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.04%+(a)
*Classic Value Fund Investor C Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 45 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.04 Net realized and unrealized gain/(loss) on investments 0.45 Net increase/(decrease) in net asset value from operations 0.49 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Distributions from net realized capital gains (0.02) Total dividends and distributions (0.02) Net asset value, end of period $10.47 TOTAL RETURN++ 4.92% - ---------------------------------------------------------- - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $26,172 Ratio of operating expenses to average net assets 1.65%+(a) Ratio of net investment income to average net assets 0.41%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.88%+(a)
*Global Value Fund Investor A Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly 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%. 46 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain (loss) on investments 0.45 Net increase (decrease) in net asset value from operations 0.42 LESS DISTRIBUTIONS: Dividends from net investment income -- Distributions from net realized capital gains (0.02) Total dividends and distributions (0.02) Net asset value, end of period $10.40 TOTAL RETURN++ 4.18% ------------------------------------------------------------ ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $11,804 Ratio of operating expenses to average net assets 2.40%+(a) Ratio of net investment income/(loss) to average net assets (0.34)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.63%+(a)
*Global Value Fund Investor B Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 47 NATIONS GLOBAL VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain/(loss) on investments 0.45 Net increase/(decrease) in net asset value from operations 0.42 LESS DISTRIBUTIONS: Dividends from net investment income - Distributions from net realized capital gains (0.02) Total dividends and distributions (0.02) Net asset value, end of period $10.40 TOTAL RETURN++ 4.18% ------------------------------------------------------------ ------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $30,914 Ratio of operating expenses to average net assets 2.40%+(a) Ratio of net investment income/(loss) to average net assets (0.34)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.63%+(a)
*Global Value Fund Investor C Shares commenced operations on April 16, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 48 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 49 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 U.S. Treasury obligations and commercial paper. 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%. 50 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 principal 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 an NRSRO such as S&P or 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. 51 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, high quality debt security. 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. 52 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. 53 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. 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. 54 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 55 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 56 SEC file number: Nations Funds Trust, 811-09645 BRANDESPROIX-0802 [Graphic] Where to find more information You'll find more information about the 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.nationsfunds.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. [LOGO] Nations Funds [Graphic] Nations Small Company Fund Prospectus -- Investor A, B and C Shares August 1, 2002 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 [LOGO] 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 38. 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 Small Company Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUND Nations Small Company 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 the highest risk. 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 Small Company Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 12. [Graphic] ABOUT THE FUND NATIONS SMALL COMPANY FUND 4 Sub-adviser: BACAP -------------------------------------------------------------- OTHER IMPORTANT INFORMATION 10 -------------------------------------------------------------- HOW THE FUND IS MANAGED 12
[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 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 38 -------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 13. [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: .company meetings/conferences .independent industry analysis .quantitative analysis .Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: .gaining an in-depth understanding of the company's business .evaluating the company's growth potential, risks and competitive strengths .discussing its growth strategy with company management .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 sell a security when its price reaches a target set by the team, if the company's growth prospects are deteriorating, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss 4 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THE FUND IN Other important information AND IN THE SAI. While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Small Company Fund has the following risks: .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. .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. .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. .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. 5 [Graphic] MANY THINGS AFFECT THE 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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------- ------- 19.92% 19.47% 1.22% 54.51% (1.83)% (12.22)% *Year-to-date return as of June 30, 2002: -12.48% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 43.14% Worst: 3rd quarter 1998: -25.80%
6 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for 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. The index is unmanaged, weighted by market capitalization, is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -17.27% 8.69% 10.18% Investor A Shares Returns After Taxes on Distributions -17.27% 7.40% 9.03% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -10.52% 6.92% 8.24% Investor B Shares Returns Before Taxes -17.21% 8.94% 10.54% Investor C Shares Returns Before Taxes -13.73% -- 4.65% Russell 2000 Growth Index (reflects no deductions for fees, expenses or taxes) -9.23% 2.87% 4.54%
* 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 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. [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 0.32% 0.32% 0.32% ----- ----- ----- Total annual Fund operating expenses 1.47% 2.22% 2.22% Fee waivers and/or reimbursements (0.07)% (0.07)% (0.07)% ------- ------- ------- 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. 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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 the Fund with the cost of investing in other mutual funds. This example assumes: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $1,007 $1,327 $2,229 Investor B Shares $718 $988 $1,383 $2,360 Investor C Shares $318 $688 $1,183 $2,549
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 $688 $1,183 $2,360 Investor C Shares $218 $688 $1,183 $2,549
9 [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: .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. .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 interest 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. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest 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. .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. .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. .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, sub-transfer agency and 10 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. You'll find the portfolio turnover rate for the Fund in Financial highlights. 11 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 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, 2003. 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, 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 Small Company Fund 0.90% 0.83%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 12 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 funds in the Nations Funds Family. BACAP uses 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 Small Company Fund. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. 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. 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 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 distribution 0.25% distribution 0.75% distribution 0.75% distribution and shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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 [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. 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] 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: .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 .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. 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
16 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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. .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. .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. .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. .Conversions are free from federal tax. 17 [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: .you received the shares from reinvested distributions .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 net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. 18 .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Fund .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or 20 .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .shares bought through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 21 [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 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. 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 invest . $1,000 for regular accounts in Investor A and C Shares. You can invest up . $500 for traditional and to $250,000 in Investor B Shares. Roth IRAs, and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic . $100 quarterly, using automatic transfers from your Investment Plan minimum additional bank account. investment: . $50 - ---------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 We'll deduct any CDSC from the amount you're of your shares by selling and send you or your selling agent the telephone, otherwise there balance, usually within three business days of are no limits to the amount receiving your order. you can sell If you paid for your shares with a check that . other restrictions may wasn't certified, we'll hold the sale proceeds apply to withdrawals from when you sell those shares for at least 15 days retirement plan accounts after the trade date of the purchase, or until the check has cleared. Using our . minimum $25 per Your account balance must be at least $10,000 Automatic withdrawal 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 . minimum $1,000 per You can exchange your Investor A Shares for exchange 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 . 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
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, 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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 27 .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of the Fund for Investor B Shares of any other Nations 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 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 29 [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 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: .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 .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 .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 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: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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] 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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declares and pays distributions of net investment income annually. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 33 [Graphic] Financial highlights The financial highlights table is designed to help you understand how the Fund has performed for the past five years. 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 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. 34
NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Year ended Period ended Period ended INVESTOR A SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 OPERATING PERFORMANCE: Net asset value, beginning of period $13.52 $22.44 $11.43 $15.74 $12.05 $10.64 Net investment income/(loss) (0.10) (0.14) (0.15) (0.07) (0.02) 0.03 Net realized and unrealized gain/(loss) on investments 1.42 (6.58) 11.19 (3.11) 4.42 1.46 Net increase/(decrease) in net asset value from operations 1.32 (6.72) 11.04 (3.18) 4.40 1.49 LESS DISTRIBUTIONS: Dividends from net investment income -- -- -- -- -- (0.03) 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) Net asset value, end of period $14.84 $13.52 $22.44 $11.43 $15.74 $12.05 TOTAL RETURN++ 9.76% (31.96)% 96.91% (21.32)% 37.02% 13.98% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $157,759 $146,457 $245,425 $16,143 $6,772 $3,697 Ratio of operating expenses to average net assets 1.40%(a)(b) 1.40%(a)(b) 1.38%(a)(b) 1.20%(a) 1.20%+(a) 1.23%+ Ratio of net investment income/(loss) to average net assets (0.73)% (0.77)% (0.90)% (0.67)% (0.20)%+ 0.30%+ Portfolio turnover rate 35% 48% 63% 87% 59% 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.46%(a) 1.45%(a) 1.47%(a) 1.47%(a) 1.51%+(a) 1.66%+
*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 became Banc of America Capital Management, LLC. + 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%. 35
NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Year ended Period ended Period ended INVESTOR B SHARES* 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 OPERATING PERFORMANCE: Net asset value, beginning of period $13.08 $21.94 $11.23 $15.59 $12.03 $10.65 Net investment income/(loss) (0.20) (0.23) (0.25) (0.11) (0.08) (0.03) Net realized and unrealized gain/(loss) on investments 1.37 (6.43) 10.99 (3.12) 4.35 1.46 Net increase/(decrease) in net asset value from operations 1.17 (6.66) 10.74 (3.23) 4.27 1.43 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (2.20) (0.03) (1.13) (0.71) (0.05) Net asset value, end of period $14.25 $13.08 $21.94 $11.23 $15.59 $12.03 TOTAL RETURN++ 8.94% (32.45)% 95.79% (21.86)% 36.06% 13.43% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $17,484 $11,744 $13,839 $5,127 $3,384 $2,635 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.15%(a)(b) 2.13%(a)(b) 1.95%(a) 1.87%+(a) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.48%) (1.52)% (1.65)% (1.42)% (0.87)%+ (0.45)%+ Portfolio turnover rate 35% 48% 63% 87% 59% 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.21%(a) 2.20%(a) 2.22%(a) 2.22%(a) 2.18%+(a) 2.41%+
*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 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 became Banc of America Capital Management, LLC. + 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%. 36
NATIONS SMALL COMPANY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Year ended Period ended INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99# 03/31/98* OPERATING PERFORMANCE: Net asset value, beginning of period $13.26 $22.21 $11.38 $15.74 $15.18 Net investment income/(loss) (0.20) (0.25) (0.23) (0.12) (0.08) Net realized and unrealized gain/(loss) on investments 1.39 (6.50) 11.09 (3.11) 1.35 Net increase/(decrease) in net asset value from operations 1.19 (6.75) 10.86 (3.23) 1.27 LESS DISTRIBUTIONS: Distributions from net realized capital gains -- (2.20) (0.03) (1.13) (0.71) Net asset value, end of period $14.45 $13.26 $22.21 $11.38 $15.74 TOTAL RETURN++ 8.97% (32.46)% 95.76% (21.66)% 8.75% - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,871 $2,813 $3,588 $1,951 $3,122 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.15%(a)(b) 2.13%(a)(b) 1.70%(a) 1.95%+(a) Ratio of net investment income/(loss) to average net assets (1.48)% (1.52)% (1.65)% (1.17)% (0.95)%+ Portfolio turnover rate 35% 48% 63% 87% 59% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.21%(a) 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%. 37 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 38 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 U.S. Treasury obligations and commercial paper. 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%. 39 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 principal 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 an NRSRO such as S&P or 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. 40 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, high quality debt security. 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. 41 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. 42 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. 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. 43 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 44 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 45 SEC file number: Nations Funds Trust, 811-09645 SMCOPROIX-0802 [Graphic] Where to find more information You'll find more information about Nations Small Company 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.nationsfunds.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. [LOGO] Nations Funds [Graphic] Nations Convertible Securities Fund - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 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 - ----------------- [LOGO] 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 38. 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 Convertible Securities Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUND Nations Convertible Securities 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 the highest risk. 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 Convertible Securities Fund focuses on long-term growth. It may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 12. [Graphic] ABOUT THE FUND NATIONS CONVERTIBLE SECURITIES FUND 4 Sub-adviser: BACAP --------------------------------------------------------------- OTHER IMPORTANT INFORMATION 10 --------------------------------------------------------------- HOW THE FUND IS MANAGED 12 [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 17 Contingent deferred sales charge 17 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 38 --------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 13. [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: .HAVE HIGHER INCOME POTENTIAL THAN THE UNDERLYING COMMON STOCK .ARE AFFECTED LESS BY CHANGES IN THE STOCK MARKET THAN THE UNDERLYING COMMON STOCK .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 Under normal circumstances, the Fund will invest at least 80% of its assets in convertible securities. Most convertible securities are 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: .the issuer's financial strength and revenue outlook .earnings trends, including changes in earnings estimates .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. 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 Convertible Securities Fund has the following risks: .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. .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. .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. .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. 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 21.34% 22.71% (5.85)% 24.11% 19.45% 21.96% 6.58% 26.76% 14.86% (7.90)% *Year-to-date return as of June 30, 2002: -3.02% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1999: 17.39% Worst: 3rd quarter 1998: -9.41%
6 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Fund, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Fund. The table also shows the returns for each period for the 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, taxes or other expenses of investing.
Life of 1 year 5 years 10 years Fund* Investor A Shares Returns Before Taxes -13.19% 10.44% 13.06% 13.20% Investor A Shares Returns After Taxes on Distributions -14.34% 6.11% 9.48% 9.90% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.99% 6.64% 9.30% 9.66% Investor B Shares Returns Before Taxes -13.05% -- -- 7.29% Investor C Shares Returns Before Taxes -9.49% 11.12% -- 11.24% CSFB Convertible Securities Index (reflects no deductions for fees, expenses or taxes) -6.41% 8.89% 11.10% 9.55%
*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. 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. [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 Investor A Investor B Investor C 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% 0.35% 0.35% 0.35% Other expenses ---- ---- ---- 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. 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. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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
9 [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: .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. .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 interest 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. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest 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. .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. .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. 10 .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, 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 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. You'll find the portfolio turnover rate for the Fund in Financial highlights. 11 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 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 advisory paid last fee fiscal year Nations Convertible Securities Fund 0.65% 0.65%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 12 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 funds in the Nations Funds Family. BACAP uses 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 Convertible Securities Fund. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. 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. 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 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 distribution 0.25% distribution 0.75% distribution 0.75% distribution and shareholder (12b-1)/service (12b-1) fee and (12b-1) fee and servicing fees fee 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. 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 [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. 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] 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: .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 .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. 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 16 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: .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. .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. .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. .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. .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: .you received the shares from reinvested distributions .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 17 [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. The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. 18 The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions acting as fiducuaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Fund .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 .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: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or 19 .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter 20 .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .shares bought through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 21 [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 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. 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 . $1,000 for regular accounts you can invest in Investor A and C . $500 for traditional and Roth IRAs, and Shares. You can invest up to Coverdell Education Savings Accounts $250,000 in Investor B Shares. . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: You can buy shares twice a Systematic . $ 100 month, monthly or quarterly, Investment Plan minimum additional investment: using automatic transfers from . $ 50 your bank account. - ------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 of your shares by We'll deduct any CDSC from the telephone, otherwise there are no limits to amount you're selling and send the amount you can sell you or your selling agent the . other restrictions may apply to withdrawals balance, usually within three from retirement plan accounts business days of receiving your order. 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. Using our . minimum $25 per withdrawal Your account balance must be at Automatic least $10,000 to set up the plan. Withdrawal 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 . 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 . minimum $25 per exchange You must already have an Automatic investment in the Funds into Exchange which you want to exchange. You 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 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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 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. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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] 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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. 27 .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of the Fund for Investor B Shares of any other Nations 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 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 29 [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 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: .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 .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 .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 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: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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] 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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declares and pays distributions of net investment income quarterly. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 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 CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended Period ended Year ended Year ended INVESTOR A SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $16.04 $22.17 $18.31 $17.34 $17.28 $17.35 Net investment income 0.59 0.51 0.46 0.12 0.51 0.58 Net realized and unrealized gain/(loss) on investments (0.04) (2.05) 5.26 0.96 0.25 2.89 Net increase/(decrease) in net asset value from operations 0.55 (1.54) 5.72 1.08 0.76 3.47 LESS DISTRIBUTIONS: Dividends from net investment income (0.52) (0.55) (0.45) (0.11) (0.52) (0.59) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) (2.95) Total dividends and distributions (0.57) (4.59) (1.86) (0.11) (0.70) (3.54) Net asset value, end of period $16.02 $16.04 $22.17 $18.31 $17.34 $17.28 TOTAL RETURN++ 3.48% (7.88)% 33.68% 6.25% 4.64% 21.54% =============================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $321,858 $315,857 $369,488 $352,000 $356,000 $391,000 Ratio of operating expenses to average net assets 1.25%(a)(b) 1.24%(a)(b) 1.22%+(b) 1.30%+ 1.15%(a) 1.10%(a) Ratio of net investment income to average net assets 3.53% 2.86% 1.96%+ 3.07%+ 2.97% 3.35% Portfolio turnover rate 50% 73% 65% 16% 66% 69% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 1.25%(a) 1.25%(a) 1.23%+ 1.32%+ 1.16%(a) 1.12%(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. + 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%. 35
NATIONS CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended Period ended Period ended INVESTOR B SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99** OPERATING PERFORMANCE: Net asset value, beginning of period $15.92 $22.06 $18.27 $17.30 $17.67 Net investment income 0.45 0.35 0.44 0.09 0.22 Net realized and unrealized gain/(loss) on investments (0.03) (2.00) 5.12 0.96 (0.17) Net increase/(decrease) in net asset value from operations 0.42 (1.65) 5.56 1.05 0.05 LESS DISTRIBUTIONS: Dividends from net investment income (0.41) (0.45) (0.36) (0.08) (0.24) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) Total dividends and distributions (0.46) (4.49) (1.77) (0.08) (0.42) Net asset value, end of period $15.88 $15.92 $22.06 $18.27 $17.30 TOTAL RETURN++ 2.68% (8.49)% 32.76% 6.10% 0.44% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $90,408 $49,763 $11,175 $4,000 $3,000 Ratio of operating expenses to average net assets 2.00%(a)(b) 1.99%(a)(b) 1.97%+(b) 2.06%+ 1.96%+(a) Ratio of net investment income to average net assets 2.78% 2.08% 1.21%+ 2.34%+ 2.14%+ Portfolio turnover rate 50% 73% 65% 16% 66% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 2.00%(a) 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%. 36
NATIONS CONVERTIBLE SECURITIES FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended Period ended Year ended Year ended INVESTOR C SHARES* 03/31/02# 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 OPERATING PERFORMANCE: Net asset value, beginning of period $16.08 $22.23 $18.35 $17.37 $17.24 $17.30 Net investment income 0.45 0.35 0.38 0.10 0.40 0.48 Net realized and unrealized gain/(loss) on investments (0.03) (2.02) 5.22 0.97 0.31 2.89 Net increase/(decrease) in net asset value from operations 0.42 (1.67) 5.60 1.07 0.71 3.37 LESS DISTRIBUTIONS: Dividends from net investment income (0.41) (0.44) (0.31) (0.09) (0.40) (0.48) Distributions from net realized capital gains (0.05) (4.04) (1.41) -- (0.18) (2.95) Total dividends and distributions (0.46) (4.48) (1.72) (0.09) (0.58) (3.43) Net asset value, end of period $16.04 $16.08 $22.23 $18.35 $17.37 $17.24 Total return++ 2.66% (8.50)% 32.81% 6.17% 4.29% 20.97% =============================================================================================================== RATIOS TO AVERAGE NET ASSETS / SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $20,370 $9,827 $3,033 $4,000 $4,000 $3,000 Ratio of operating expenses to average net assets 2.00%(a)(b) 1.99%(a)(b) 1.97%+(b) 1.80%+ 1.65%(a) 1.60% Ratio of net investment income to average net assets 2.78% 2.08% 1.21%+ 2.56%+ 2.45% 2.85% Portfolio turnover rate 50% 73% 65% 16% 66% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 2.00%(a) 1.98%+ 2.07%+ 1.91%(a) 1.86%
* 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. + 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%. 37 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 38 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 U.S. Treasury obligations and commercial paper. 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%. 39 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 principal 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 an NRSRO such as S&P or 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. 40 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, high-quality debt security. 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. 41 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. 42 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. 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. 43 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 100 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 44 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. 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, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 45 [Graphic] Where to find more information You'll find more information about Nations Convertible Securities 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.nationsfunds.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 CNVSECPROIX - 0802 [GRAPHIC] Nations LifeGoal Portfolios - ---------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 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 - ----------------- [LOGO] Nations Funds 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 61. 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, have different return and risk characteristics, and react 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 which 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 which 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 which 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: .you have longer-term investment goals .they're part of a balanced portfolio They may not be suitable for you if: .you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities .you have short-term investment goals .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 31. [Graphic] About the Portfolios NATIONS LIFEGOAL GROWTH PORTFOLIO 5 Sub-adviser: BACAP ------------------------------------------------ NATIONS LIFEGOAL BALANCED GROWTH PORTFOLIO 11 Sub-adviser: BACAP ------------------------------------------------ NATIONS LIFEGOAL INCOME AND GROWTH PORTFOLIO 18 Sub-adviser: BACAP ------------------------------------------------ ABOUT THE NATIONS FUNDS 25 ------------------------------------------------ OTHER IMPORTANT INFORMATION 29 ------------------------------------------------ HOW THE PORTFOLIOS ARE MANAGED 31
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 36 About Investor A Shares 37 Front-end sales charge 37 Contingent deferred sales charge 38 About Investor B Shares 38 Contingent deferred sales charge 38 About Investor C Shares 40 Contingent deferred sales charge 40 When you might not have to pay a sales charge 40 Buying, selling and exchanging shares 44 How orders are processed 46 How selling and servicing agents are paid 51 Distributions and taxes 53 -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 55 -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 61 -------------------------------------------------------------- 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 32. [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: .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 .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 .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: .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 .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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 10-30% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-20% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund
*Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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: .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. .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. .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. .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. .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. .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. .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 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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ----- -------- 14.57% 12.64% 25.61% 4.60% (14.35)% *Year-to-date return as of June 30, 2002: -6.68% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 23.55% Worst: 3rd quarter 2001: -17.56%
7 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Portfolio, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Portfolio. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Portfolio* Investor A Shares Returns Before Taxes -19.29% 6.48% 6.92% Investor A Shares Returns After Taxes on Distributions -19.37% 4.13% 4.57% Investor A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -11.75% 4.51% 4.86% Investor B Shares Returns Before Taxes -19.19% -- 3.88% Investor C Shares Returns Before Taxes -15.93% 6.95% 7.37% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.65%
*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. 8 [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 PORTFOLIO OPERATING EXPENSES/4/ (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12b-1) and shareholder 0.25% 1.00% 1.00% servicing fees ----- ----- ----- 0.50% 1.25% 1.25% Total annual Portfolio operating expenses ===== ===== =====
/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. 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 Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.98% and 1.33% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, 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 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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 $733 $1,143 $1,578 $2,783 Investor B Shares $743 $1,128 $1,640 $2,911 Investor C Shares $343 $828 $1,440 $3,090
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 $243 $828 $1,440 $2,911 Investor C Shares $243 $828 $1,440 $3,090
10 [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 32. [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: .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 .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 .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: .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 .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. 11 [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.
Nations LifeGoal Balanced Growth Target allocation for each Portfolio can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 5-15% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 5-15% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund
* Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Balanced Growth Portfolio has the following risks: .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. .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. .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. 12 .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. .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. .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. .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. .Technology and technology-related risk - The 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. .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. 13 [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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------- 11.20% 11.66% 14.38% 6.96% (3.18)% *Year-to-date return as of June 30, 2002: -3.33% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 12.39% Worst: 3rd quarter 1998: -8.96%
14 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total returns before taxes for Investor B Shares and Investor C Shares of the Portfolio, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Portfolio. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, Asset-Backed Securities Index and the Mortgaged-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Portfolio* Investor A Shares Returns Before Taxes -8.74% 6.75% 6.97% Investor A Shares Returns After Taxes on Distributions -10.06% 4.01% 4.22% Investor A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -5.16% 4.23% 4.40% Investor B Shares Returns Before Taxes -8.48% -- 6.02% Investor C Shares Returns Before Taxes -4.89% 7.43% 7.62% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.65% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 6.79%
*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. 15 [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 PORTFOLIO OPERATING EXPENSES/4/ (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12-b1) and shareholder 0.25% 1.00% 1.00% servicing fees ----- ----- ----- 0.50% 1.25% 1.25% Total annual Portfolio operating expenses ===== ===== =====
/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. 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 Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 1.07% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: . the amount the Portfolio expects to invest in each Fund, based on the target allocation . each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 16 [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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 $696 $992 $1,310 $2,208 Investor B Shares $704 $972 $1,366 $2,339 Investor C Shares $304 $672 $1,166 $2,529
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 $204 $672 $1,166 $2,339 Investor C Shares $204 $672 $1,166 $2,529
17 [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 32. [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, International/Global Stock and Money Market Funds. The team uses asset allocation as its principal investment approach. It: . 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 . 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 . 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: . 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 . 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. 18 [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.
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 Strategic Growth Fund Nations Capital Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock funds 0-10% Nations MidCap Value Fund Nations MidCap Growth Fund Small-capitalization stock funds 0-10% Nations SmallCap Value Fund Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund* Nations International Equity Fund Nations Marsico International Opportunities 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 Cash Reserves
* Because this Fund is closed to new investments, the Portfolio will not invest additional assets in this Fund. However, the team intends to keep existing investments in the Fund, subject to normal allocation decisions. 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] RISKS AND OTHER THINGS TO CONSIDER Nations LifeGoal Income and Growth Portfolio has the following risks: .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. .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. 19 .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. .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. .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. .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. .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. 20 [Graphic] MANY THINGS AFFECT A PORTFOLIO'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE PORTFOLIO'S HOLDINGS AND PORTFOLIO EXPENSES. .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. [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. [CHART] 1997 1998 1999 2000 2001 ----- ------- ----- ----- ------ 8.50% 10.12% 6.15% 5.72% 2.38% *Year-to-date return as of June 30, 2002: -1.87% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 6.25% Worst: 3rd quarter 2001: -2.81%
21 [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, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Portfolio's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Portfolio shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Portfolio Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the average annual total return before taxes for Investor B Shares and Investor C Shares of the Portfolio, however, it does not show after-tax returns for those classes and those classes' after-tax returns each will vary from the after-tax returns shown for the Investor A Shares of the Portfolio. The table also shows the returns for each period for 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 unmanaged index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices are not available for investment and do not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 Years Portfolio* Investor A Shares Returns Before Taxes -3.46% 5.28% 5.48% Investor A Shares Returns After Taxes on Distributions -4.87% 3.15% 3.23% Investor A Shares Returns After Taxes on Distributions and Sale of Portfolio Shares -2.05% 3.22% 3.31% Investor B Shares Returns Before Taxes -3.27% - 4.53% Investor C Shares Returns Before Taxes 0.65% 5.79% 5.97% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 11.47% Lehman Aggregate Bond Index (reflects no deductions for fees, expenses or taxes) 8.44% 7.43% 7.34%
*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. 22 [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 PORTFOLIO OPERATING EXPENSES/4/ (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12b-1) and shareholder 0.25% 1.00% 1.00% servicing fees ----- ----- ----- 0.50% 1.25% 1.25% Total annual Portfolio operating expenses ===== ===== =====
/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. 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 Portfolio's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. INDIRECT EXPENSES The Portfolio's annual operating expenses include a portion of the annual operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2003), and is based on: .the amount the Portfolio expects to invest in each Fund, based on the target allocation .each Fund's annualized expense ratio for the period ended March 31, 2002, adjusted as necessary to reflect current service provider fees 23 [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: .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 .you reinvest all dividends and distributions in the Portfolio .your investment has a 5% return each year .the Portfolio's operating expenses remain the same as shown in the table above .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 $679 $926 $1,191 $1,949 Investor B Shares $686 $903 $1,245 $2,080 Investor C Shares $286 $603 $1,045 $2,275
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 $186 $603 $1,045 $2,080 Investor C Shares $186 $603 $1,045 $2,275
24 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. 25
The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ STOCK FUNDS Nations Value Fund Growth of capital by investing in . at least 80% of its assets in common stocks companies that are believed to be of U.S. companies. The Fund generally invests in undervalued. 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 Strategic Growth Fund Long-term growth of capital. NationsStrategic Growth Master Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of companies selected from most major industry sectors . The Master Portfolio normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities - --------------------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund Growth of capital by investing in . at least 65% of its assets in common stocks of companies that are believed to have companies that have one or more of the following superior earnings growth potential. characteristics: .above-average earnings growth compared with the Russell 1000 Growth Index .established operating histories, strong balance sheets and favorable financial performance .above-average return on equity compared with the Russell 1000 Growth Index - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico Focused Long-term growth of capital. NationsMarsico Focused Equities Master Portfolio. Equities Fund The Master Portfolio invests: . at least 80% of its assets in equity securities. The investments mostly consist of equity securities of large capitalization companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks . up to 25% of its assets in foreign securities - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Value Fund Long-term growth of capital with income . at least 80% of its assets in equity securities of as a secondary consideration. U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in . at least 80% of its assets in U.S. companies emerging growth companies that are whose market capitalizations are within the range believed to have superior long-term of companies within the Russell MidCap Growth earnings growth prospects. Index and that are believed to have the potential for long-term growth of capital. 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 SmallCap Value Fund Long-term growth of capital by investing Nations SmallCap Value Master Portfolio. The in companies believed to be Master Portfolio invests: undervalued. . at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing . at least 80% 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 - ---------------------------------------------------------------------------------------------------------------------------------
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The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------- ------------------------------------------------------ INTERNATIONAL/GLOBAL STOCK FUNDS Nations International Value Long-term capital appreciation by Nations International Value Master Portfolio. The Fund investing primarily in equity securities of Master Portfolio invests: (closed to new investments) foreign issuers, including emerging . at least 65% of its assets in foreign companies markets 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 - --------------------------------------------------------------------------------------------------------------------------------- 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 . at least 80% of its assets in established East and other regions, including companies located in at least three countries developing 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 . 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 - --------------------------------------------------------------------------------------------------------------------------------- Nations Marsico International Long-term growth of capital Nations Marsico International Opportunities Master Opportunities Fund Portfolio. The Master Portfolio invests: . at least 65% of its assets in common stocks of foreign companies selected for their long-term growth potential. While the Master Portfolio may invest in companies of any size, it focuses on large companies. The Master Portfolio normally invests in issuers from at least three countries other than the United States and generally holds a core position of 35 to 50 common stocks - --------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS STOCK FUND Nations Emerging Markets Fund Long-term capital growth by investing . at least 80% of its assets in companies in primarily in equity securities of emerging markets or developing countries. The companies in emerging market Fund typically invests in securities of companies countries, such as those in Latin in at least three emerging markets countries at America, Eastern Europe, the Pacific any one time Basin, the Far East and India. . normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts . 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 Fund High current income consistent with . at least 80% of its assets in income-producing minimal fluctuations of principal. securities . 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 . 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 . at least 80% of its assets in bonds grade fixed income securities. . 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 . 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 - ---------------------------------------------------------------------------------------------------------------------------------
27
The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in - --------------------------------------------------------------------------------------------------------------------------------- International Bond Portfolio Maximize total return by investing in a .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. .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 diversified portfolio of high yield debt Master Portfolio invests: securities. .at least 80% 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 Investors Service, Inc. or "BB" or "B" by Standard & Poor's Corporation .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 .up to 25% of its assets in equity securities which may include convertible securities - --------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUND Nations Cash Reserves Preservation of principal value and .money market instruments, including commercial maintenance of a high degree of liquidity paper, bank obligations, short-term debt while providing current income. securities, short-term taxable municipal securities, repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations - ---------------------------------------------------------------------------------------------------------------------------------
28 [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: .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. .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 that is not already a feeder 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 a Portfolio becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .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 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. 29 .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. .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. .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. .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, 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 30 [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 70 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%
31 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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 a Portfolio's Board that the Portfolio: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 32 [Graphic] MARSICO CAPITAL MANAGEMENT, LLC 1200 17TH STREET SUITE 1300 DENVER, COLORADO 80202 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 Strategic Growth Fund/1/ Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations MidCap Value Fund Value Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations SmallCap Value Fund/1/ 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 Cash Reserves Cash Investment Team
/1/ These funds don't have their own investment sub-adviser because they invest in Nations Strategic Growth Master Portfolio and Nations SmallCap Value Master Portfolio, respectively. BACAP is the investment sub-adviser to each Master Portfolio. Nations Funds and BA Advisors have engaged other 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. 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 approximately $13.9 billion in assets under management. Marsico Capital is the investment sub-adviser to: .Nations Marsico Focused Equities Master Portfolio .Nations Marsico International Opportunities Master Portfolio Marsico Capital is a co-investment sub adviser to: .Nations International Equity 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. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio and Marsico Capital's portion of Nations International Equity 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. 33 [Graphic] BRANDES INVESTMENT PARTNER, L.P. 11988 EL CAMINO REAL SUITE 500 SAN DIEGO, CALIFORNIA 92130 [Graphic] GARTMORE GLOBAL PARTNERS GARTMORE HOUSE 8 FENCHURCH PLACE LONDON EC3M 4PH, ENGLAND [Graphic] INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. 1360 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30309 BRANDES INVESTMENT PARTNERS, L.P. Founded in 1974 , Brandes is an investment advisory firm with 59 investment professionals who manage more than $67 billion in assets. Brandes uses a value-oriented approach to managing global 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. GARTMORE GLOBAL PARTNERS Gartmore Global Partners is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore Global Partners was formed in 1995 as a registered investment adviser and manages more than $1 billion in assets. Gartmore Global Partners is 100% owned by Gartmore Investment Management plc whose advisory affiliates are members of Gartmore Group. Gartmore Group, the brand name of Nationwide Mutual Insurance Company's (Nationwide Mutual) asset management business, represents a unified global marketing and investment platform featuring nine affiliated investment advisors collectively managing over $75 billion in assets. Gartmore Group encompasses 170 portfolio managers, analysts and traders supported by approximately 1,000 professionals working in offices strategically located in the United States, United Kingdom, Sweden, Italy, Spain, Germany and Japan. Gartmore Global Partners generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore Global Partners is the investment sub-adviser to Nations Emerging Markets Fund. 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 Global Partners in 1995 and is a senior investment manager on the Gartmore Global Partners Emerging Markets Team. Before he joined Gartmore Global Partners, 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. INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC. INVESCO is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO 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. 34 [Graphic] PUTNAM INVESTMENT MANAGEMENT, LLC ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109 [Graphic] MACKAY SHIELDS LLC 9 WEST 57TH STREET NEW YORK, NEW YORK 10019 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 PUTNAM INVESTMENT MANAGEMENT, LLC Putnam is a wholly-owned subsidiary of Putnam Investments Trust 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. 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 $32 billion in assets, including over $10.5 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. 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. 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. 35 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 distribution and 0.25% 0.75% 0.75% shareholder servicing fees distribution distribution distribution (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. 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. 36 [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. 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] 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: . 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 . 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. 37 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ----------------------------------- $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
38 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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 Investor B Shares you A Shares after you've bought 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: .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. .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. .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. .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. .Conversions are free from federal tax. 39 [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: . you received the shares from reinvested distributions . 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 net asset 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: . 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 Money Market Funds, don't qualify for rights of accumulation. . 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. . You can choose to start the 13-month period up to 90 days before you sign the letter of intent. . Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. . 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. 40 .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Portfolios .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 .shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 41 The following plans can buy Investor A Shares without paying a front-end sales charge: .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) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Portfolio or a selling agent .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: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or 42 .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .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 .shares bought through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 43 [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. 44
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 .$1,000 for regular accounts in Investor A and C Shares. You can invest up to .$500 for traditional and Roth IRAs, $250,000 in Investor B Shares. and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic .$ 100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. .$ 50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum .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. .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 .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 .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 Investor B Shares of any other Portfolio or Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Portfolio or Nations Fund. 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 . 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.
45 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 46 [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: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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 $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: .$ 500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$ 250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 47 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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. 48 [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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. .You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Portfolio or Fund that is accepting investments. .The interests of a Portfolio's or Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Portfolio's or Fund's ability to manage its investments, a Portfolio or Fund may reject purchase orders and exchanges into a Portfolio or Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Portfolio or Fund you're exchanging. .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. 49 EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Portfolio for Investor B Shares of any other Portfolio or Nations 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 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 Investor C Shares of any other Portfolio or Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .You must already have an investment in the Portfolios or Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 50 [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 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 buy shares of a Portfolio. The amount of this commission depends on which share class you choose: . 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 . 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 . 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 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. 51 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Portfolios .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 52 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declare and pay distributions of net investment income quarterly, and distribute any net realized capital gain at least once a year. The Portfolios may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 Portfolio shares shortly before the Portfolio 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. 53 [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 of a Portfolio's ordinary income and net short-term capital gain 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Portfolio 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Portfolio shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 54 [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 a 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. 55 NATIONS LIFEGOAL GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.39 $15.48 $12.16 $12.50 $10.15 Net investment income --## 0.07 0.01 0.04 0.05 Net realized and unrealized gain/(loss) on investments 0.32 (2.26) 3.87 0.30 2.89 Net increase/(decrease) in net assets resulting from investment operations 0.32 (2.19) 3.88 0.34 2.94 LESS DISTRIBUTIONS: Distributions from net investment income (0.03) (0.05) (0.17) (0.08) (0.38) Distributions from net realized capital gains -- (2.85) (0.39) (0.60) (0.21) Total distributions (0.03) (2.90) (0.56) (0.68) (0.59) Net asset value, end of year $10.68 $10.39 $15.48 $12.16 $12.50 Total return++ 3.04% (16.50)% 32.67% 2.87% 29.68% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $16,967 $9,728 $4,528 $3,404 $1,526 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 0.00% 0.56% 0.09% 0.21% 0.40% Portfolio turnover rate 33% 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.50% 0.50% -- -- --
++ 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. ## Amount represents less than $0.01 per share. NATIONS LIFEGOAL GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Year ended Period ended INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98#* OPERATING PERFORMANCE: Net asset value, beginning of period $10.23 $15.35 $12.13 $12.49 $11.98 Net investment income/(loss) (0.07) 0.02 (0.08) (0.06) (0.02) Net realized and unrealized gain/(loss) on investments 0.30 (2.28) 3.84 0.31 0.99 Net increase/(decrease) in net assets resulting from investment operations 0.23 (2.26) 3.76 0.25 0.97 LESS DISTRIBUTIONS: Distributions from net investment income --## (0.01) (0.15) (0.01) (0.25) 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 $10.46 $10.23 $15.35 $12.13 $12.49 TOTAL RETURN++ 2.25% (17.18)% 31.68% 2.14% 8.55% ============================================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $29,079 $14,753 $8,972 $8,531 $5,829 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income/(loss) to average net assets (0.75)% (0.19)% (0.66)% (0.54)% (0.35)%+ Portfolio turnover rate 33% 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 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. ## Amount represents less than $0.01 per share. 56 NATIONS LIFEGOAL GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.18 $15.30 $12.09 $12.46 $10.15 Net investment income/(loss) (0.07) 0.03 (0.08) (0.05) (0.02) Net realized and unrealized gain/(loss) on investments 0.29 (2.29) 3.83 0.30 2.89 Net increase/(decrease) in net assets resulting from investment operations 0.22 (2.26) 3.75 0.25 2.87 LESS DISTRIBUTIONS: Distributions from net investment income --## (0.01) (0.15) (0.02) (0.35) Distributions from net realized capital gains -- (2.85) (0.39) (0.60) (0.21) Total distributions --## (2.86) (0.54) (0.62) (0.56) Net asset value, end of year $10.40 $10.18 $15.30 $12.09 $12.46 Total return++ 2.16% (17.18)% 31.65% 2.07% 28.89% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,436 $2,198 $1,485 $473 $342 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.09% Ratio of net investment income/(loss) to average net assets (0.75)% (0.19)% (0.66)% (0.54)% (0.19)% Portfolio turnover rate 33% 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 1.25% -- -- --
++ 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. ## Amount represents less than $0.01 per share. NATIONS LIFEGOAL BALANCED GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.35 $11.99 $10.82 $10.94 $9.95 Net investment income 0.27 0.40 0.34 0.25 0.28 Net realized and unrealized gain/(loss) on investments 0.19 (0.69) 1.53 0.21 1.79 Net increase/(decrease) in net assets resulting from investment operations 0.46 (0.29) 1.87 0.46 2.07 LESS DISTRIBUTIONS: Distributions from net investment income (0.29) (0.40) (0.41) (0.25) (0.58) Distributions from net realized capital gains (0.11) (0.95) (0.29) (0.33) (0.50) Total distributions (0.40) (1.35) (0.70) (0.58) (1.08) Net asset value, end of year $10.41 $10.35 $11.99 $10.82 $10.94 Total return++ 4.52% (2.61)% 18.03% 4.44% 21.76% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $11,343 $4,308 $2,298 $1,308 $489 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 2.77% 3.44% 3.12% 2.52% 2.62% Portfolio turnover rate 117% 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.50% 0.50% -- -- --
++ 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. 57 NATIONS LIFEGOAL BALANCED GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Year ended Period ended INVESTOR B SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98#* OPERATING PERFORMANCE: Net asset value, beginning of period $10.35 $12.00 $10.82 $10.92 $10.88 Net investment income 0.20 0.32 0.26 0.17 0.11 Net realized and unrealized gain/(loss) on investments 0.17 (0.70) 1.54 0.22 0.87 Net increase/(decrease) in net assets resulting from investment operations 0.37 (0.38) 1.80 0.39 0.98 LESS DISTRIBUTIONS: Distributions from net investment income (0.22) (0.32) (0.33) (0.16) (0.44) Distributions from net realized capital gains (0.11) (0.95) (0.29) (0.33) (0.50) Total distributions (0.33) (1.27) (0.62) (0.49) (0.94) Net asset value, end of period $10.39 $10.35 $12.00 $10.82 $10.92 Total return++ 3.62% (3.37)% 17.26% 3.78% 9.70% ========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $33,519 $13,676 $9,789 $8,925 $4,917 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income to average net assets 2.02% 2.69% 2.37% 1.77% 1.87%+ Portfolio turnover rate 117% 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 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 YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02# 03/31/01 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.44 $12.09 $10.92 $10.92 $9.95 Net investment income 0.20 0.34 0.26 0.20 0.23 Net realized and unrealized gain/(loss) on investments 0.18 (0.73) 1.55 0.26 1.78 Net increase/(decrease) in net assets resulting from investment operations 0.38 (0.39) 1.81 0.46 2.01 LESS DISTRIBUTIONS: Distributions from net investment income (0.22) (0.31) (0.35) (0.13) (0.54) Distributions from net realized capital gains (0.11) (0.95) (0.29) (0.33) (0.50) Total distributions (0.33) (1.26) (0.64) (0.46) (1.04) Net asset value, end of year $10.49 $10.44 $12.09 $10.92 $10.92 Total return++ 3.66% (3.43)% 17.22% 4.43% 21.10% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $3,655 $1,613 $2,092 $266 $737 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.09% Ratio of net investment income to average net assets 2.02% 2.69% 2.37% 1.77% 2.03% Portfolio turnover rate 117% 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 1.25% -- -- --
++ 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. 58 NATIONS LIFEGOAL INCOME AND GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.43 $10.69 $10.89 $10.71 $9.97 Net investment income 0.36 0.51 0.48 0.36 0.41 Net realized and unrealized gain/(loss) on investments 0.01 (0.06) 0.03 0.35 0.89 Net increase/(decrease) in net assets resulting from investment operations 0.37 0.45 0.51 0.71 1.30 LESS DISTRIBUTIONS: Distributions from net investment income (0.34) (0.47) (0.48) (0.33) (0.49) Distributions from net realized capital gains (0.05) (0.24) (0.23) (0.20) (0.07) Total distributions (0.39) (0.71) (0.71) (0.53) (0.56) Net asset value, end of year $10.41 $10.43 $10.69 $10.89 $10.71 TOTAL RETURN++ 3.56% 4.33% 4.93% 6.92% 13.38% ========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $4,241 $1,487 $789 $1,347 $126 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 3.56% 4.80% 4.53% 3.74% 3.92% Portfolio turnover rate 37% 35% 96% 107% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.50% 0.50% 0.50% 0.50% 0.50%
++ 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 Year ended Period ended INVESTOR B SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98#* OPERATING PERFORMANCE: Net asset value, beginning of period $10.44 $10.70 $10.89 $10.70 $10.51 Net investment income 0.29 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 0.29 0.37 0.44 0.63 0.55 LESS DISTRIBUTIONS: Distributions from net investment income (0.27) (0.39) (0.40) (0.24) (0.29) Distributions from net realized capital gains (0.05) (0.24) (0.23) (0.20) (0.07) Total distributions (0.32) (0.63) (0.63) (0.44) (0.36) Net asset value, end of period $10.41 $10.44 $10.70 $10.89 $10.70 TOTAL RETURN++ 2.77% 3.55% 4.25% 6.16% 5.33% ========================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $13,926 $5,391 $4,645 $4,806 $1,212 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income to average net assets 2.81% 4.05% 3.78% 2.99% 3.17%+ Portfolio turnover rate 37% 35% 96% 107% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 1.25% 1.25% 1.25% 1.25%+
* 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. 59 NATIONS LIFEGOAL INCOME AND GROWTH PORTFOLIO FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR C SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $10.40 $10.67 $10.90 $10.70 $9.97 Net investment income 0.29 0.43 0.40 0.31 0.36 Net realized and unrealized gain/(loss) on investments -- (0.07) 0.03 0.31 0.89 Net increase in net assets resulting from investment operations 0.29 0.36 0.43 0.62 1.25 LESS DISTRIBUTIONS: Distributions from net investment income (0.27) (0.39) (0.43) (0.22) (0.45) Distributions from net realized capital gains (0.05) (0.24) (0.23) (0.20) (0.07) Total distributions (0.32) (0.63) (0.66) (0.42) (0.52) Net asset value, end of year $10.37 $10.40 $10.67 $10.90 $10.70 Total return++ 2.77% 3.50% 4.11% 6.02% 12.83% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,829 $1,051 $848 $100 $87 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25% 1.09% Ratio of net investment income to average net assets 2.81% 4.05% 3.78% 2.99% 3.33% Portfolio turnover rate 37% 35% 96% 107% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 1.25% 1.25% 1.25% 1.25% 1.09%
++ 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. 60 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 61 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 U.S. Treasury obligations and commercial paper. 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. 62 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 principal 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 an NRSRO such as S&P or 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. 63 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, high quality debt security. 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. 64 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. 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. 65 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. 66 SEC file number: Nations Funds Trust, 811-09645 LGPROIX-0802 [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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Nations Research Fund - ----------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 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 ------------------ [LOGO] 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 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 Nations Research Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. The share classes that are included in this prospectus are currently not offered to the general public for investment. Nations Funds, however, at any time and without notice, may offer any of these share classes to the general public for investment. ABOUT THE FUND Nations Research 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 Research Fund may be suitable for you if: .you have longer-term investment goals .it's part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 RESEARCH 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 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 18 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 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S EQUITY RESEARCH ANALYSTS TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 11. [Graphic] THE INTEGRATION OF FUNDAMENTAL AND QUANTITATIVE RESEARCH APPROACHES PROVIDES COMPLEMENTARY INSIGHT INTO A COMPANY'S CAPACITY FOR SUSTAINING LONG-TERM GROWTH AND THE POTENTIAL FOR BETTER THAN EXPECTED NEAR-TERM PERFORMANCE. NATIONS RESEARCH FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks capital appreciation. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests in securities that are believed to be the best ideas of BACAP's team of equity research analysts. BACAP's research process seeks to identify mid-and large capitalization U.S. companies believed to have the greatest potential for capital appreciation. The Fund normally invests at least 80% of its assets in equity securities of U.S. companies and will typically hold between 50 and 100 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 uses the Russell 1000 Index as a general baseline for the Fund's sector diversification and industry group weighting. Then, within these sectors and industry groups, the stock selection process integrates fundamental and quantitative analysis. Starting with a universe of companies with market capitalizations of at least $1 billion, the team performs primary research which includes talking to company management at senior and other levels, suppliers, distributors, customers and competitors in order to form a comprehensive picture of the company within the context of its industry. Quantitative analysis, which considers growth, momentum and valuation factors, is then overlaid by the team in order to determine individual stock weightings. Quantitative analysis is also used to create risk control parameters. A security may be sold when its price reaches a target set by the team, when the company's growth prospects are seen as deteriorating, when the team believes other investments are more attractive, or 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 Research Fund has the following risks: .Investment strategy risk - The Fund's team chooses stocks it believes have the potential for capital appreciation. There is a risk that the value of these investments will not rise as expected, or will fall. The analysts on the team invest the Fund's assets in securities that they believe to be their best ideas. However, these ideas are also provided to other individuals and entities that may or may not decide to make the same or similar investment decisions based on these ideas. .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. .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. [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 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/ 0.65% 0.65% 0.65% ----- ----- ----- Total annual Fund operating expenses 1.55% 2.30% 2.30% Fee waivers and/or reimbursements (0.05)% (0.05)% (0.05)% ------- ------- ------- Total net expenses/5/ 1.50% 2.25% 2.25% ===== ===== =====
/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. 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 waive fees and/or reimburse expenses until July 31, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor A Shares $719 $1,033 Investor B Shares $728 $1,014 Investor C Shares $328 $714
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 $228 $714 Investor C Shares $228 $714
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: .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. .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. .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 analysts can also choose not to invest in specific securities described in this prospectus and in the SAI. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest 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. .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. .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 .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, 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 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 Research Fund is expected to be no more than 150%. 9 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 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, 2003. 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 Research Fund 0.65%
10 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Research Fund. BACAP's Equity Research Analysts Team makes the day-to-day investment decisions for the Fund. 11 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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. 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 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 distribution distribution distribution and shareholder (12b-1)/ (12b-1) fee and (12b-1) fee and servicing fees service fee 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. 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 [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. 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] 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: .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 .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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------------ $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% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 16 Here's how the conversion works: .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. .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. .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. .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. .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: .you received the shares from reinvested distributions .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 net asset 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. 17 [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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 18 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Fund .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 .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: .pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code (the tax code) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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. 19 CONTINGENT DEFERRED SALES CHARGES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 20 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 21 [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 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 invest in . $1,000 for regular account Investor A and C Shares. You can invest up to . $500 for traditional and $250,000 in Investor B Shares. Roth IRAs, and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic . $100 quarterly, using automatic transfers from your Investment Plan minimum additional bank account. investment: . $50 - ---------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 We'll deduct any CDSC from the amount you're of your shares by selling and send you or your selling agent the telephone, otherwise there balance, usually within three business days of are no limits to the amount receiving your order. you can sell . other restrictions may If you paid for your shares with a check that apply to withdrawals from wasn't certified, we'll hold the sale proceeds when retirement plan accounts you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our .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 a month, monthly, quarterly, bi-annually or Plan 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 . minimum $1,000 per You can exchange your Investor A Shares for exchange 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 . minimum $25 per exchange You must already have an investment Automatic in the Funds into which you want to Exchange exchange. You can make exchanges Feature 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 [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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan 25 .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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 .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of the Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on the Fund's ability to manage its investments, the Fund may reject purchase orders and exchanges into the Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. 28 EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of the Fund for Investor B Shares of any other Nations 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 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 Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 29 [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 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: .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 .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 .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 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: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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] 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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 normally declares and pays distributions of net investment income annually. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid (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 [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. If you buy Fund shares shortly before the Fund 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. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions of 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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 U.S. Treasury obligations and commercial paper. 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 principal 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 an NRSRO such as S&P or 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, high-quality debt security. 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. 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 39 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 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 has not reviewed any stock included in the S&P 500, S&P SmallCap 600 or S&P MidCap 400 Index for its investment merit. S&P determines and calculates its indices independently of the Funds and is not a sponsor or affiliate of the Funds. S&P gives no information and makes no statements about the suitability of investing in the Funds or the ability of its indices to track stock market performance. S&P makes no guarantees about the indices, any data included in them and the suitability of the indices or its 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 Research 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.nationsfunds.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 RESRCHPROIX-0802 [LOGO] Nations Funds [GRAPHIC] Value Funds - ----------------------------------------- Prospectus -- Investor A, B and C Shares August 1, 2002 Nations LargeCap Value Fund Nations MidCap Value Fund Nations SmallCap Value 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 - ----------------- [LOGO] 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 43. 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 LargeCap Value Fund, Nations MidCap Value Fund and Nations SmallCap Value Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUNDS The Funds invest 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. CHOOSING THE RIGHT FUND 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 Funds may be suitable for you if: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 16. [Graphic]About the Funds NATIONS LARGECAP VALUE FUND 4 Sub-adviser: BACAP ------------------------------- NATIONS MIDCAP VALUE FUND 7 Sub-adviser: BACAP ------------------------------- NATIONS SMALLCAP VALUE FUND 10 Sub-adviser: BACAP ------------------------------- OTHER IMPORTANT INFORMATION 14 ------------------------------- HOW THE FUNDS ARE MANAGED 16
[Graphic]About your investment INFORMATION FOR INVESTORS Choosing a share class 18 About Investor A Shares 19 Front-end sales charge 19 Contingent deferred sales charge 20 About Investor B Shares 20 Contingent deferred sales charge 20 About Investor C Shares 22 Contingent deferred sales charge 22 When you might not have to pay a sales charge 23 Buying, selling and exchanging shares 27 How orders are processed 29 How selling and servicing agents are paid 35 Distributions and taxes 37 -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 43 -------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 17. [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. NATIONS LARGECAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 1000 Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 4 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [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] RISKS AND OTHER THINGS TO CONSIDER Nations LargeCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses/4/ 0.42% 0.42% 0.42% Total annual Fund operating expenses/5/ 1.32% 2.07% 2.07% ======= ===== =====
/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. 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, 2003. There is no guarantee that these limitations will continue. Because these limitations equal the estimates of total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 5 [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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $702 $970 Investor B Shares $710 $949 Investor C Shares $310 $649
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 $210 $649 Investor C Shares $210 $649
6 [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 17. [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. NATIONS MIDCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital with income as a secondary consideration. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell MidCap Value Index and that are believed to have the potential for long-term growth of capital. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow and relative dividend yield. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. 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: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [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] RISKS AND OTHER THINGS TO CONSIDER Nations MidCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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] 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/ 0.50% 0.50% 0.50% ---- ---- ---- Total annual Fund operating expenses/5/ 1.50% 2.25% 2.25% ==== ==== ====
/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. 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, 2003. There is no guarantee that these limitations will continue. Because these limitations equal the estimates of total annual operating expenses, no waivers are shown in the table above. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .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 $719 $1,023 Investor B Shares $728 $1,003 Investor C Shares $328 $703
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 $228 $703 Investor C Shares $228 $703
9 [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 VALUE STRATEGIES TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE MASTER PORTFOLIO. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 17. [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. NATIONS SMALLCAP VALUE FUND [Graphic] INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing in companies believed to be undervalued. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund invests all of its assets in Nations SmallCap Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 80% of its assets in equity securities of U.S. companies whose market capitalizations are within the range of the companies within the Russell 2000 Value Index and that are believed to have the potential for long-term growth of capital. The Master Portfolio may also invest in real estate investment trusts. 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 a three prong approach, combining fundamental and quantitative analysis with risk management to identify value opportunities and construct the portfolio. The management team looks at, among other things: .fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity .various measures of relative valuation, including price to cash flow, price to earnings, price to sales and price to book. The team believes that companies with lower relative valuation are generally more likely to provide better opportunities for capital appreciation .a company's current operating margins relative to its historic range .indicators of potential stock price appreciation. These 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. Additionally, the management team uses analytical tools to actively monitor the risk profile of the portfolio. The team may sell a security when its price reaches a target set by the team, if there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, or for other reasons. The team may use various strategies, consistent with the Master Portfolio's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: .may limit the number of buy and sell transactions it makes .may try to sell shares that have the lowest tax burden on shareholders .may offset capital gains by selling securities to realize a capital loss While the Fund may try 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. 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 SmallCap Value Fund has the following risks: .Investment strategy risk - The team chooses stocks 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 or as quickly as the team expects, or will fall. .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. .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. .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. .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] 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. 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. 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 (Expenses that are deducted from the Fund 's assets)/4/ Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses/5/ 0.48% 0.48% 0.48% ----- ----- ----- Total annual Fund operating expenses 1.63% 2.38% 2.38% Fee waivers and/or reimbursements (0.08)% (0.08)% (0.08)% ------- ------- ------- Total net expenses/6/ 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. 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/ These fees and expenses and the examples below include the Fund's portion of the fees and expenses deducted from the Master Portfolio. /5/ Other expenses are based on estimates for the current fiscal year. /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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year examples 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 $1,053 Investor B Shares $733 $1,035 Investor C Shares $333 $735
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 $735 Investor C Shares $233 $735
13 [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: .Changing investment objective 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. .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 of these Funds that is not already a feeder 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 14 .Bank of America and its affiliates - Bank of America and its affiliates currently provide services to 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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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 SmallCap Value Master Portfolio is expected to be no more than 100%. You'll find the portfolio turnover rate for each other Fund in Financial Highlights. 15 [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 70 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, 2003. 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: ANNUAL INVESTMENT ADVISORY FEE, AS A % OF AVERAGE DAILY NET ASSETS
Maximum advisory fee Nations LargeCap Value Fund 0.65% Nations MidCap Value Fund 0.75% Nations SmallCap Value Fund/1/ 0.90%
/1/ The Fund doesn't have its own investment advisor because it invests in Nations SmallCap 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 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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 shareholder's best interests. BA Advisors and Nations 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. 16 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 LargeCap Value Fund Value Strategies Team Nations MidCap Value Fund Value Strategies Team Nations SmallCap Value Fund/1/ Value Strategies Team
/1/ Nation small Cap Value Fund doesn't have its own investment sub-adviser because it invests in Nations SmallCap Value Master Portfolio. BACAP is the investment sub-adviser to the Master Portfolio. 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. 17 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 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 distribution and 0.25% 0.75% 0.75% shareholder servicing fees distribution distribution distribution (12b-1)/ (12b-1) fee and (12b-1) fee and service fee 0.25% service 0.25% service fee 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. 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. 18 [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: .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 .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 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. 19 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: .If you sell your shares 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 net asset 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: .you bought the shares before August 1, 1997 .you received the shares from reinvested distributions .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 20 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 you bought between after 8/1/1997 and 11/15/1998 11/15/1998 in the following amounts: ---------- ------------------------------ $0 - $250,000 - $500,000 - $249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% the second year you own them 4.0% 4.0% 2.0% 1.0% the third year you own them 3.0% 3.0% 1.0% none the fourth year you own them 3.0% 3.0% none none the fifth year you own them 2.0% 2.0% none none the sixth year you own them 1.0% 1.0% none none after six years of owning them none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 21 Here's how the conversion works: .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. .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. .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. .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. .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: .you received the shares from reinvested distributions .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 net asset 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. 22 [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: .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 Money Market Funds, don't qualify for rights of accumulation. .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. .You can choose to start the 13-month period up to 90 days before you sign the letter of intent. .Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. .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. .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. .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. .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 Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: .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 23 .banks, trust companies and thrift institutions, acting as fiduciaries .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 .Nations Funds' Trustees, Directors and employees of its investment sub-advisers .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 .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 .employees or partners of any service provider to the Funds .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 .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: .pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code (the tax code) .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: .have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or .sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with the Fund or a selling agent .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. 24 CONTINGENT DEFERRED SALES CHARGES (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter .the following retirement plan distributions: .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) .distributions from an individual retirement account (IRA) or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 25 .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 .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 .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 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 26 [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 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. 27 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 . $1,000 for regular account Investor A and C Shares. You can invest up to . $500 for traditional and Roth $250,000 in Investor B Shares. IRAs, and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . $100 for all accounts Using our Systematic minimum initial investment: You can buy shares twice a month, monthly Investment Plan . $100 or quarterly, using automatic transfers from minimum additional investment: your bank account . . $50 - ----------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 of We'll deduct any CDSC from the amount your shares by telephone, you're selling and send you or your selling otherwise there are no limits to agent the balance, usually within three the amount you can sell business days of receiving your order. . 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 plan accounts 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 Automatic .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 . minimum $1,000 per You can exchange your Investor A Shares exchange 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 Investor B Shares of any other Nations Fund. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. 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 . minimum $25 per exchange You must already have an investment Exchange Feature in the Funds into which you want to exchange. You can make exchanges monthly or quarterly.
28 [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. 29 [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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .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. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan 30 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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: .We'll deduct any CDSC from the amount you're selling and send you the balance. .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. 31 .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or 25th of the month. .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. .We'll send you a check or deposit the money directly to your bank account. .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. 32 [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: .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). .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: .You won't pay a front-end sales charge on the shares of the Fund you're exchanging. .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. 33 EXCHANGING INVESTOR B SHARES You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations 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 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 a Fund for Investor C Shares of any other Nations Fund. 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. 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 34 [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: .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 .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 .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. 35 OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the offering price per share of Investor A Shares .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares .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. 36 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. The Funds distribute any net realized capital gain at least once a year. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently
Frequency of declaration and payment Fund of income distributions Nations LargeCap Value Fund quarterly Nations MidCap Value Fund quarterly Nations SmallCap Value 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 paid (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. 37 [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 Fund shares shortly before the Fund 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 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 Funds have built up, or have the potential to build up, high levels of unrealized capital gain. HOW TAXES AFFECT YOUR INVESTMENT Distributions of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 38 [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. Financial highlights for Investor A Shares, Investor B Shares and Investor C Shares of Nations SmallCap Value Fund are not provided because these classes of shares for this Fund 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. 39 NATIONS LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.07 Net realized and unrealized gain/(loss) on investments 0.63 Net increase/(decrease) in net asset value from operations 0.70 LESS DISTRIBUTIONS: (0.01) Dividends from net investment income Net asset value, end of period $10.69 TOTAL RETURN++ 7.03% ========================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $ 315 Ratio of operating expenses to average net assets 1.32%+(a) Ratio of net investment income to average net assets 0.63%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.56%+(a)
* LargeCap Value Investor A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. NATIONS LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.00## Net realized and unrealized gain/(loss) on investments 0.67 Net increase/(decrease) in net asset value from operations 0.67 LESS DISTRIBUTIONS: (0.00)## Dividends from net investment income Net asset value, end of period $10.67 TOTAL RETURN++ 6.74% ========================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $ 290 Ratio of operating expenses to average net assets 2.07%+(a) Ratio of net investment income/(loss) to average net assets (0.12)%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.31%+(a)
* LargeCap Value Investor B Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 40 NATIONS LARGECAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.00## Net realized and unrealized gain/(loss) on investments 0.67 Net increase(decrease) in net asset value from operations 0.67 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of period $10.67 TOTAL RETURN++ 6.74% ================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $21 Ratio of operating expenses to average net assets 2.07%+(a) Ratio of net investment income/(loss) to average net assets (0.12)%+ Portfolio turnover rate 24% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.31%+(a)
* LargeCap Value Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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 MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR A SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income 0.04 Net realized and unrealized gain/(loss) on investments 1.30 Net increase/(decrease) in net asset value from operations 1.34 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) Net asset value, end of period $11.30 TOTAL RETURN++ 13.37% =============================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $ 573 Ratio of operating expenses to average net assets 1.50%+(a) Ratio of net investment income to average net assets 0.39%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.28%+(a)
* MidCap Value Investor A Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income 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%. 41 NATIONS MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR B SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.04) Net realized and unrealized gain/(loss) on investments 1.35 Net increase/(decrease) in net asset value from operations 1.31 LESS DISTRIBUTIONS: Dividends from net investment income (0.02) Net asset value, end of period $11.29 TOTAL RETURN++ 13.14% ============================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $524 Ratio of operating expenses to average net assets 2.25%+(a) Ratio of net investment income/(loss) to average net assets (0.36)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.03%+(a)
* MidCap Value Investor B Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. (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 MIDCAP VALUE FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED INVESTOR C SHARES 03/31/02*# Net asset value, beginning of period $10.00 Net investment income/(loss) (0.05) Net realized and unrealized gain/(loss) on investments 1.36 Net increase/(decrease) in net asset value from operations 1.31 LESS DISTRIBUTIONS: Dividends from net investment income (0.00)## Net asset value, end of period $11.31 TOTAL RETURN++ 13.10% ============================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $93 Ratio of operating expenses to average net assets 2.25%+(a) Ratio of net investment income/(loss) to average net assets (0.36)%+ Portfolio turnover rate 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 3.03%+(a)
* MidCap Value Investor C Shares commenced operations on November 20, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 42 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 43 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 U.S. Treasury obligations and commercial paper. 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%. 44 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 principal 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 an NRSRO such as S&P or 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. 45 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, high quality debt security. 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. 46 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. 47 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. 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. 48 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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. 49 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. 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, S&P SMALLCAP 600 OR S&P MIDCAP 400 INDEX FOR ITS INVESTMENT MERIT. S&P DETERMINES AND CALCULATES ITS INDICES INDEPENDENTLY OF THE FUNDS AND IS NOT A SPONSOR OR AFFILIATE OF THE FUNDS. S&P GIVES NO INFORMATION AND MAKES NO STATEMENTS ABOUT THE SUITABILITY OF INVESTING IN THE FUNDS OR THE ABILITY OF ITS INDICES TO TRACK STOCK MARKET PERFORMANCE. S&P MAKES NO GUARANTEES ABOUT THE INDICES, ANY DATA INCLUDED IN THEM AND THE SUITABILITY OF THE INDICES OR ITS DATA FOR ANY PURPOSE. "STANDARD AND POOR'S," "S&P 500" AND "S&P 600" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. 50 [Graphic] Where to find more information You'll find more information about the 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.nationsfunds.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 number: Nations Funds Trust, 811-09645 CAPVALUEPROIX-0802 [LOGO] Nations Funds [GRAPHIC] Index Funds Prospectus -- Investor A Shares August 1, 2002 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 [LOGO] 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 40. 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: .you have longer-term investment goals .they're part of a balanced portfolio .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: .you're not prepared to accept or are unable to bear the risks associated with equity securities .you have short-term investment goals .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 ENGAGED A SUB-ADVISER -- BANC AMERICA CAPITAL MANAGEMENT, LLC (BACAP), WHICH IS RESPONSIBLE FOR THE DAY-TO-DAY INVESTMENT DECISIONS FOR EACH THE FUNDS. [Graphic] YOU'LL FIND MORE ABOUT BA ADVISORS AND BACAP STARTING ON PAGE 26. [Graphic] About the Funds NATIONS LARGECAP INDEX FUND 4 Sub-adviser: BACAP - ------------------------------------------------------------- NATIONS MANAGED INDEX FUND 9 Sub-adviser: BACAP - ------------------------------------------------------------- NATIONS MIDCAP INDEX FUND 14 Sub-adviser: BACAP - ------------------------------------------------------------- NATIONS SMALLCAP INDEX FUND 19 Sub-adviser: BACAP - ------------------------------------------------------------- OTHER IMPORTANT INFORMATION 24 - ------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 26
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 28 How orders are processed 30 How selling and servicing agents are paid 34 Distributions and taxes 35 - -------------------------------------------------------------- FINANCIAL HIGHLIGHTS 37 - -------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 40 - -------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [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 27. [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, or 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: .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. .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. .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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------- -------- 22.22% 32.04% 28.06% 20.34% (9.60)% (12.45)% *Year-to-date return as of June 30, 2002: -13.40% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998: 21.12% Worst: 3rd quarter 2001: -14.81%
6 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -12.45% 10.00% 12.73% Investor A Shares Returns After Taxes on Distributions -12.73% 9.13% 11.78% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -7.59% 7.93% 10.28% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.17%
*The inception date of Investor A Shares is October 10, 1995. 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 FUND'S ASSETS. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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% 0.28% Other expenses ----- Total annual Fund operating expenses 0.93% (0.33)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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
8 [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 27. [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 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. 9 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. 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, or for other reasons. 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: .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 .may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions While the Fund may try 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. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Managed Index Fund has the following risks: .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. .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. .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. .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. 10 [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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ -------- ------- 33.19% 26.33% 17.41% (11.14)% (9.56)% *Year-to-date return as of June 30, 2002: -12.83% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 1998 20.91% Worst: 3rd quarter 2001: -14.42%
11 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes -9.56% 9.68% 12.10% Investor A Shares Returns After Taxes on Distributions -11.19% 8.26% 10.70% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares -4.25% 7.89% 9.95% S&P 500 (reflects no deductions for fees, expenses or taxes) -11.88% 10.70% 13.04%
*The inception date of Investor A Shares is July 31, 1996. The return for the index shown is 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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% 0.35% Other expenses ----- Total annual Fund operating expenses 1.00% (0.25)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $294 $528 $1,202
13 [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 27. [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, or 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 MidCap Index Fund has the following risks: .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. .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. .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. 15 [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. [CHART] 2001 ------ (1.21)% *Year-to-date return as of June 30, 2002: -3.62% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 17.83% Worst: 3rd quarter 2001: -16.70%
16 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for the S&P MidCap 400, an unmanaged index of 400 common stocks, weighted by market value. The S&P MidCap 400 is not available for investment and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year Fund* Investor A Shares Returns Before Taxes -1.21% 4.83% Investor A Shares Returns After Taxes on Distributions -2.53% 2.27% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 0.41% 3.39% S&P MidCap 400 (reflects no deductions for fees, expenses or taxes) -0.62% 5.43%
*The inception date of Investor A Shares is May 31, 2000. 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] 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. [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% 0.32% Other expenses ----- Total annual Fund operating expenses 0.97% (0.37)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $272 $500 $1,156
18 [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 27. [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 with market capitalizations ranging from $500 million to $3 billion 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, or for other reasons. 19 [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: .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. .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. .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. .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. 20 [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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ 27.55%(1.89)% 5.27% 9.20% 5.66% *Year-to-date return as of June 30, 2002: -0.52% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2001: 20.49% Worst: 3rd quarter 1998: -20.89%
21 [Graphic] THE RETURNS SHOWN FOR THE INDEX DO NOT REFLECT FEES, BROKERAGE COMMISSIONS, TAXES OR OTHER EXPENSES OF INVESTING. AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 The table shows the Fund's Investor A Shares' average annual total returns (i) before taxes, (ii) after taxes on distributions and (iii) after taxes on distributions and sale of Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. The actual after-tax returns for an investor would depend on the investor's tax situation and may differ from those shown in the table. In addition, the after-tax returns shown in the table are not relevant to investors who hold their Fund Shares through tax-deferred arrangements, such as 401(k) plans or retirement accounts. The table also shows the returns for each period for 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 and does not reflect fees, brokerage commissions, taxes or other expenses of investing.
Life of 1 year 5 years Fund* Investor A Shares Returns Before Taxes 5.66% 8.73% 9.01% Investor A Shares Returns After Taxes on Distributions 5.07% 8.25% 8.54% Investor A Shares Returns After Taxes on Distributions and Sale of Fund Shares 3.89% 6.99% 7.24% S&P SmallCap 600 (reflects no deductions for fees, expenses or taxes) 6.51% 10.65% 11.63%
*The inception date of Investor A Shares is October 15, 1996. The return for the index shown is from that date. 22 [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] 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. [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% 0.36% Other expenses ----- Total annual Fund operating expenses 1.01% (0.36)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $286 $523 $1,204
23 [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: .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. .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 Fund that is not already a feeder fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. .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. .Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest 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. .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. .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. 24 .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. .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. When distributed, these gains are taxable to shareholders as ordinary income, which generally are taxed 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. 25 [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 70 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, 2003. 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% 0.15% Nations MidCap Index Fund 0.40% 0.03% Nations SmallCap Index Fund 0.40% 0.04%
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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .materially change a sub-advisory agreement with a sub-adviser. 26 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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. 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. 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. 27 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. 28
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 .$1,000 for regular accounts invest in Investor A Shares. .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimuminitial investment: You can buy shares twice a month, Systematic .$ 100 monthly or quarterly, using automatic Investment minimumadditional investment: transfers from your bank account. Plan .$ 50 - --------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your We'll send you or your selling agent the shares by telephone, otherwise there sale proceeds, usually within three are no limits to the amount you can sell business days of receiving your order. .other restrictions may apply to 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 .minimum $25 per withdrawal Your account balance must be at least Automatic $10,000 to set up the plan. You can make Withdrawal withdrawals twice a month, monthly, Plan quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. - --------------------------------------------------------------------------------------------------------------------- Exchanging shares In a lump sum .minimum $1,000 per exchange You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. Using our .minimum $25 per exchange You must already have an investment in Automatic the Funds into which you want to Exchange exchange. You can make exchanges Feature monthly or quarterly.
29 [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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 30 [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Investor A Shares at net asset value per share. .If we don't receive your money within three business days of receiving your order, we'll refuse the order. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 31 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .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. .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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .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. .We can delay payment of the sale proceeds for up to seven days. .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .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. 32 [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: .You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. .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 Investor C Shares of any other Nations Fund. .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .The interests of a Fund's long-term shareholders and its ability to manage its investments may be adversely affected when its shares are repeatedly bought and sold in response to short-term market fluctuations -- also known as "market timing." The exchange privilege is not intended as a vehicle for market timing. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. When BA Advisors believes frequent trading would have a disruptive effect on a Fund's ability to manage its investments, a Fund may reject purchase orders and exchanges into a Fund by any person, group or account that is believed to be a market timer. .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). .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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 33 [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. [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. 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: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund .an amount of up to 1.00% of the net asset value per share on all sales of Investor A Shares .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. 34 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Normally, each Fund will declare and pay distributions of net investment income as indicated in the table below. The Funds may, however, declare and pay distributions of net investment income more frequently.
Frequency of declaration and Fund payment of income distributions Nations LargeCap Index Fund annually Nations Managed Index Fund annually Nations MidCap Index Fund annually Nations SmallCap Index 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 paid (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. 35 [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 Fund shares shortly before the Fund 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 of a Fund's ordinary income and net short-term capital gain 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. 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 distributions. WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 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. Any such capital gain or loss may be long-term capital gain or loss if you have held such Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, capital losses may be disallowed. 36 [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. 37
NATIONS LARGECAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99 03/31/98# OPERATING PERFORMANCE: Net asset value, beginning of year $22.24 $28.76 $24.94 $22.31 $15.87 Net investment income 0.18 0.17 0.19 0.19 0.21 Net realized and unrealized gain/(loss) on investments (0.26) (6.52) 4.08 3.63 7.05 Net increase/(decrease) in net asset value from operations (0.08) (6.35) 4.27 3.82 7.26 LESS DISTRIBUTIONS: Dividends from net investment income (0.18) (0.17) (0.19) (0.20) (0.23) Distributions from net realized capital gains -- (0.00)## (0.26) (0.99) (0.59) Total dividends and distributions (0.18) (0.17) (0.45) (1.19) (0.82) Net asset value, end of year $21.98 $22.24 $28.76 $24.94 $22.31 TOTAL RETURN++ (0.30)% (22.18)% 17.32% 18.00% 46.58% - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $33,238 $27,417 $28,943 $13,827 $4,595 Ratio of operating expenses to average net assets 0.60%(a)(b) 0.60%(a)(b) 0.60%(a)(b) 0.60%(a) 0.60%(a) Ratio of operating expenses including interest expense to average net assets 0.00% -- -- -- 0.61%(a) Ratio of net investment income to average net assets 0.80% 0.63% 0.71% 0.92% 1.14% Portfolio turnover rate 7% 8% 7% 4% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93%(a) 0.93%(a) 0.96%(a) 0.96%(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. ## 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 YEAR YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $14.89 $22.04 $19.39 $17.14 $11.89 Net investment income 0.08 0.08 0.11 0.14 0.14 Net realized and unrealized gain/(loss) on investments 0.40 (4.47) 2.78 2.39 5.40 Net increase/(decrease) in net asset value from operations 0.48 (4.39) 2.89 2.53 5.54 LESS DISTRIBUTIONS: Dividends from net investment income (0.09) (0.07) (0.11) (0.13) (0.14) Distributions from net realized capital gains (1.29) (2.69) (0.13) (0.15) (0.15) Total dividends and distributions (1.38) (2.76) (0.24) (0.28) (0.29) Net asset value, end of year $13.99 $14.89 $22.04 $19.39 $17.14 TOTAL RETURN++ 2.55% (21.75)% 15.04% 14.97% 47.21% - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $25,420 $32,402 $51,433 $51,439 $25,447 Ratio of operating expenses to average net assets 0.75%(a)(b) 0.75%(a)(b) 0.75%(a)(b) 0.75%(a) 0.75%(a)(b) Ratio of net investment income to average net assets 0.58% 0.42% 0.55% 0.78% 1.01% Portfolio turnover rate 345% 97% 64% 35% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a) 0.95%(a) 0.97%(a) 0.98%(a) 1.05%(a)
+ 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%. 38
NATIONS MIDCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED PERIOD ENDED INVESTOR A SHARES 03/31/02# 03/31/01* Net asset value, beginning of period $8.41 $9.55 Net investment income/(loss) 0.05 0.05 Net realized and unrealized gain/(loss) on investments 1.46 (0.24) Net increase/(decrease) in net asset value from operations 1.51 (0.19) LESS DISTRIBUTIONS: Dividends from net investment income (0.04) (0.06) Distributions from net realized capital gains (0.55) (0.89) Total dividends and distributions (0.59) (0.95) Net asset value, end of period $9.33 $8.41 TOTAL RETURN++ 17.99% (2.84)% - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,123 $215 Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) Ratio of operating expenses including interest expense to average net assets 0.00% 0.60%+(a) Ratio of net investment income/(loss) to average net assets 0.57% 0.57%+ Portfolio turnover rate 16% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97%(a) 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. # 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%.
NATIONS SMALLCAP INDEX FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02# 03/31/01# 03/31/00# 03/31/99# 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $13.22 $13.52 $11.03 $14.08 $9.82 Net investment income 0.03 0.04 0.01 0.03 0.03 Net realized and unrealized gain/(loss) on investments 2.72 (0.32) 2.49 (2.91) 4.57 Net increase/(decrease) in net asset value from operations 2.75 (0.28) 2.50 (2.88) 4.60 LESS DISTRIBUTIONS: Dividends from net investment income (0.04) (0.02) (0.01) (0.03) (0.03) Distributions from net realized capital gains (0.33) -- -- (0.14) (0.31) Total dividends and distributions (0.37) (0.02) (0.01) (0.17) (0.34) Net asset value, end of year $15.60 $13.22 $13.52 $11.03 $14.08 TOTAL RETURN++ 20.97% (2.06)% 22.67% (20.67)% 47.35% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $8,724 $6,517 $7,610 $9,782 $13,768 Ratio of operating expenses to average net assets 0.65%(a)(b) 0.66%(a)(b) 0.75%(a) 0.75%(a)(b) 0.75%(a)(b) Ratio of operating expenses including interest expense to average net assets 0.00% -- 0.76%(a) -- -- Ratio of net investment income to average net assets 0.21% 0.31% 0.10% 0.27% 0.27% Portfolio turnover rate 18% 65% 53% 65% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.01%(a) 1.04%(a) 1.02%(a) 1.07%(a) 1.27%(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%. 39 [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 Investors Service, 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 debt security issued by banks, corporations, municipalities and other borrowers. 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. 40 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 U.S. Treasury obligations and commercial paper. 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%. 41 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 principal 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 an NRSRO such as S&P or 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. 42 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, high quality debt security. 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. 43 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. 44 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. 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. 45 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 2000 Value Index - an unmanaged index comprised of securities in the Russell 2000 Index, which is a measure of small company performance. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and forecasted growth rates. It 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. Russell MidCap Growth Index - an unmanaged index which measures the performance of those Russell MidCap companies with higher price-to-book ratios and forecasted growth values. The companies are included in the Russell 1000 Growth Index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Index - an unmanaged index which measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. As of the latest reconstitution, the average market capitalization was approximately $4.0 billion; the median market capitalization was approximately $2.9 billion. The largest company in the index had an approximate market capitalization of $12 billion. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell MidCap(R) Value Index/1/ - an unmanaged index which measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. 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/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. 46 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. 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, S&P SMALLCAP 600 OR S&P MIDCAP 400 INDEX FOR ITS INVESTMENT MERIT. S&P DETERMINES AND CALCULATES ITS INDICES INDEPENDENTLY OF THE FUNDS AND IS NOT A SPONSOR OR AFFILIATE OF THE FUNDS. S&P GIVES NO INFORMATION AND MAKES NO STATEMENTS ABOUT THE SUITABILITY OF INVESTING IN THE FUNDS OR THE ABILITY OF ITS INDICES TO TRACK STOCK MARKET PERFORMANCE. S&P MAKES NO GUARANTEES ABOUT THE INDICES, ANY DATA INCLUDED IN THEM AND THE SUITABILITY OF THE INDICES OR ITS DATA FOR ANY PURPOSE. "STANDARD AND POOR'S," "S&P 500" AND "S&P 600" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. 47 SEC file number: Nations Funds Trust, 811-09645 INDEXPROIA-0802 [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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------------------- Prospectus -- Investor A Shares August 1, 2002 Nations Cash Reserves Nations Treasury Reserves Nations Government Reserves Nations Tax-Exempt Reserves 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 [LOGO] 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 39. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 CASH RESERVES 4 Sub-adviser: BACAP ---------------------------------------------------------------------- NATIONS TREASURY RESERVES 7 Sub-adviser: BACAP ---------------------------------------------------------------------- NATIONS GOVERNMENT RESERVES 10 Sub-adviser: BACAP ---------------------------------------------------------------------- NATIONS TAX-EXEMPT RESERVES 14 Sub-adviser: BACAP ---------------------------------------------------------------------- OTHER IMPORTANT INFORMATION 18 ---------------------------------------------------------------------- HOW THE FUNDS ARE MANAGED 20
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 23 How orders are processed 25 How selling, servicing and administration agents are paid 33 Distributions and taxes 34 ---------------------------------------------------------------------- FINANCIAL HIGHLIGHTS 36 ---------------------------------------------------------------------- TERMS USED IN THIS PROSPECTUS 39 ---------------------------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 21. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.42% 2.78% 3.78% 5.54% 4.99% 5.19% 5.13% 4.76% 6.01% 3.82% * Year-to-date return as of June 30, 2002: 0.77% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.55% Worst: 4th quarter 2001: 0.57%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 3.82% 4.98% 4.54% 4.79%
*The inception date of Investor A Shares is July 16, 1990. 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] 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. [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 0.15% Distribution (12b-1), shareholder servicing and shareholder administration fees 0.45% 0.12% Other expenses ----- Total annual Fund operating expenses 0.72% (0.07)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $224 $395 $891
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 21. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.28% 2.55% 3.62% 5.38% 4.88% 5.02% 4.93% 4.47% 5.70% 3.53% * Year-to-date return as of June 30, 2002: 0.72% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.49% Worst: 4th quarter 2001: 0.48%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 3.53% 4.73% 4.33% 4.57%
*The inception date of Investor A Shares is July 16, 1990. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.15% Distribution (12b-1), shareholder servicing and shareholder administration fees 0.45% 0.12% Other expenses ----- Total annual Fund operating expenses 0.72% (0.07)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $224 $395 $891
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 21. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 11 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.44% 2.60% 3.66% 5.35% 4.81% 4.96% 4.88% 4.54% 5.83% 3.69% *Year-to-date return as of June 30, 2002: 0.67% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.51% Worst: 4th quarter 2001: 0.51%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 3.69% 4.78% 4.37% 4.59%
*The inception date of Investor A Shares is February 11, 1991. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.15% Distribution (12b-1), shareholder servicing and shareholder administration fees 0.45% 0.13% Other expenses ----- Total annual Fund operating expenses 0.73% (0.08)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $226 $400 $903
13 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 21. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 15 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. THE INFORMATION ABOUT THE PERFORMANCE FOR THE PERIOD PRIOR TO MAY 10, 2002, REFLECTS PERFORMANCE INFORMATION FOR A PREDECESSOR FUND WHICH WAS REORGANIZED INTO THE FUND ON MAY 10, 2002. 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ---- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 0.15% Distribution (12b-1), shareholder servicing and shareholder administration fees 0.45% 0.13% Other expenses ----- Total annual Fund operating expenses 0.73% (0.08)% Fee waivers and/or reimbursements ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 $226 $400 $903
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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier or second-tier securities. .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. .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. EachFund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. 18 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Tax-Exempt Reserves 0.15%/1/ 0.17%
/1/ This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 20 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team
21 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 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 through Nations Funds. You don't pay any sales charges when you buy, sell or exchange Investor A Shares of the 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'll find more information about buying, selling and exchanging Investor A Shares on the pages that follow. 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 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. 23
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 .$1,000 for regular accounts invest in Investor A Shares. .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a month, Systematic .$100 monthly or quarterly, using automatic Investment Plan minimum additional investment: transfers from your bank account. .$50 - ----------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your We usually send you or your selling agent shares by telephone, otherwise there the sale proceeds on the same day that are no limits to the amount you can sell we receive your order. .other restrictions may apply to If you paid for your shares with a check withdrawals from retirement plan that wasn't certified, we'll hold the sale accounts 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. Using our free . minimum $250 per check You can write checks for free. You can checkwriting only use checks to make partial service withdrawals from a Fund. You can't use a check to make a full withdrawal from a Fund. Using our .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. - ----------------------------------------------------------------------------------------------------------------------- Exchanging shares In a lump sum . minimum $1,000 per exchange You can generally exchange Investor A Shares of a Money Market Fund for Investor A Shares of any other Nations Fund, except Index Funds. Some exceptions apply. Using our minimum exchange per Fund: You must already have an investment in Automatic .$25 the Funds into which you want to Exchange exchange. You can make exchanges Feature monthly or quarterly.
24 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Tax-Exempt Reserves Orders received after these times 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. 25 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 26 [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: .You buy Investor A Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves and Nations Tax-Exempt Reserves. If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our for Systematic Investment Plan .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. 27 Minimum additional investment You can make additional purchases of as little as $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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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. 28 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds of Nations Cash Reserves, Nations Treasury Reserves or Nations Government Reserves by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .If you're selling your shares of Nations Tax-Exempt Reserves 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. .If you're selling your shares of Nations Tax-Exempt Reserves 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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Tax-Exempt Reserves for up to seven days. 29 .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: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your investment professional or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .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. 30 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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. Exchanges are not available if you bought your Investor A Shares through a cash sweep option on your account or through a mutual fund supermarket. Here's how exchanges work: .You can exchange Investor A Shares of a Money Market Fund for Investor A Shares of any other Nations Fund, except Index Funds. .If you bought Investor A Shares of a Money Market Fund through a Nations Funds IRA, you can exchange these shares for Investor B Shares of any other Nations Fund, except Money Market Funds. If you received your Investor B Shares before January 1, 1996 or after July 31, 1997, a contingent deferred sales charge (CDSC) may apply when you sell your Investor B Shares. The CDSC will be based on the period from when you received the Investor B Shares until you sold them. .You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 31 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 32 [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 OF THE 1940 ACT. YOUR SELLING AGENT MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] How selling, servicing and administration 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. DISTRIBUTION (12B-1), SHAREHOLDER SERVICING AND SHAREHOLDER ADMINISTRATION FEES Stephens, BA Advisors and selling and servicing agents are compensated for selling shares and providing services to investors under a distribution and shareholder servicing plan and a shareholder administration plan. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.10% of the average daily net assets of Investor A Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of up to 0.25% of the average daily net assets of Investor A Shares of the Funds. BA Advisors, its affiliates and/or other financial institutions and intermediaries may receive a maximum annual shareholder administration fee of up to 0.10% of the average daily net assets of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .an additional amount of up to 1.00% of the net asset value per share on all sales of Investor A Shares .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 33 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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. 34 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax and alternative minimum taxes on distributions from Nations Tax-Exempt Reserves of its tax-exempt interest income. These distributions, however, may be subject to other state and local taxes. Although the Fund does not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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. 35 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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [Graphic] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years. 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. 36 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0282 0.0586 0.0487 0.0486 0.0512 LESS DISTRIBUTIONS: Dividends from net investment income (0.0282) (0.0586) (0.0487) (0.0486) (0.0512) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.85% 6.02% 4.98% 4.91% 5.24% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $475,923 $638,529 $589,804 $695,703 $1,706,692 Ratio of operating expenses to average net assets 0.65%(a)(b) 0.65%(a) 0.65%(a) 0.65%(a) 0.65% Ratio of net investment income to average net assets 2.82% 5.84% 4.86% 4.86% 5.13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.68%(a) 0.70%(a) 0.69%(a) 0.70%
*The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Prime Fund Investor A Shares which were reorganized into Nations Cash Reserves Investor A Shares as of May 10, 2002. ++ Total return 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0260 0.0558 0.0458 0.0464 0.0496 LESS DISTRIBUTIONS: Dividends from net investment income (0.0260) (0.0558) (0.0458) (0.0464) (0.0496) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.63% 5.72% 4.68% 4.74% 5.06% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $1,101,599 $914,264 $1,044,726 $1,176,233 $1,361,214 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a) 0.65%(a) 0.65%(a) 0.65% Ratio of net investment income to average net assets 2.63% 5.66% 4.55% 4.66% 4.96% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.69%(a) 0.68%(a) 0.70%(a) 0.70%(a) 0.70%
*The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Treasury Fund Investor A Shares which were reorganized into Nations Treasury Reserves Investor A Shares as of May 10, 2002. ++ Total return 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%. 37 NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0263 0.0575 0.0465 0.0462 0.0489 LESS DISTRIBUTIONS: Dividends from net investment income (0.0263) (0.0575) (0.0465) (0.0462) (0.0489) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.66% 5.90% 4.75% 4.72% 5.01% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $13,583 $22,925 $16,002 $13,924 $23,806 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a) 0.65%(a) 0.65%(a) 0.65% Ratio of net investment income to average net assets 2.33% 5.74% 4.71% 4.62% 4.90% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73%(a) 0.71%(a) 0.79%(a) 0.93%(a) 0.94%
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Government Money Market Fund Investor A Shares which were reorganized into Nations Government Reserves Investor A Shares as of May 10, 2002. ++ Total return 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 TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED INVESTOR A SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0169 0.0348 0.0286 0.0278 0.0316 LESS DISTRIBUTIONS: Dividends from net investment income (0.0169) (0.0348) (0.0286) (0.0278) (0.0316) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.70% 3.53% 2.90% 2.81% 3.20% ======================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $80,108 $51,705 $43,934 $53,693 $171,786 Ratio of operating expenses to average net assets 0.65% 0.65% 0.65% 0.65%(a) 0.58%(a) Ratio of net investment income to average net assets 1.65% 3.45% 2.85% 2.76% 3.15% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68% 0.68% 0.77% 0.90%(a) 0.84%(a)
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Tax Exempt Fund Investor A Shares which were reorganized into Nations Tax-Exempt Reserves Investor A Shares as of May 10, 2002. ++ Total return 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%. 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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. 39 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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 affect on the fund. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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 SEC file number: Nations Funds Trust, 811-09645 RESPROIA-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------------------------- Prospectus -- Investor B and C Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 72. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Investor B and Investor C Shares of the Funds. These classes of shares are designed primarily as exchange classes for holders of Nations Funds non-money market funds. In addition, they may be used in connection with Nations Funds Automated Dollar Cost Averaging Feature. Please turn to Buying, selling and exchanging shares for more information about buying, selling and exchanging these classes of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 43. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MONEY MARKET RESERVES 8 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 12 Sub-adviser: BACAP ------------------------------------------------------ NATIONS GOVERNMENT RESERVES 17 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MUNICIPAL RESERVES 22 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TAX-EXEMPT RESERVES 27 Sub-adviser: BACAP ------------------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 32 Sub-adviser: BACAP ------------------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 37 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 41 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 43
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 46 About Investor B Shares 47 Contingent deferred sales charge 47 About Investor C Shares 48 Contingent deferred sales charge 48 When you might not have to pay a CDSC 49 Buying, selling and exchanging shares 51 How orders are processed 53 How selling and servicing agents are paid 60 Distributions and taxes 62 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 64 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 72 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 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. [CHART] 2000 2001 ----- ----- 5.31% 3.08% *Year-to-date return as of June 30, 2002: 0.42% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.38% Worst: 4th quarter 2001: 0.37%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor B Shares 3.08% 4.23% Investor C Shares 3.08% 4.23%
*The inception dates of Investor B Shares and Investor C Shares are October 4, 1999 and October 5, 1999, respectively. 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 B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.12% 0.12% Other expenses ----- ----- Total annual Fund operating expenses 1.37% 1.37% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $727 $943 $1,462 Investor C Shares $232 $427 $743 $1,640
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 $132 $427 $743 $1,462 Investor C Shares $132 $427 $743 $1,640
7 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 8 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 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. [CHART] 2000 2001 ----- ----- 5.30% 3.01% *Year-to-date return as of June 30, 2002: 0.37% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.37% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor B Shares 3.01% 4.20% Investor C Shares 3.01% 2.54%
*The inception date of Investor B Shares and Investor C Shares are October 5, 1999 and January 6, 2000, respectively. 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 B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.13% 0.13% Other expenses ----- ----- Total annual Fund operating expenses 1.38% 1.38% (0.08)% (0.08)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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/Thefigures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as needed, to reflect current service provider fees. /4/TheFund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $729 $948 $1,473 Investor C Shares $232 $429 $748 $1,650
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 $132 $429 $748 $1,473 Investor C Shares $132 $429 $748 $1,650
11 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 13 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] BECAUSE INVESTOR C SHARES OF THIS FUND HAVE NOT BEEN IN OPERATION FOR A FULL CALENDAR YEAR, NO PERFORMANCE INFORMATION IS INCLUDED IN THE PROSPECTUS. [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 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. [CHART] 2000 2001 ----- ----- 5.04% 2.85% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.33% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor B Shares 2.85% 3.96%
*The inception date of Investor B Shares is October 15, 1999. 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 Investor B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.12% 0.12% Other expenses ----- ----- Total annual Fund operating expenses 1.37% 1.37% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $727 $943 $1,462 Investor C Shares $232 $427 $743 $1,640
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 $132 $427 $743 $1,462 Investor C Shares $132 $427 $743 $1,640
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 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. [CHART] 2000 2001 ----- ----- 5.17% 2.93% *Year-to-date return as of June 30, 2002: 0.33% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.34% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor B Shares 2.93% 4.08% Investor C Shares 2.93% 4.06%
*The inception dates of Investor B Shares and Investor C Shares are November 2, 1999 and December 21, 1999, respectively. 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 Investor B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.13% 0.13% Other expenses ----- ----- Total annual Fund operating expenses 1.38% 1.38% (0.08)% (0.08)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $729 $948 $1,473 Investor C Shares $232 $429 $748 $1,650
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 $132 $429 $748 $1,473 Investor C Shares $132 $429 $748 $1,650
21 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 23 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] BECAUSE INVESTOR C SHARES OF THIS FUND HAVE NOT BEEN IN OPERATION FOR A FULL CALENDAR YEAR, NO PERFORMANCE INFORMATION IS INCLUDED IN THE PROSPECTUS. [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 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. [CHART] 2000 2001 ----- ----- 2.90% 1.56% *Year-to-date return as of June 30, 2002: 0.26% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.78% Worst: 4th quarter 2001: 0.17%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor B Shares 1.56% 2.24%
*The inception date of Investor B Shares is December 27, 1999. 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 Investor B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.15% 0.15% Other expenses ----- ----- Total annual Fund operating expenses 1.40% 1.40% (0.10)% (0.10)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $733 $956 $1,493 Investor C Shares $232 $433 $756 $1,671
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 $132 $433 $756 $1,493 Investor C Shares $132 $433 $756 $1,671
26 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 28 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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 Investor B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.13% 0.13% Other expenses ----- ----- Total annual Fund operating expenses 1.38% 1.38% (0.08)% (0.08)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 30 [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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $729 $948 $1,473 Investor C Shares $232 $429 $748 $1,650
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 $132 $429 $748 $1,473 Investor C Shares $132 $429 $748 $1,650
31 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 32 [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 Tax-Exempt Reserves has the following risks: .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 personal 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 government. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 33 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.321.7854. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 2.84% 2.51% 2.26% 2.84% 1.71% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.77% Worst: 4th quarter 2001: 0.25%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Daily Class Shares 1.71% 2.43% 2.45%
*The inception date of Daily Class Shares is October 2, 1996. 34 [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 B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES/3/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.13% 0.13% Other expenses ----- ----- Total annual Fund operating expenses 1.38% 1.38% (0.08)% (0.08)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 35 [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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 B Shares $632 $729 $948 $1,473 Investor C Shares $232 $429 $748 $1,650
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 $132 $429 $748 $1,473 Investor C Shares $132 $429 $748 $1,650
36 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 44. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 37 [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 New York Tax-Exempt Reserves has the following risks: .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 personal 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 government. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trader Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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] 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 B Investor C (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) 5.00%/1/ 1.00%/2/ ANNUAL FUND OPERATING EXPENSES (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing and administration fees 1.10% 1.10% 0.41% 0.41% Other expenses/3/ ----- ----- Total annual Fund operating expenses 1.66 1.66 (0.36)% (0.36)% Fee waivers and/or reimbursements ------- ------- Total net expenses/4/ 1.30% 1.30% ===== =====
/1/This charge decreases over time. Please see Choosing a share class - About Investor B 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/Other expenses are based on estimates for the current fiscal year. /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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in 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 .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor B Shares $632 $788 Investor C Shares $232 $488
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 $132 $488 Investor C Shares $132 $488
40 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 41 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 42 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 43 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
44 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 45 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. FOR MORE INFORMATION ABOUT DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES, 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 two classes of shares for 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 B Investor C Shares Shares Maximum amount you can buy $250,000 no limit Maximum front-end sales charge none none Maximum deferred sales charge 5.00%/1/ 1.00%/2/ Redemption fee none none Maximum annual distribution 0.75% 0.75% (12b-1) and shareholder distribution distribution servicing and administration (12b-1) fee, (12b-1) fee, fees 0.25% service fee 0.25% service fee and 0.10% and 0.10% administration fee administration fee Conversion feature yes none
/1/ This charge decreases over time. Please see Choosing a share class - About Investor B 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. 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. Because these classes of shares are primarily designed as exchange classes, you should also consider which classes of shares of the Nations Funds non-money market funds you may presently hold or wish to buy. 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 and administration fees, as well as by the amount of any contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. 46 [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: .you received the shares from reinvested distributions .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 CDSC .you hold them for a specified time The CDSC you pay depends on when you bought your shares, how much you bought, and how long you held them. If you originally bought shares of a Nations Fund not offered by this prospectus and exchanged those shares for Investor B shares of the Funds, please refer to the CDSC schedule applicable to the original shares purchased. If you buy Investor B shares of the Funds, the CDSC that you may pay is shown below.
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------------ the first year you own them 5.0% the second year you own them 4.0% the third year you own them 3.0% the fourth year you own them 3.0% the fifth year you own them 2.0% the sixth year you own them 1.0% after six years of owning them zero
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the net asset 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. 47 ABOUT THE CONVERSION FEATURE Investor B Shares generally convert automatically to Market Class Shares. If you originally bought Investor B Shares of a Nations Fund not offered by this prospectus and exchanged those shares for Investor B Shares of the Funds, please refer to the conversion schedule applicable to the original shares purchased. If you buy Investor B Shares of the Funds, your Investor B Shares will convert to Market Class Shares after eight years. The conversion feature allows you to benefit from the lower operating costs of Market Class Shares, which can help increase total returns. Here's how the conversion works: .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 Market Class Shares have lower expenses. .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 Market Class Shares at the same time. .You'll receive the same dollar value of Market Class Shares as the Investor B Shares that were converted. No sales charge or other charges will apply. .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: .you received the shares from reinvested distributions .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 CDSC The CDSC is calculated from the trade date of your purchase. If you originally bought shares of a Nations Fund not offered by this prospectus, and exchanged those shares for Investor C shares of the funds, the CDSC is calculated from the date of your original purchase. We deduct the CDSC from the net asset 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. 48 [Graphic] PLEASE CONTACT YOUR INVESTMENT PROFESSIONAL FOR MORE INFORMATION ABOUT WAIVERS OF THE CDSC. YOU SHOULD TELL YOUR INVESTMENT PROFESSIONAL THAT YOU MAY QUALIFY FOR 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 CDSC You won't pay a CDSC on the following transactions: .shares sold by intermediaries that are part of the Nations Funds selling group where the intermediary has entered into an agreement with Nations Funds not to receive (or to return if received) all or any applicable portion of an up-front commission .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 .shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors .shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the tax code .shares sold by 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: .have at least $500,000 invested in Investor A, Investor B or Investor C Shares of Nations Funds, or .sign a letter of intent to buy at least $500,000 of Investor A, Investor B or Investor C Shares of Nations Funds, or .be an employer-sponsored plan with at least 100 eligible participants, or .be a participant in an alliance program that has signed an agreement with Nations Funds or its principal underwriter. .the following retirement plan distributions: .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) .distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 .a tax-free return of an excess contribution to an IRA .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 .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 .shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor B or Investor C Shares held in the account is less than the minimum account size 49 .withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. 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. You won't pay a CDSC on the sale of Investor C Shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program. 50 [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 services and programs. 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. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions about buying, selling or exchanging, or you need help placing an order. 51
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: You can invest up to $250,000 in Investor B .$1,000 for regular accounts Shares at a time. There is no limit to the .$500 for traditional and Roth IRAs, amount you can invest in Investor C Shares. and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic .$100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. .$50 - ----------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .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. .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, whichever is later. Using our free .minimum $250 per check You can write checks for free. You can only use checkwriting checks to make partial withdrawals from a service Fund. You can't use a check to make a full withdrawal from a Fund. Using our .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 .minimum $1,000 per exchange You can exchange your Investor B Shares for Investor B Shares of any other Nations Fund. You won't pay a CDSC on the shares you're exchanging. You can exchange your Investor C Shares for Investor C Shares of any other Nations Fund. You won't pay a CDSC on the shares you're exchanging. Using our .minimum $25 per exchange You must already have an investment in the Automatic Funds you want to exchange into. You can make Exchange Feature exchanges monthly or quarterly. Using our .minimum $25 per exchange You can exchange your Investor B Shares for: Automated .Investor B Shares of up to ten other Nations Dollar Cost Funds except Nations Reserves Money Market Averaging Feature Funds every month or quarter. You won't pay a CDSC on the shares you're exchanging. You can exchange your Investor C Shares for: .Investor C Shares of up to ten other Nations Funds except Nations Reserves Money Market Funds every month or quarter. You won't pay a CDSC on the shares you're exchanging.
52 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .3:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 53 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Investor B and Investor C Shares at net asset value per share. .If we don't receive payment by 4:00 p.m. Eastern time on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early), we'll refuse the order. We'll return any payment received for orders that we refuse. We can change this time under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan 54 .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: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .Some exceptions may apply to employees of Bank of America and its affiliates. For details, please contact your investment professional. 55 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We'll deduct any CDSC from the amount you're selling and send you the balance. .We normally send the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .If you're selling your shares of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves 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. .If you're selling your shares of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves 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. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or the Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. 56 .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .Other restrictions may apply to retirement accounts. For more information about these restrictions please contact your retirement plan administrator. We may sell your shares: .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 .if your selling agent tells us to sell your shares under arrangements made between the selling agent and you .under certain other circumstances allowed under the 1940 Act Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your investment professional or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 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: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .You won't pay a CDSC if you withdraw 12% or less of the value of your shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. .We'll send you a check or deposit the money directly to your bank account. .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. 57 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Investor B Shares of a Fund for Investor B Shares of any other Nations Fund. .You can exchange Investor C Shares of a Fund for Investor C Shares of any other Nations Fund. .You must exchange at least $1,000, $25 if you use our Automatic Exchange Feature or our Automated Dollar Cost Averaging Feature. .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. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 58 Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange into. .You can choose to have us transfer your money on or about the 1st or the 15th of the month. .The rules for making exchanges apply to automatic exchanges. Automated Dollar Cost Averaging Feature The Automated Dollar Cost Averaging Feature lets you systematically exchange $25 or more of Investor B or Investor C Shares for shares of the same class of up to ten other Nations Funds non-money market funds, every month or quarter. You can contact your investment professional or us to set up the plan. Here's how automated dollar cost averaging works: .Send your request to PFPC in writing or call 1.800.321.7854. .You need not have an investment in the Funds you want to exchange into. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You can choose to have us transfer your money on or about the 1st or the 15th of the month. .The exchanges must be made over a minimum period of six months. .The rules for making exchanges apply to dollar cost averaging exchanges, except that the minimum investment requirements of the Nations Funds non-money market funds do not apply to these exchanges. 59 [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 OF THE 1940 ACT. THE 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 a Fund. The amount of this commission depends on which share class you choose: .up to 4.00% of the offering price per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly. .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 or hold Investor B or Investor C Shares you will be subject to distribution (12b-1), shareholder servicing and shareholder administration fees and may be subject to a CDSC when you sell your shares. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING AND ADMINISTRATION FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution, shareholder servicing and administration plans. Stephens may be reimbursed for distribution-related expenses incurred up to an annual maximum of 0.75% of the average daily net assets of Investor B and Investor C Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Investor B and Investor C Shares of the Funds. BA Advisors and/or financial institutions may receive a maximum annual shareholder administration fee of up to 0.10% of the average daily net assets of the Investor B and Investor C Shares of the Funds. Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment, 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .additional amounts on all sales of shares: .up to 1.00% of the net asset value per share of Investor B Shares .up to 1.00% of the net asset value per share of Investor C Shares 60 .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 61 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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. 62 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 63 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Investor B Shares and Investor C Shares of Nations Tax-Exempt Reserves and Investor C Shares of Nations Treasury Reserves and Nations California Tax-Exempt Reserves, are not provided because these classes of shares for these Funds 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. 64 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: 0.0210 Net investment income 0.0518 0.0225 LESS DISTRIBUTIONS: (0.0210) Dividends from net investment income (0.0518) (0.0225) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.12% 5.30% 2.28% ============================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $37,408 $27,360 $8,828 Ratio of operating expenses to average net assets 1.30%(a)(b) 1.30%(a) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.82% 5.12% 4.27%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.37%(a) 1.37%(a) 1.39%+(a)
* Cash Reserves Investor B Shares commenced operations on October 4, 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. (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 CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR C SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: 0.0210 Net investment income 0.0518 0.0223 LESS DISTRIBUTIONS: (0.0210) Dividends from net investment income (0.0518) (0.0223) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.12% 5.30% 2.25% ============================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,357 $1,717 $345 Ratio of operating expenses to average net assets 1.30%(a)(b) 1.30%(a) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.82% 5.12% 4.27%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.37%(a) 1.37%(a) 1.39%+(a)
* Cash Reserves Investor C Shares commenced operations on October 5, 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. (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%. 65 NATIONS MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0201 0.0515 0.0227 LESS DISTRIBUTIONS: Dividends from net investment income (0.0201) (0.0515) (0.0227) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.03% 5.27% 2.29% ================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $9,407 $6,907 $1,940 Ratio of operating expenses to average net assets 1.30%(a) 1.30%(a)(b) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.75% 5.09% 4.54%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.38%(a) 1.37%(a) 1.43%+(a)
* Money Market Reserves Investor B Shares commenced operations on October 5, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR C SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0201 0.0208 0.0112 LESS DISTRIBUTIONS: Dividends from net investment income (0.0201) (0.0208) (0.0112) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.03% 2.08% 1.12% ================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $408 $340 $19 Ratio of operating expenses to average net assets 1.30%(a) 1.30%(a)(b) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.75% 5.09% 4.54%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.38%(a) 1.37%(a) 1.43%+(a)
* Money Market Reserves Investor C Shares commenced operations on January 6, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 66 NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0192 0.0493 0.0192 LESS DISTRIBUTIONS: Dividends from net investment income (0.0192) (0.0493) (0.0192) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.93% 5.04% 1.94% ============================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $180 $237 $80 Ratio of operating expenses to average net assets 1.30%(a) 1.30%(a)(b) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.71% 4.89% 3.96%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.37%(a) 1.37%(a) 1.38%+(a)
* Treasury Reserves Investor B Shares commenced operations on October 15, 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. (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%. 67 NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0193 0.0505 0.0185 LESS DISTRIBUTIONS: Dividends from net investment income (0.0193) (0.0505) (0.0185) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.94% 5.17% 1.86% ================================================================================ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,105 $990 $108 Ratio of operating expenses to average net assets 1.30%(a) 1.30%(a) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.60% 4.96% 4.16%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.38%(a) 1.39%(a) 1.39%+(a)
* Government Reserves Investor B Shares commenced operations on November 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR C SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0193 0.0505 0.0126 LESS DISTRIBUTIONS: Dividends from net investment income (0.0193) (0.0505) (0.0126) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.95% 5.17% 1.26% ================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $982 $160 $746 Ratio of operating expenses to average net assets 1.30%(a) 1.30%(a)(b) 1.30%+(a)(b) Ratio of net investment income to average net assets 1.60% 4.96% 4.16%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.38%(a) 1.39%(a) 1.39%+(a)
* Government Reserves Investor C Shares commenced operations on December 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. (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%. 68 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0113 0.0282 0.0062 LESS DISTRIBUTIONS: Dividends from net investment income (0.0113) (0.0282) (0.0062) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.14% 2.86% 0.62% ================================================================================ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $71 $64 $91 Ratio of operating expenses to average net assets 1.22% 1.30% 1.30%+ Ratio of net investment income to average net assets 0.93% 2.83% 2.19%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.40% 1.39% 1.40%+
*Municipal Reserves Investor B Shares commenced operations on December 27, 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. NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended INVESTOR C SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0000# LESS DISTRIBUTIONS: Dividends from net investment income (0.0000)# Net asset value, end of period $1.00 TOTAL RETURN++ 0.00%# ======================================================= RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $95 Ratio of operating expenses to average net assets 1.30%+ Ratio of net investment income to average net assets 0.93%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.40%+
*Municipal Reserves Investor C Shares commenced operations on March 28, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.0001 or 0.01%, as applicable. 69
NATIONS CALIFORNIA TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Period ended INVESTOR B SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0037 0.0038 LESS DISTRIBUTIONS: Dividends from net investment income (0.0037) (0.0038) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 0.37% 0.38% ====================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $--# $64 Ratio of operating expenses to average net assets 1.30% 1.30%+ Ratio of net investment income to average net assets 0.28% 2.23%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.38% 1.38%+
* California Tax-Exempt Reserves Investor B Shares commenced operations on December 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. # Amount represents less than $500. 70
NATIONS NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Period ended INVESTOR B SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0000# LESS DISTRIBUTIONS: Dividends from net investment income (0.0000)# Net asset value, end of period $1.00 TOTAL RETURN++ 0.00%# ====================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets end of period (in 000's) $1 Ratio of operating expenses to average net assets 1.30%+ Ratio of net investment income to average net assets (0.07)%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 5.61%+ * New York Tax-Exempt Reserves Investor B Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.0001 or 0.01%, as applicable. NATIONS NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Period ended INVESTOR C SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0000# LESS DISTRIBUTIONS: Dividends from net investment income (0.0000)# Net asset value, end of period $1.00 TOTAL RETURN++ 0.00%# ====================================================================== RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 1.30%+ Ratio of net investment income to average net assets (0.07)%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 5.61%+
* New York Tax-Exempt Reserves Investor C Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.0001 or 0.01%, as applicable. 71 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 72 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 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. 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. Settlement Date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 73 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. 74 SEC file number: Nations Funds Trust, 811-09645 MMPROIX-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Market Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 48. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Market Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their institutional client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 33. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------ NATIONS MUNICIPAL RESERVES 16 Sub-adviser: BACAP ------------------------------------------ NATIONS TAX-EXEMPT RESERVES 20 Sub-adviser: BACAP ------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 24 Sub-adviser: BACAP ------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 28 Sub-adviser: BACAP ------------------------------------------ OTHER IMPORTANT INFORMATION 31 ------------------------------------------ HOW THE FUNDS ARE MANAGED 33
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 36 How orders are processed 37 How selling and servicing agents are paid 41 Distributions and taxes 42 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 44 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 48 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Market Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 5.25% 5.19% 4.75% 5.99% 3.75% *Year-to-date return as of June 30, 2002: 0.75% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.54% Worst: 4th quarter 2001: 0.54%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 Years Fund* Market Class Shares 3.75% 4.98% 4.99%
*The inception date of Market Class Shares is May 3, 1996. 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] 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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.12% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.07)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $223 $394 $888
6 [Graphic] ABOUT THE SUB-ADVISOR BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Market Class 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. [CHART] 1999 2000 2001 ----- ----- ----- 4.74% 5.98% 3.68% *Year-to-date return as of June 30, 2002: 0.69% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.54% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Market Class Shares 3.68% 4.79%
*The inception date of Market Class Shares is October 9, 1998. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.13% ----- Total annual Fund operating expenses 0.73% Fee waivers and/or reimbursements (0.08)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $225 $398 $899
9 [Graphic] ABOUT THE SUB-ADVISOR BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Market Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 5.11% 4.97% 4.46% 5.72% 3.52% *Year-to-date return as of June 30, 2002: 0.69% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.49% Worst: 4th quarter 2001: 0.48%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Market Class Shares 3.52% 4.75% 4.77%
*The inception date of Market Class Shares is May 3, 1996. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.12% ----- Total annual Fund operating expenses 0.72% Fee waivers and/or reimbursements (0.07)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $223 $394 $888
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Market Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 5.13% 5.03% 4.56% 5.86% 3.59% *Year-to-date return as of June 30, 2002: 0.65% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.51% Worst: 4th quarter 2001: 0.48%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Market Class Shares 3.59% 4.83% 4.85%
*The inception date of Market Class Shares is May 3, 1996. 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] 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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.13% ----- Total annual Fund operating expenses 0.73% Fee waivers and/or reimbursements (0.08)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $225 $398 $899
15 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 17 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Market Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 3.24% 3.00% 2.69% 3.57% 2.21% *Year-to-date return as of June 30, 2002: 0.46% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.32%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Market Class Shares 2.21% 2.94% 2.96%
*The inception date of Market Class Shares is May 3, 1996. 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] 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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.15% ----- Total annual Fund operating expenses 0.75% Fee waivers and/or reimbursements (0.10)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $230 $407 $921
19 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] RISKS AND OTHER THINGS TO CONSIDER Nations Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 21 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 22 [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] 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. [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) Market Class 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 0.15% Distribution (12b-1) and Shareholder servicing fees 0.45% Other expenses 0.13% ----- Total annual Fund operating expenses 0.73% Fee waivers and/or reimbursements (0.08)% ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $225 $398 $899
23 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 25 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.01% 1.87% 2.30% 3.32% 2.88% 3.07% 2.74% 2.51% 3.10% 1.97% *Year-to-date return as of June 30, 2002: 0.49% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 0.87% Worst: 1st quarter 1992: 0.23%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor Class Shares 1.97% 2.68% 2.58% 2.92%
*The inception date of Investor Class Shares is December 6, 1989. 26 [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] 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. [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) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses 0.13% ----- Total annual Fund operating expenses 0.73% Fee waivers and/or reimbursements (0.08)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Market Class Shares $66 $225 $398 $899
27 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 28 [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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax- advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect to all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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] 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. [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 (Fees paid directly from your investment) Market Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.45% Other expenses/1/ 0.41% ----- Total annual Fund operating expenses 1.01% Fee waivers and/or reimbursements (0.36)% ------- Total net expenses/2/ 0.65% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Market Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Market Class Shares $66 $286
30 [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: . Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: . may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less . must maintain an average dollar-weighted maturity of 90 days or less . may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) . may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. . 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. . 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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 31 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 32 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This Fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 33 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: . change, add or terminate one or more sub-advisers; . continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or . 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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
34 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 35 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 Market Class Shares of the Funds. Here are some general rules about this class of shares: .Market Class Shares are available to financial institutions and intermediaries for their own accounts, and for certain institutional client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment is $10,000. 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 Market Class Shares. .There is no minimum for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Market Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 36 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: . Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year . Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund . Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 37 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Market Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 38 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 39 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Market Class Shares of a Fund for Market Class Shares of any other Nations Money Market Fund. .You must exchange at least $10,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 40 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be compensated or reimbursed for distribution-related expenses up to an annual maximum of 0.20% of the average daily net assets of Market Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Market Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 41 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 42 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 43 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Market Class Shares of Nations Tax-Exempt Reserves and Nations California Tax-Exempt Reserves are not provided because this class of shares for these Funds 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. 44
NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Year ended Period ended Market Class Shares 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0275 0.0583 0.0487 0.0447 0.0519 0.0493 LESS DISTRIBUTIONS: Dividends from net investment income (0.0275) (0.0583) (0.0487) (0.0447) (0.0519) (0.0493) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.78% 5.99% 4.98% 4.56% 5.33% 5.04% ================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,844,641 $3,342,882 $2,779,002 $1,486,502 $649,503 $333,000 Ratio of operating expenses to average net assets 0.65%(a)(b) 0.65%(a) 0.65%(a)(b) 0.61%+(a) 0.55%(b) 0.55%+ Ratio of net investment income to average net assets 2.47% 5.77% 4.92% 4.83%+ 5.19% 4.97%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72%(a) 0.72%(a) 0.74%(a) 0.88%+(a) 0.89% 0.80%+
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. ** Cash Reserves Market Class Shares commenced operations on May 3, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Market Class Shares 03/31/02 03/31/01 03/31/00 03/31/99*, ** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 Net investment income 0.0266 0.0580 0.0490 0.0214 LESS DISTRIBUTIONS: Dividends from net investment income (0.0266) (0.0580) (0.0490) (0.0214) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.69% 5.96% 5.01% 2.14% ========================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,422,125 $1,292,998 $1,021,002 $873,993 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a)(b) 0.65%(a)(b) 0.65%+(a) Ratio of net investment income to average net assets 2.40% 5.74% 5.19% 4.42%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73%(a) 0.72%(a) 0.78%(a) 0.91%+(a)
* Money Market Reserves Market Class Shares commenced operations on October 9, 1998. ** Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 45 NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Period ended Market Class Shares 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0257 0.0557 0.0459 0.0423 0.0505 0.0481 LESS DISTRIBUTIONS: Dividends from net investment income (0.0257) (0.0557) (0.0459) (0.0423) (0.0505) (0.0481) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.60% 5.72% 4.68% 4.31% 5.18% 4.92% ============================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,381,945 $1,369,949 $1,511,932 $1,169,932 $265,495 $123,396 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a)(b) 0.65%(a)(b) 0.62%+(a) 0.55% 0.55%+ Ratio of net investment income to average net assets 2.36% 5.54% 4.61% 4.57%+ 5.06% 4.85%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.72%(a) 0.72%(a) 0.73%(a) 0.90%+(a) 0.90% 0.81%+
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. ** Treasury Reserves Market Class Shares commenced operations on May 3, 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Period ended Market Class Shares 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0258 0.0570 0.0471 0.0431 0.0508 0.0482 LESS DISTRIBUTIONS: Dividends from net investment income (0.0258) (0.0570) (0.0471) (0.0431) (0.0508) (0.0482) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.61% 5.85% 4.81% 4.39% 5.20% 4.93% ============================================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $561,082 $488,016 $370,000 $334,000 $274,499 $218,499 Ratio of operating expenses to average net assets 0.65%(a) 0.65%(a)(b) 0.65%(a)(b) 0.61%+(a) 0.55% 0.55%+(a) Ratio of net investment income to average net assets 2.25% 5.61% 4.81% 4.64%+ 5.08% 4.87%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73%(a) 0.74%(a) 0.74%(a) 0.89%+(a) 0.90% 0.84%+(a)
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. ** Government Reserves Market Class Shares commenced operations on May 3, 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. (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%. 46 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Period ended Market Class Shares 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0170 0.0347 0.0284 0.0254 0.0318 0.0301 LESS DISTRIBUTIONS: Dividends from net investment income (0.0170) (0.0347) (0.0284) (0.0254) (0.0318) (0.0301) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Total Return++ 1.72% 3.52% 2.87% 2.57% 3.24% 3.06% ==================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $223,008 $169,001 $149,000 $146,999 $92,000 $78,300 Ratio of operating expenses to average net assets 0.65% 0.65% 0.65% 0.61%+ 0.55%(a) 0.55%+ Ratio of net investment income to average net assets 1.58% 3.48% 2.84% 2.69%+ 3.18% 3.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.75% 0.74% 0.75% 0.93%+ 0.93% 0.87%+
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. ** Municipal Reserves Market Class Shares commenced operations on May 3, 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. (a) The effect of interest expense on the operating expense ratio was 0.01%. NATIONS NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Period ended Market Class Shares 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0008 LESS DISTRIBUTIONS: Dividends from net investment income (0.0008) Net asset value, end of period $1.00 Total Return++ 0.08% ====================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.65%+ Ratio of net investment income to average net assets 0.58%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.96%+
*New York Tax-Exempt Reserves Market Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 47 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 48 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 49 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 50 SEC file number: Nations Funds Trust, 811-09645 MARKET-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - -------------------------------- Prospectus -- Daily Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 53. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Daily Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP ------------------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP ------------------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 32 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 How orders are processed 39 How selling and servicing agents are paid 45 Distributions and taxes 46 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 48 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 53 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Daily Class 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. [CHART] 2000 2001 ------ ------ 5.84% 3.60% *Year-to-date return as of June 30, 2002: 0.67% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.50% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 3.60% 4.70%
*Theinception date of Daily Class Shares is April 12, 1999. 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] 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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.12% Other expenses ----- Total annual Fund operating expenses 0.87% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $271 $475 $1,066
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Daily Class 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. [CHART] 2000 2001 ------ ------ 5.83% 3.53% *Year-to-date return as of June 30, 2002: 0.62% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.50% Worst: 4th quarter 2001: 0.46%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 3.53% 4.72%
*Theinception date of Daily Class Shares is July 21, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.13% Other expenses ----- Total annual Fund operating expenses 0.88% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Daily Class 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. [CHART] 2000 2001 ----- ----- 5.56% 3.36% *Year-to-date return as of June 30, 2002: 0.61% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.45% Worst: 4th quarter 2001: 0.44%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 3.36% 4.44%
*Theinception date of Daily Class Shares is April 12, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.12% ----- Total annual Fund operating expenses 0.87% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $271 $475 $1,066
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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. RISKS AND OTHER THINGS TO CONSIDER [Graphic] Nations Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 2000 2001 ------ ------ 5.70% 3.44% *Year-to-date return as of June 30, 2002: 0.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.47% Worst: 4th quarter 2001: 0.44%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 3.44% 4.54%
*The inception date of Daily Class Shares is April 12, 1999. 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] 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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.13% Other expenses ----- Total annual Fund operating expenses 0.88% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THE FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE ITS BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 2000 2001 ------ ------ 3.41% 2.06% *Year-to-date return as of June 30, 2002: 0.39% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.90% Worst: 4th quarter 2001: 0.28%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 2.06% 2.72%
*The inception date of Daily Class Shares is April 12, 1999. 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] 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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.15% Other expenses ----- Total annual Fund operating expenses 0.90% (0.10)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $277 $489 $1,099
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [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 MAY 10, 2002, REFLECTS PERFORMANCE INFORMATION FOR A PREDECESSOR FUND WHICH WAS REORGANIZED INTO THE FUND ON MAY 10, 2002. THE PREDECESSOR FUND HAD AN IDENTICAL INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 1996 1997 1998 1999 2000 2001 ------ ----- ------ ----- ----- ----- 2.72% 2.97% 2.77% 2.58% 3.42% 2.06% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.91% Worst: 4th quarter 2001: 0.28%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Daily Shares 2.06% 2.76% 2.82%
*The inception date of Daily Class Shares is February 10, 1995. 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] 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. [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 Daily Class (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) Manage ment fees 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.13% ----- Total annual Fund operating expenses 0.88% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.80% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 1997 1998 1999 2000 2001 ------ ------ ------ ------ ------ 2.84% 2.51% 2.26% 2.84% 1.71% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.77% Worst: 4th quarter 2001: 0.25%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Daily Class Shares 1.71% 2.43% 2.45%
*The inception date of Daily Class Shares is October 2, 1996. 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] 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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.13% Other expenses ----- Total annual Fund operating expenses 0.88% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Daily Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% 0.41% Other expenses/1/ ----- Total annual Fund operating expenses 1.16% (0.36)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.80% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Daily Class Shares $82 $333
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 36 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 Daily Class Shares of the Funds. Here are some general rules about this class of shares: .You can invest in the Funds through your selling agent or directly through 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. Daily Class Shares are available to financial institutions and intermediaries for their own accounts and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Daily Class Shares on the pages that follow. You should also ask your financial institution, intermediary or 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 37
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 .$1,000 for regular accounts Daily Class Shares. .$500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$250 for certain fee-based accounts .no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: .none Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic .$100 quarterly, using automatic transfers from your Investment Plan minimumadditional investment: bank account. .$100 - ------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum .you can sell up to $50,000 of your We usually send you or your selling agent the shares by telephone, otherwise sale proceeds on the same day that we receive there are no limits to the amount your order you can sell .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, whichever is later. Using our free .minimum $250 per check You can write checks for free. You can only use checkwriting checks to make partial withdrawals from a Fund. service You can't use a check to make a full withdrawal from a Fund. Using our .minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal twice a month, monthly, quarterly, bi-annually Plan or annually. We'll send your money by check or deposit it directly to your bank account. - ------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum .minimum $1,000 per exchange You can exchange Daily Class shares of a Fund for Daily Class Shares of any other Nations Money Market Fund. If you received Daily Class Shares of a Money Market Fund from an exchange of Investor A Shares of an Index Fund, you can exchange these shares for Investor A Shares of an Index Fund. Using our minimumexchange per Fund: You must already have an investment in the Automatic .$25 Funds into which you want to exchange. You can Exchange make exchanges monthly or quarterly. Feature
38 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR THE NYSE IS CLOSED ON WEEKENDS AND ON THE FOLLOWING NATIONAL HOLIDAYS: NEW YEAR'S DAY, MARTIN LUTHER KING, JR. DAY, PRESIDENT'S DAY, GOOD FRIDAY, MEMORIAL DAY, INDEPENDENCE DAY, LABOR DAY, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 39 [Graphic] THE NEW ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: . If you sign up for telephone orders after you open your account, you must have your signature guaranteed. . Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. . 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. . Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: . You buy Daily Class Shares at net asset value per share. . We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): . 5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: . Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year . Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede national holidays observed by this Fund . Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund . 4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. . Financial institutions, intermediaries and selling agents are responsible for sending orders to us and for ensuring that we receive your money on time. . Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 40 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 plan the minimum initial amount you can buy is: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment adviser or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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 There is no minimum for additional investments except the minimum is $100 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $100 or more using automatic transfers from your bank account to the Funds you choose. You can contact your financial adviser or us to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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 financial adviser. [Graphic] SELLING SHARES Here are some general rules for selling shares: .If you're selling your shares through a selling agent, financial institution or intermediary, we'll normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. 41 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. .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 on the same business day that the Fund receives your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 42 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS PROSPECTUS CAREFULLY. Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your financial adviser or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 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 financial adviser or us to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving your financial adviser 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] 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: .You can exchange Daily Class Shares of a Fund for Daily Class Shares of any other Nations Money Market Fund. .If you received shares of a Fund from an exchange of Investor A Shares of an Index Fund, you can exchange these shares for Investor A Shares of an Index Fund. 43 .You must exchange at least $1,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .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 Daily Class 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Fund you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 44 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.35% of the average daily net assets of Daily Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Daily Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .an additional amount of up to 0.50% of the net asset value per share on all sales of Daily Class Shares to retirement plans .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 45 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 46 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 47 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. 48 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0260 0.0568 0.0459 LESS DISTRIBUTIONS: Dividends from net investment income (0.0260) (0.0568) (0.0459) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.63% 5.83% 4.69% =================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $14,018,697 $14,589,888 $9,753,000 Ratio of operating expenses to average net assets 0.80%(a)(b) 0.80%(a) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.32% 5.62% 4.77%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.87%(a) 0.89%+(a)
* Cash Reserves Daily Class Shares commenced operations on April 12, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0251 0.0565 0.0346 LESS DISTRIBUTIONS: Dividends from net investment income (0.0251) (0.0565) (0.0346) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.54% 5.80% 3.51% ================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $4,501 $7,561 $4,525 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)(b) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.25% 5.59% 5.04%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88%(a) 0.87%(a) 0.93%+(a)
* Money Market Reserves Daily Class Shares commenced operations on July 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. (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 TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0242 0.0543 0.0431 LESS DISTRIBUTIONS: Dividends from net investment income (0.0242) (0.0543) (0.0431) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.44% 5.56% 4.40% ================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,301,678 $981,837 $847,775 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)(b) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.21% 5.39% 4.46%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.87%(a) 0.88%+(a)
* Treasury Reserves Daily Class Shares commenced operations on April 12, 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0243 0.0554 0.0443 LESS DISTRIBUTIONS: Dividends from net investment income (0.0243) (0.0554) (0.0443) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.45% 5.69% 4.52% ================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $317,287 $259,937 $171,521 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)(b) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.10% 5.46% 4.66%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88%(a) 0.89%(a) 0.89%+(a)
* Government Reserves Daily Class Shares commenced operations on April 12, 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. (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%. 50 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0155 0.0332 0.0262 LESS DISTRIBUTIONS: Dividends from net investment income (0.0155) (0.0332) (0.0262) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.56% 3.37% 2.65% ================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $637,172 $554,876 $429,644 Ratio of operating expenses to average net assets 0.80% 0.80% 0.80%+ Ratio of net investment income to average net assets 1.43% 3.33% 2.69%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.90% 0.89% 0.90%+
* Municipal Reserves Daily Class Shares commenced operations on April 12, 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. NATIONS TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended DAILY CLASS SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0154 0.0333 0.0271 0.0263 0.0295 LESS DISTRIBUTIONS: Dividends from net investment income (0.0154) (0.0333) (0.0271) (0.0263) (0.0295) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.55% 3.38% 2.74% 2.66% 2.98% ====================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $96,175 $93,290 $128,386 $333,210 $12,541 Ratio of operating expenses to average net assets 0.80% 0.80% 0.80% 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 1.50% 3.30% 2.70% 2.61% 2.93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.03% 1.03% 1.12% 1.25%(a) 1.06%(a)
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Tax Exempt Fund Daily Shares which were reorganized into Nations Tax-Exempt Reserves Daily Class Shares as of May 10, 2002. ++ Total return 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%. 51
NATIONS CALIFORNIA TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended Period ended Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00 05/14/99* 02/28/99 02/28/98 02/28/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0139 0.0273 0.0201 0.0045 0.0238 0.0279 0.0107 LESS DISTRIBUTIONS: Dividends from net investment income (0.0139) (0.0273) (0.0201) (0.0045) (0.0238) (0.0279) (0.0107) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.40% 2.76% 2.01% 0.45% 2.41% 2.83% 1.09% ================================================================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $814,077 $755,635 $699,689 $334,000 $336,000 $172,000 $29,000 Ratio of operating expenses to average net assets 0.80% 0.80% 0.80%+ 0.80%+ 0.79%(a) 0.80%(a) 0.80%+(a) Ratio of net investment income to average net assets 0.78% 2.73% 2.20%+ 2.21%+ 2.35% 2.80% 2.66%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88% 0.88% 0.88%+ 0.82%+ 0.79%(a) 0.80%(a) 0.80%+(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Tax-Exempt Money Market Fund, S and X Shares, which were reorganized into the California Tax-Exempt Reserves Daily Class, 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 Tax-Exempt Reserves Daily Class Shares commenced operations on October 2, 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. (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 NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Period ended DAILY CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0004 LESS DISTRIBUTIONS: Dividends from net investment income (0.0004) Net asset value, end of period $1.00 TOTAL RETURN++ 0.04% ========================================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.80%+ Ratio of net investment income to average net assets 0.43%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 5.11%+
* New York Tax-Exempt Reserves Daily Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 52 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 53 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 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. 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. 54 Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 55 SEC file number: Nations Funds Trust, 811-09645 DAILY-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Daily Class Shares August 1, 2002 Nations Cash Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations California Tax-Exempt Reserves 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 [LOGO] 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 41. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Daily Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 23. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 7 Sub-adviser: BACAP ------------------------------------------------------ NATIONS GOVERNMENT RESERVES 10 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MUNICIPAL RESERVES 13 Sub-adviser: BACAP ------------------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 17 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 21 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 23
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 26 How orders are processed 28 How selling and servicing agents are paid 34 Distributions and taxes 35 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 37 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 41 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Daily Class 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. [CHART] 2000 2001 ---- ---- 5.84% 3.60% *Year-to-date return as of June 30, 2002: 0.67% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.50% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 Life of 1 year Fund* Daily Class Shares 3.60% 4.70%
*The inception date of Daily Class Shares is April 12, 1999. 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] 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. [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) Daily Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.12% ----- Total annual Fund operating expenses 0.87% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $271 $475 $1,066
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Daily Class 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. [CHART] 2000 2001 ----- ----- 5.56% 3.36% *Year-to-date return as of June 30, 2002: 0.61% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.45% Worst: 4th quarter 2001: 0.44%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 3.36% 4.44%
*The inception date of Daily Class Shares is April 12, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Daily Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.12% ----- Total annual Fund operating expenses 0.87% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $271 $475 $1,066
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Daily Class 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. [CHART] 2000 2001 ----- ----- 5.70% 3.44% *Year-to-date return as of June 30, 2002: 0.58% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.47% Worst: 4th quarter 2001: 0.44%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
1 year Life of Fund* Daily Class Shares 3.44% 4.54%
*The inception date of Daily Class Shares is April 12, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Daily Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.13% ----- Total annual Fund operating expenses 0.88% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. . Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. . Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. . Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 2000 2001 ---- ---- 3.41% 2.06% *Year-to-date return as of June 30, 2002: 0.39% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.90% Worst: 4th quarter 2001: 0.28%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Daily Class Shares 2.06% 2.72%
*The inception date of Daily Class Shares is April 12, 1999. 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] 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. [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) Daily Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.15% ----- Total annual Fund operating expenses 0.90% Fee waivers and/or reimbursements (0.10)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $277 $489 $1,099
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 24. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 2.84% 2.51% 2.26% 2.84% 1.71% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.77% Worst: 4th quarter 2001: 0.25%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 Life of 1 year 5 Years Fund* Daily Class Shares 1.71% 2.43% 2.45%
*The inception date of Daily Class Shares is October 2, 1996. 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] 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. [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) Daily Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.60% Other expenses 0.13% ----- Total annual Fund operating expenses 0.88% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.80% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Daily Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Daily Class Shares $82 $273 $480 $1,077
20 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 Fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. 21 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 22 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations California Tax-Exempt Reserves 0.15% 0.15%
23 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team 24 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 25 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 Daily Class Shares of the Funds. Here are some general rules about this class of shares: .You can invest in the Funds through your selling agent or directly through 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. Daily Class Shares are available to financial institutions and intermediaries for their own accounts and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Daily Class Shares on the pages that follow. You should also ask your financial institution, intermediary or 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 26
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 . $1,000 for regular accounts invest in Daily Class Shares. . $500 for traditional and Roth IRAs, and Coverdell Education Savings Accounts . $250 for certain fee-based accounts . no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: . none Using our minimum initial investment: You can buy shares twice a month, Systematic . $100 monthly or quarterly, using automatic Investment Plan minimum additional investment: transfers from your bank account. . $100 - ----------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum . you can sell up to $50,000 of your We usually send you or your selling shares by telephone, otherwise agent the sale proceeds on the same there are no limits to the amount day that we receive your order. you can sell . other restrictions may apply to If you paid for your shares with a withdrawals from retirement plan check that wasn't certified, we'll hold accounts 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. Using our free . minimum $250 per check You can write checks for free. You can checkwriting only use checks to make partial service withdrawals from a Fund. You can't use a check to make a full withdrawal from a Fund. Using our . minimum $25 per withdrawal Your account balance must be at least Automatic $10,000 to set up the plan. You can Withdrawal Plan 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 In a lump sum . minimum $1,000 per exchange You can exchange Daily Class shares of a Fund for Daily Class Shares of any other Nations Money Market Funds. If you received Daily Class Shares of a Money Market Fund from an exchange of Investor A Shares of an Index Fund, you can exchange these shares for Investor A Shares of an Index Fund. Using our minimum exchange per Fund: You must already have an investment Automatic . $25 in the Funds into which you want to Exchange Feature exchange. You can can make exchanges monthly or quarterly.
27 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by these Funds .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 28 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Daily Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves and Nations California Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions, intermediaries and selling agents are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 29 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: .$500 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts .$100 using our Systematic Investment Plan .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 There is no minimum for additional investments except the minimum is $100 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $100 or more using automatic transfers from your bank account to the Funds you choose. You can contact your financial adviser or us to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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 financial adviser. [Graphic] SELLING SHARES Here are some general rules for selling shares: .If you're selling your shares through a selling agent, financial institution or intermediary, we'll normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. 30 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. .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 on the same business day that the Fund receives your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves or Nations California Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 31 Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your financial adviser or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 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 financial adviser or us to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving your financial adviser 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. 32 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Daily Class Shares of a Fund for Daily Class Shares of any other Nations Money Market Fund. .If you received shares of a Fund from an exchange of Investor A Shares of an Index Fund, you can exchange these shares for Investor A Shares of an Index Fund. .You must exchange at least $1,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .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 Daily Class 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 33 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.35% of the average daily net assets of Daily Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Daily Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .an additional amount of up to 0.50% of the net asset value per share on all sales of Daily Class Shares to retirement plans .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 34 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 35 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves and Nations California Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from these Funds may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 36 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. 37 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0260 0.0568 0.0459 LESS DISTRIBUTIONS: Dividends from net investment income (0.0260) (0.0568) (0.0459) Net asset value, end of period $1.00 $1.00 $1.00 Total return++ 2.63% 5.83% 4.69% ======================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $14,018,697 $14,589,888 $9,753,000 Ratio of operating expenses to average net assets 0.80%(a)(b) 0.80%(a) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.32% 5.62% 4.77%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.87%(a) 0.89%+(a)
* Cash Reserves Daily Class Shares commenced operations on April 12, 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. (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 TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0242 0.0543 0.0431 LESS DISTRIBUTIONS: Dividends from net investment income (0.0242) (0.0543) (0.0431) Net asset value, end of period $1.00 $1.00 $1.00 Total return++ 2.44% 5.56% 4.40% ======================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,301,678 $981,837 $847,775 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)(b) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.21% 5.39% 4.46%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.87%(a) 0.88%+(a)
* Treasury Reserves Daily Class Shares commenced operations on April 12, 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. (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%. 38 NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0243 0.0554 0.0443 LESS DISTRIBUTIONS: Dividends from net investment income (0.0243) (0.0554) (0.0443) Net asset value, end of period $1.00 $1.00 $1.00 Total return++ 2.45% 5.69% 4.52% ========================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $317,287 $259,937 $171,521 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a)(b) 0.80%+(a)(b) Ratio of net investment income to average net assets 2.10% 5.46% 4.66%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88%(a) 0.89%(a) 0.89%+(a)
* Government Reserves Daily Class Shares commenced operations on April 12, 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. (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 MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0155 0.0332 0.0262 LESS DISTRIBUTIONS: Dividends from net investment income (0.0155) (0.0332) (0.0262) Net asset value, end of period $1.00 $1.00 $1.00 Total return++ 1.56% 3.37% 2.65% ================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $637,172 $554,876 $429,644 Ratio of operating expenses to average net assets 0.80% 0.80% 0.80%+ Ratio of net investment income to average net assets 1.43% 3.33% 2.69%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.90% 0.89% 0.90%+
* Municipal Reserves Daily Class Shares commenced operations on April 12, 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. 39 NATIONS CALIFORNIA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD TAX-EXEMPT RESERVES
Year ended Year ended Period ended Period ended Year ended Year ended Period ended DAILY CLASS SHARES 03/31/02 03/31/01 03/31/00 05/14/99* 02/28/99 02/28/98 02/28/97** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0139 0.0273 0.0201 0.0045 0.0238 0.0279 0.0107 LESS DISTRIBUTIONS: Dividends from net investment income (0.0139) (0.0273) (0.0201) (0.0045) (0.0238) (0.0279) (0.0107) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Total return++ 1.40% 2.76% 2.01% 0.45% 2.41% 2.83% 1.09% ============================================================================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $814,077 $755,635 $699,689 $334,000 $336,000 $172,000 $29,000 Ratio of operating expenses to average net assets 0.80% 0.80% 0.80%+ 0.80%+ 0.79%(a) 0.80%(a) 0.80%+(a) Ratio of net investment income to average net assets 0.78% 2.73% 2.20%+ 2.21%+ 2.35% 2.80% 2.66%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.88% 0.88% 0.88%+ 0.82%+ 0.79%(a) 0.80%(a) 0.80%+(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Tax-Exempt Money Market Fund, S and X Shares, which were reorganized into the California Tax-Exempt Reserves Daily Class, 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 Tax-Exempt Reserves Daily Class Shares commenced operations on October 2, 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. (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%. 40 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 41 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 42 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 43 SEC file number: Nations Funds Trust, 811-09645 MMADAILY-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investor) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ----------------------------------- Prospectus -- Investor Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 52. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Investor Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 33. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MUNICIPAL RESERVES 16 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TAX-EXEMPT RESERVES 20 Sub-adviser: BACAP ------------------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 24 Sub-adviser: BACAP ------------------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 28 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 31 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 33
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 36 How orders are processed 38 How selling and servicing agents are paid 44 Distributions and taxes 45 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 47 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 52 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk -- Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk -- The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Class 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. [CHART] 2000 2001 ----- ----- 6.10% 3.86% *Year-to-date return as of June 30, 2002: 0.80% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.57% Worst: 4th quarter 2001: 0.56%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.86% 4.96%
*The inception date of Investor Class Shares is April 12, 1999. 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] 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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.12% ----- Total annual Fund operating expenses 0.62% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $191 $339 $768
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant it, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: . Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. . Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Class 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. [CHART] 2001 ----- 3.78% *Year-to-date return as of June 30, 2002: 0.74% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.35% Worst: 4th quarter 2001: 0.52%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.78% 4.36%
*The inception date of Investor Class Shares is March 3, 2000. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.13% ----- Total annual Fund operating expenses 0.63% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $194 $343 $779
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: . Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. . Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. . Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Class 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. [CHART] 2000 2001 ----- ----- 5.82% 3.62% *Year-to-date return as of June 30, 2002: 0.74% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.52% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.62% 4.70%
*The inception date of Investor Class Shares is April 12, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.12% ----- Total annual Fund operating expenses 0.62% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $191 $339 $768
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Government Reserves has the following general risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Class 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. [CHART] 2000 2001 ----- ----- 5.96% 3.69% *Year-to-date return as of June 30, 2002: 0.70% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.53% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.69% 4.80%
*The inception date of Investor Class Shares is April 12, 1999. 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] 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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.13% ----- Total annual Fund operating expenses 0.63% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $194 $343 $779
15 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 17 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Class 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. [CHART] 2000 2001 ----- ----- 3.67% 2.31% *Year-to-date return as of June 30, 2002: 0.51% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.97% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 2.31% 2.98%
*The inception date of Investor Class Shares is April 12, 1999. 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] 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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.15% ----- Total annual Fund operating expenses 0.65% Fee waivers and/or reimbursements (0.10)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $198 $352 $801
19 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] RISKS AND OTHER THINGS TO CONSIDER Nations Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 21 [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 MAY 10, 2002, REFLECTS PERFORMANCE INFORMATION FOR A PREDECESSOR FUND WHICH WAS REORGANIZED INTO THE FUND ON MAY 10, 2002. THE PREDECESSOR FUND HAD AN IDENTICAL INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Class 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- 3.55% 3.18% 3.29% 3.03% 2.83% 3.68% 2.32% *Year-to-date return as of June 30, 2002: 0.48% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.97% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Investor Class Shares 2.32% 3.03% 3.08%
*The inception date of Investor Class Shares is March 7, 1994. 22 [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] 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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% 0.13% Other expenses ----- Total annual Fund operating expenses 0.63% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.55% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $194 $343 $779
23 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 25 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.01% 1.87% 2.30% 3.32% 2.88% 3.07% 2.74% 2.51% 3.10% 1.97% *Year-to-date return as of June 30, 2002: 0.49% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 0.87% Worst: 1st quarter 1992: 0.23%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor Class Shares 1.97% 2.68% 2.58% 2.92%
*The inception date of Investor Class Shares is December 6, 1989. 26 [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] 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. [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 Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses 0.13% ----- Total annual Fund operating expenses 0.63% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $194 $343 $779
27 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 28 [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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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] 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. [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 (Fees paid directly from your investment) Investor Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% Other expenses/1/ 0.41% ----- Total annual Fund operating expenses 0.91% Fee waivers and/or reimbursements (0.36)% ------- Total net expenses/2/ 0.55% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Investor Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor Class Shares $56 $254
30 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 31 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 32 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 33 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
34 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 35 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 Investor Class Shares of the Funds. Here are some general rules about this class of shares: .Investor Class Shares are available on a direct basis or through certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment is $25,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to come up with the minimum initial investment. 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 Investor Class Shares. .There is no minimum for additional investments. .The minimum initial investment is $10,000 using the Systematic Investment Plan. The minimum for additional investments under this plan is $1,000. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Investor Class Shares on the pages that follow. You should also ask your financial institution, intermediary or 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 36
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 .$25,000 invest in Investor Class Shares. minimum additional investment: .none Using our minimum initial investment: You can buy shares twice a month, monthly Systematic .$10,000 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. .$1,000 - ------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum .you can sell up to $50,000 of your shares We usually send you or your selling agent by telephone, otherwise there are no the sale proceeds on the same day that we limits to the amount you can sell receive your order. If you paid for your .other restrictions may apply to shares with a check that wasn't certified, withdrawals from retirement plan we'll hold the sale proceeds when you sell accounts those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. Using our free .minimum $250 per check You can write checks for free. You can only checkwriting service use checks to make partial withdrawals from a Fund. You can't use a check to make a full withdrawal from a Fund. Using our .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. - ------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum .minimum $25,000 per exchange You can exchange Investor Class shares of a Fund for Investor Class Shares of any other Nations Money Market Fund. Using our minimumexchange per Fund: You must already have an investment in the Automatic .$25 Funds into which you want to exchange. Exchange You can make exchanges monthly or Feature quarterly.
37 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 38 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Investor Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions, intermediaries and selling agents are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 39 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. Systematic Investment Plan You can make regular purchases of $1,000 or more using automatic transfers from your bank account to the Funds you choose. You can contact your financial adviser or us to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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 financial adviser. [Graphic] SELLING SHARES Here are some general rules for selling shares: .If you're selling your shares through a selling agent, financial institution or intermediary, we'll normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. .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 on the same business day that the Fund receives your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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 other information we need to prove that the order is properly authorized. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. 40 .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your financial adviser or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 41 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS PROSPECTUS CAREFULLY. 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 financial adviser or us to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving your financial adviser 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] 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: .You can exchange Investor Class Shares of a Fund for Investor Class Shares of any other Nations Money Market Fund. .You must exchange at least $25,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 42 Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor Class 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: .Send your request to PFPC in writing or call 1.800.321.7854. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 43 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.10% of the average daily net assets of Investor Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Investor Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 44 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 45 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 46 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. 47 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0285 0.0593 0.0484 LESS DISTRIBUTIONS: Dividends from net investment income (0.0285) (0.0593) (0.0484) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.89% 6.09% 4.94% ========================================== ========== ========== ============ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $4,966,158 $7,585,825 $7,068,117 Ratio of operating expenses to average net assets 0.55%(a)(b) 0.55%(a) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.57% 5.87% 5.02%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.62%(a) 0.64%+(a)
* Cash Reserves Investor Class Shares commenced operations on April 12, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0276 0.0501 0.0043 LESS DISTRIBUTIONS: Dividends from net investment income (0.0276) (0.0501) (0.0043) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.80% 5.12% 0.43% ========================================== ========== ========== ============ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $44,170 $90,380 $1 Ratio of operating expenses to average net assets 0.55%(a) 0.55%(a)(b) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.50% 5.84% 5.29%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63%(a) 0.62%(a) 0.68%+(a)
* Money Market Reserves Investor Class Shares commenced operations on March 3, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 48 NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0267 0.0568 0.0455 LESS DISTRIBUTIONS: Dividends from net investment income (0.0267) (0.0568) (0.0455) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.70% 5.83% 4.65% ========================================== ========== ========== ============ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $688,990 $700,202 $573,261 Ratio of operating expenses to average net assets 0.55%(a) 0.55%(a)(b) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.46% 5.64% 4.71%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.62%(a) 0.63%+(a)
* Treasury Reserves Investor Class Shares commenced operations on April 12, 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0268 0.0580 0.0467 LESS DISTRIBUTIONS: Dividends from net investment income (0.0268) (0.0580) (0.0467) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.71% 5.95% 4.77% ========================================== ========== ========== ============ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,001,552 $331,555 $111,741 Ratio of operating expenses to average net assets 0.55%(a) 0.55%(a)(b) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.35% 5.71% 4.91%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63%(a) 0.64%(a) 0.64%+(a)
* Government Reserves Investor Class Shares commenced operations on April 12, 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. (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 MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0180 0.0357 0.0287 LESS DISTRIBUTIONS: Dividends from net investment income (0.0180) (0.0357) (0.0287) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.82% 3.63% 2.90% ============================================= ========== ========== ============ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $48,022 $57,017 $64,782 Ratio of operating expenses to average net assets 0.55% 0.55% 0.55%+ Ratio of net investment income to average net assets 1.68% 3.58% 2.94%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.65% 0.64% 0.65%+
* Municipal Reserves Investor Class Shares commenced operations on April 12, 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. NATIONS TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
Year ended Year ended Year ended Year ended Year ended INVESTOR CLASS SHARES 03/31/02 03/31/01* 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0179 0.0358 0.0296 0.0288 0.0323 LESS DISTRIBUTIONS: Dividends from net investment income (0.0179) (0.0358) (0.0296) (0.0288) (0.0323) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.81% 3.63% 3.00% 2.91% 3.26% ========================================== ========== ========== ========== ========== ========== Net assets, end of year (in 000's) $257 $290 $326 $218 $67,511 Ratio of operating expenses to average net assets 0.55% 0.55% 0.55% 0.55%(a) 0.48%(a) Ratio of net investment income to average net assets 1.75% 3.55% 2.95% 2.86% 3.25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.58% 0.58% 0.67% 0.80%(a) 0.74%(a)
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Tax Exempt Fund Investor C Shares which were reorganized into Nations Tax-Exempt Reserves Investor Class Shares as of May 10, 2002. ++ Total return 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%. 50
NATIONS CALIFORNIA TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Period ended Period ended Year ended Year ended INVESTOR CLASS SHARES 03/31/02 03/31/01 03/31/00 05/14/99* 02/28/99 02/28/98 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0164 0.0298 0.0223 0.0051 0.0261 0.0302 LESS DISTRIBUTIONS: Dividends from net investment income (0.0164) (0.0298) (0.0223) (0.0051) (0.0261) (0.0302) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.65% 3.02% 2.23% 0.50% 2.64% 3.06% ============================================== ========== ========== ============ ============ ========== ========== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $240,724 $226,491 $284,041 $503,000 $539,000 $598,000 Ratio of operating expenses to average net assets 0.55% 0.55% 0.55%+ 0.58%+ 0.56%(a) 0.57%(a) Ratio of net investment income to average net assets 1.03% 2.98% 2.45%+ 2.43%+ 2.61% 3.01% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63% 0.63% 0.63%+ 0.62%+ 0.59%(a) 0.60%(a) Year ended INVESTOR CLASS SHARES 02/28/97 Net asset value, beginning of period $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0284 LESS DISTRIBUTIONS: Dividends from net investment income (0.0284) Net asset value, end of period $1.00 TOTAL RETURN++ 2.88% ============================================== ========== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $493,000 Ratio of operating expenses to average net assets 0.57%(a) Ratio of net investment income to average net assets 2.83% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.60%(a) * The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Tax-Exempt Money Market Pacific Horizon Shares, which were reorganized into the California Tax-Exempt Reserves Investor Class 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. + 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 NEW YORK TAX-EXEMPT RESERVES FOR FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Period ended INVESTOR CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0008 LESS DISTRIBUTIONS: Dividends from net investment income (0.0008) Net asset value, end of period $1.00 TOTAL RETURN++ 0.08% ========================================== ============ RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.55%+ Ratio of net investment income to average net assets 0.68%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 4.86%+
* New York Tax-Exempt Investor Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 51 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 52 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 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. 53 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 54 SEC file number: Nations Funds Trust, 811-09645 INVESTOR -- 0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [Graphic] NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Money Market Funds PROSPECTUS -- INVESTOR CLASS AND SERVICE CLASS SHARES AUGUST 1, 2002 NATIONS CASH RESERVES NATIONS TREASURY RESERVES 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. 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 28. 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 (FDIC) CORPORATION 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 two Nations Money Market Funds -- Nations Cash Reserves and Nations Treasury Reserves. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Investor Class and Service Class Shares of the Funds. These classes of shares are designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more about who is eligible to buy these classes of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed, or have relatively low risk. Your original investment and your return aren't guaranteed however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 your investment professional at 1.800.303.7371. 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 12. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 7 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 10 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 12
[Graphic] About your investment INFORMATION FOR INVESTORS Choosing a share class 15 Buying, selling and exchanging shares 16 How selling and servicing agents are paid 22 Distributions and taxes 23 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 25 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 28 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 13. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant it, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. CALL YOUR INVESTMENT PROFESSIONAL AT 1.800.303.7371 FOR THE FUND'S CURRENT 7-DAY YIELD. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Class 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. [CHART] 2000 2001 ---- ---- 6.10% 3.86% *Year-to-date return as of June 30, 2002: 0.80% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.57% Worst: 4th quarter 2001: 0.56%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.86% 4.96% Service Class Shares 3.18% 4.29%
*The inception dates of Investor Class Shares and Service Class Shares are April 12, 1999 and April 28, 1999, respectively. 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] 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. [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.
Investor Service SHAREHOLDER FEES Class Class (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) none none ANNUAL FUND OPERATING EXPENSES/1/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% 1.00% 0.12% 0.12% Other expenses ----- ----- Total annual Fund operating expenses 0.62% 1.27% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- Total net expenses/2/ 0.55% 1.20% ===== =====
/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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in Investor Class or Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $191 $339 $768 Service Class Shares $122 $396 $690 $1,528
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 13. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. CALL YOUR INVESTMENT PROFESSIONAL AT 1.800.303.7371 FOR THE FUND'S CURRENT 7-DAY YIELD. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Class 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. [CHART] 2000 2001 ----- ----- 5.82% 3.62% *Year-to-date return as of June 30, 2002: 0.74% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.52% Worst: 4th quarter 2001: 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Investor Class Shares 3.62% 4.70% Service Class Shares 2.95% 4.03%
*The inception dates of Investor Class Shares and Service Class Shares are April 12, 1999 and May 17, 1999, respectively. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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.
Investor Service SHAREHOLDER FEES Class Class (Fees paid directly from your investment) Shares Shares Maximum sales charge (load) imposed on purchases none none Maximum deferred sales charge (load) none none ANNUAL FUND OPERATING EXPENSES/1/ (Expenses that are deducted from the Fund's assets) Management fees 0.15% 0.15% Distribution (12b-1) and shareholder servicing fees 0.35% 1.00% 0.12% 0.12% Other expenses ----- ----- Total annual Fund operating expenses 0.62% 1.27% (0.07)% (0.07)% Fee waivers and/or reimbursements ------- ------- Total net expenses/2/ 0.55% 1.20% ===== =====
/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 needed, 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, 2003. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in Investor Class or Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Class Shares $56 $191 $339 $768 Service Class Shares $122 $396 $690 $1,528
9 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single isssuer for up to three business days .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities. .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. .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 Fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. 10 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 11 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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 both Funds until July 31, 2003. 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 Cash Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15%
12 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Investment Team is responsible for making the day-to-day investment decisions for each Fund. 13 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 14 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 AT 1.800.303.7371. FOR MORE INFORMATION ABOUT DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES, 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 two classes of shares for each Fund offered by this prospectus. Each class has its own fees and expenses. The table below compares the fees and other features of the share classes.
Investor Class Service Class Shares Shares Maximum amount you can buy no limit no limit Maximum front-end sales charge none none Maximum deferred sales charge none none Redemption fee none none Maximum annual distribution 0.10% 0.75% (12b-1) and shareholder servicing fees distribution distribution (12b-1) fee (12b-1) fee 0.25% service fee 0.25% service fee Conversion feature none none
The share class you choose will depend on how much you're investing and how long you're planning to stay invested. 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. 15 [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 Investor Class and Service Class Shares of the Funds. Here are some general rules about these classes of shares: .Investor Class Shares are available on a direct basis or through certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide specific services. .Service Class Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment in Investor Class Shares is $25,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to come up with the minimum initial investment. .The minimum initial investment in Service Class Shares is $1,000. .There is no minimum for additional investments in either Investor Class or Service Class Shares. .The minimum initial investment is $10,000 for Investor Class Shares and $100 for Service Class Shares using the Systematic Investment Plan. The minimum for additional investments under this plan is $1,000 for Investor Class Shares and $100 for Service Class Shares. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Investor Class and Service Class Shares on the pages that follow. You should also ask your financial institution, intermediary or 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 services and programs. Please contact your investment professional at 1.800.303.7371 if you have any questions, or you need help placing an order. 16
Ways to buy, sell or How much you can buy, exchange sell or exchange ------------- ------------------------------------------ Buying shares In a lump sum minimum initial investment: .$25,000 for Investor Class Shares .$1,000 for Service Class Shares minimum additional investment: .none - ---------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your shares by telephone, otherwise there are no limits to the amount you can sell .other restrictions may apply to withdrawals from retirement plan accounts - ---------------------------------------------------------------------------------------- Exchanging shares In a lump sum .minimum $25,000 per exchange for Investor Class Shares .minimum $1,000 per exchange for Service Class Shares
Other things to know ------------------------------------------ Buying shares There is no limit to the amount you can invest in Investor Class or Service Class Shares. - ------------------------------------------------------------------------- Selling shares We usually send you or your selling agent the sale proceeds on the same day that we receive your order. 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. - ------------------------------------------------------------------------- Exchanging shares You can exchange Investor Class Shares of a Fund for Investor Class Shares of any other Nations Money Market Funds. You can exchange Service Class Shares of a Fund for Service Class Shares of any other Nations Money Market Funds.
17 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at 5:00 p.m. Eastern time each business day (unless the Fund closes early) for these share classes of each Fund. 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. VALUING SECURITIES IN THE FUND The value of a Fund's assets is based on the total market value of all of the securities it holds. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 18 [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: .You buy Investor Class and Service Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Investor Class Shares or 5:30 p.m. Eastern time for Service Class Shares of Nations Cash Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions, intermediaries and selling agents are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 19 [Graphic] SELLING SHARES Here are some general rules for selling shares: .If you're selling your shares through a selling agent, financial institution or intermediary, we'll normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. .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 on the same business day that the Fund receives your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 20 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange between the two Nations Money Market Funds described in this prospectus. .You must exchange at least $25,000 for Investor Class Shares or $1,000 for Service Class Shares at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 21 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.10% of the average daily net assets of Investor Class or 0.75% of the average daily net assets of Service Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Investor Class and Service Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .an additional amount of up to 0.75% of the net asset value per share on all sales of Service Class Shares .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 22 [Graphic] THE POWER OR 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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 its 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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. Please contact your financial adviser for more information about distributions. 23 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. 24 [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. 25 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended Investor Class Shares 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0285 0.0593 0.0484 LESS DISTRIBUTIONS: Dividends from net investment income (0.0285) (0.0593) (0.0484) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.89% 6.09% 4.94% =================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $4,966,158 $7,585,825 $7,068,117 Ratio of operating expenses to average net assets 0.55%(a)(b) 0.55%(a) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.57% 5.87% 5.02%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.62%(a) 0.64%+(a)
* Cash Reserves Investor Class Shares commenced operations on April 12, 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. (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 CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended Service Class Shares 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0220 0.0528 0.0404 LESS DISTRIBUTIONS: Dividends from net investment income (0.0220) (0.0528) (0.0404) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.22% 5.41% 4.11% ========================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,037,281 $913,512 $512,318 Ratio of operating expenses to average net assets 1.20%(a)(b) 1.20%(a) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.92% 5.22% 4.37%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.27%(a) 1.27%(a) 1.29%+(a)
* Cash Reserves Service Class Shares commenced operations on April 28, 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. (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%. 26 NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended Investor Class Shares 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0267 0.0568 0.0455 LESS DISTRIBUTIONS: Dividends from net investment income (0.0267) (0.0568) (0.0455) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.70% 5.83% 4.65% ========================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $688,990 $700,202 $573,261 Ratio of operating expenses to average net assets 0.55%(a) 0.55%(a)(b) 0.55%+(a)(b) Ratio of net investment income to average net assets 2.46% 5.64% 4.71%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%(a) 0.62%(a) 0.63%+(a)
* Treasury Reserves Investor Class Shares commenced operations on April 12, 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. (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 TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Period ended Service Class Shares 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0202 0.0503 0.0358 LESS DISTRIBUTIONS: Dividends from net investment income (0.0202) (0.0503) (0.0358) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.04% 5.14% 3.63% ========================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $330,420 $343,240 $244,035 Ratio of operating expenses to average net assets 1.20%(a) 1.20%(a)(b) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.81% 4.99% 4.06%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.27%(a) 1.27%(a) 1.28%+(a)
* Treasury Reserves Service Class Shares commenced operations on May 17, 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. (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%. 27 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 28 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 29 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 30 SEC file number: Nations Funds Trust, 811-09645 SVBINVSER-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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 calling 1.800.303.7371. 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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Service Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Service Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------ NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP ------------------------------------------ NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP ------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP ------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP ------------------------------------------ OTHER IMPORTANT INFORMATION 32 ------------------------------------------ HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 How orders are processed 39 How selling and servicing agents are paid 44 Distributions and taxes 45 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 47 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 51 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Service Class 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. [CHART] 2000 2001 ----- ----- 5.41% 3.18% *Year-to-date return as of June 30, 2002: 0.47% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.40% Worst: 4th quarter 2001: 0.40%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Service Class Shares 3.18% 4.29%
*The inception date of Service Class Shares is April 28, 1999. 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] 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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.12% Other expenses ----- Total annual Fund operating expenses 1.27% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $396 $690 $1,528
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Service Class 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. [CHART] 2000 2001 ----- ----- 5.41% 3.11% *Year-to-date return as of June 30, 2002: 0.42% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.40% Worst: 4th quarter 2001: 0.36%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Service Class Shares 3.11% 4.28%
*The inception date of Service Class Shares is May 18, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.13% Other expenses ----- Total annual Fund operating expenses 1.28% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these limitations will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitations in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $398 $695 $1,538
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Service Class 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. [CHART] 2000 2001 ----- ----- 5.14% 2.95% *Year-to-date return as of June 30, 2002: 0.41% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.35% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Service Class Shares 2.95% 4.03%
*The inception date of Service Class Shares is May 17, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.12% Other expenses ----- Total annual Fund operating expenses 1.27% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $396 $690 $1,528
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Service Class 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. [CHART] 2000 2001 ----- ----- 5.28% 3.02% *Year-to-date return as of June 30, 2002: 0.38% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.37% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Service Class Shares 3.02% 4.15%
*The inception date of Service Class Shares is June 8, 1999. 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] 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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.13% Other expenses ----- Total annual Fund operating expenses 1.28% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $398 $695 $1,538
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Service Class 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. [CHART] 2001 ----- 1.66% *Year-to-date return as of June 30, 2002: 0.31% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2001: 0.57% Worst: 4th quarter 2001: 0.19%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Service Class Shares 1.66% 2.33%
*The inception date of Service Class Shares is January 21, 2000. 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] 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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.15% Other expenses ----- Total annual Fund operating expenses 1.30% (0.10)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $402 $703 $1,559
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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] 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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% Other expenses 0.13% ----- Total annual Fund operating expenses 1.28% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 1.20% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $398 $695 $1,538
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Daily Class 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. [CHART] 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- 2.84% 2.51% 2.26% 2.84% 1.71% *Year-to-date return as of June 30, 2002: 0.36% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 0.77% Worst: 4th quarter 2001: 0.25%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Daily Class Shares 1.71% 2.43% 2.45%
*The inception date of Daily Class Shares is October 2, 1996. 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] 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. [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) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.13% Other expenses ----- Total annual Fund operating expenses 1.28% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Service Class Shares $122 $398 $695 $1,538
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 (Fees paid directly from your investment) Service Class 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 0.15% Distribution (12b-1) and shareholder servicing fees 1.00% 0.41% Other expenses/1/ ----- Total annual Fund operating expenses 1.56% (0.36)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 1.20% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Service Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Service Class Shares $122 $457
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/ This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 36 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 Service Class Shares of the Funds. Here are some general rules about this class of shares: .Service Class Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment is $1,000. There is no minimum for additional investments. .The minimum initial investment is $100 using the Systematic Investment Plan. The minimum for additional investments under this plan is $100. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Service Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 37
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 .$1,000 in Service Class Shares. minimum additional investment: .none Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic .$100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. .$100 - ---------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum .you can sell up to $50,000 of your We usually send you the sale proceeds on the shares by telephone, otherwise there same day that we receive your order. are no limits to the amount you can sell .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, whichever is later. Using our free .minimum $250 per check You can write checks for free. You can only use checkwriting checks to make partial withdrawals from a service Fund. You can't use a check to make a full withdrawal from a Fund. Using our .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. - ---------------------------------------------------------------------------------------------------------------------------- Exchanging shares In a lump sum .minimum $1,000 per exchange You can exchange Service Class shares of a Fund for Service Class Shares of any other Nations Money Market Fund.
38 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and class of Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 39 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Service Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves. If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 40 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. Systematic Investment Plan You can make regular purchases of $100 or more using automatic transfers from your bank account to the Funds you choose. You can contact your financial adviser or us to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have us transfer your money on or about the 15th or the last day of the month. .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 financial adviser. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. 41 .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act Checkwriting service You can withdraw money from the Funds using our free checkwriting service. You can contact your financial adviser or us to set up the service. Here's how the service works: .Each check you write must be for $250 or more. .You can only use checks to make partial withdrawals. You can't use a check to make a full withdrawal of the shares you hold in a Fund. .Shares you sell by writing a check are eligible to receive distributions up to the day our custodian receives the check for payment. .We can change or cancel the service by giving you 30 days notice in writing. 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 financial adviser or us to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 10th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving your financial adviser 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. 42 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Service Class Shares of a Fund for Service Class Shares of any other Nations Money Market Fund. .You must exchange at least $1,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 43 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.75% of the average daily net assets of Service Class Shares of the Funds, some or all of which may be paid to selling agents. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Service Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .an additional amount of up to 0.75% of the net asset value per share on all sales of Service Class Shares .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 may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 44 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 45 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 46 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Service Class Shares of Nations Tax-Exempt Reserves and Nations California Tax-Exempt Reserves are not provided because this class of shares for these Funds 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. 47 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED SERVICE CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0220 0.0528 0.0404 LESS DISTRIBUTIONS: Dividends from net investment income (0.0220) (0.0528) (0.0404) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.22% 5.41% 4.11% =========================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,037,281 $913,512 $512,318 Ratio of operating expenses to average net assets 1.20%(a)(b) 1.20%(a) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.92% 5.22% 4.37%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.27%(a) 1.27%(a) 1.29%+(a)
* Cash Reserves Service Class Shares commenced operations on April 28, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED SERVICE CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0211 0.0525 0.0386 LESS DISTRIBUTIONS: Dividends from net investment income (0.0211) (0.0525) (0.0386) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.13% 5.38% 3.93% ========================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $139,024 $203,160 $80,500 Ratio of operating expenses to average net assets 1.20%(a) 1.20%(a)(b) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.85% 5.19% 4.64%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.28%(a) 1.27%(a) 1.33%+(a)
* Money Market Reserves Service Class Shares commenced operations on May 18, 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. (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 TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED SERVICE CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0202 0.0503 0.0358 LESS DISTRIBUTIONS: Dividends from net investment income (0.0202) (0.0503) (0.0358) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.04% 5.14% 3.63% ========================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $330,420 $343,240 $244,035 Ratio of operating expenses to average net assets 1.20%(a) 1.20%(a)(b) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.81% 4.99% 4.06%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.27%(a) 1.27%(a) 1.28%+(a)
* Treasury Reserves Service Class Shares commenced operations on May 17, 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED SERVICE CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income $0.0203 0.0515 0.0348 LESS DISTRIBUTIONS: Dividends from net investment income (0.0203) (0.0515) (0.0348) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.05% 5.27% 3.53% ========================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $36,505 $26,001 $10,000 Ratio of operating expenses to average net assets 1.20%(a) 1.20%(a)(b) 1.20%+(a)(b) Ratio of net investment income to average net assets 1.70% 5.06% 4.26%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.28%(a) 1.29%(a) 1.29%+(a)
* Government Reserves Service Class Shares commenced operations on June 8, 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. (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 MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED SERVICE CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 Net investment income 0.0123 0.0292 0.0048 LESS DISTRIBUTIONS: Dividends from net investment income (0.0123) (0.0292) (0.0048) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.24% 2.96% 0.48% ========================================================================= RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $15,001 $10,000 $1,000 Ratio of operating expenses to average net assets 1.16% 1.20% 1.20%+ Ratio of net investment income to average net assets 1.03% 2.93% 2.29%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.30% 1.29% 1.30%+
* Municipal Reserves Service Class Shares commenced operations on January 21, 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 NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED SERVICE CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0000# LESS DISTRIBUTIONS: Dividends from net investment income (0.0000)# Net asset value, end of period $1.00 TOTAL RETURN++ 0.00%# =================================================== RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 1.20%+ Ratio of net investment income to average net assets 0.03%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 5.51%+
* New York Tax-Exempt Reserves Service Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.0001 or 0.01%, as applicable. 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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 51 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 52 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 53 SEC file number: Nations Funds Trust, 811-09645 SERVICE - 0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [Graphic] NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Money Market Funds PROSPECTUS -- INSTITUTIONAL CLASS SHARES AUGUST 1, 2002 NATIONS CASH RESERVES 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. 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 20. 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 Money Market Fund -- Nations Cash Reserves. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Institutional Class Shares of the Fund. This class of shares is designed primarily for institutional investors that purchase their shares through financial institutions or intermediaries. Please turn to Buying and selling shares for more information about who is eligible to buy this class of shares. ABOUT THE FUND Nations Cash Reserves seeks to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. 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 Cash Reserves may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs It may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 your investment professional at 1.800.303.7371. 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 9. [Graphic] About the Fund NATIONS CASH RESERVES 4 Sub-adviser: BACAP -------------------------------------------- OTHER IMPORTANT INFORMATION 7 -------------------------------------------- HOW THE FUND IS MANAGED 9
[Graphic] About your investment INFORMATION FOR INVESTORS Buying and selling shares 12 Shareholder administration fees 15 Distributions and taxes 16 -------------------------------------------- FINANCIAL HIGHLIGHTS 18 -------------------------------------------- TERMS USED IN THIS PROSPECTUS 20 -------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 10. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .commercial paper .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. CALL YOUR INVESTMENT PROFESSIONAL AT 1.800.303.7371 FOR THE FUND'S 7-DAY YIELD. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Institutional Class 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. [CHART] 2001 - ----- 4.18% *Year-to-date return as of June 30, 2002: 0.95% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.43% Worst: 4th quarter 2001: 0.64%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 4.18% 4.37%
*The inception date of Institutional Class Shares is November 30, 2000. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.12% Other expenses ----- Total annual Fund operating expenses 0.31% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $93 $167 $387
6 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Fund, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of its total assets in securities of the same issuer, other than U.S. government securities; however, it may invest up to 25% of its total assets in first-tier securities of a single issuer for up to three business days .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities. .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. .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 Fund may become a feeder fund if the Board decides this would be in the best interest of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. 7 .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. Any cash the Fund holds for defensive or other reasons may not earn income. .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, 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 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. 8 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 mutual fund portfolios in the Nations Funds Family including the Money Market 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 investment sub-advisers for the services they provide to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for the Fund until July 31, 2003. 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, 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 Cash Reserves 0.15% 0.15%
9 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Fund. The Cash Investment Team is responsible for making the day-to-day investment decisions for the Fund. 10 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 OTHER SERVICE PROVIDERS The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. 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 0.10% 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. The Fund also pays shareholder administration fees to BA Advisors, its affiliates and/or other financial institutions and intermediaries for providing services to investors. 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] WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY "BUYING" THEM BACK FROM YOU. THIS IS CALLED A redemption. [Graphic] Buying and selling shares This prospectus offers Institutional Class Shares of the Fund. Here are some general rules about this class of shares: .. Institutional Class Shares are available to institutional investors on a direct basis or through financial institutions or intermediaries. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers. .. The minimum initial investment is $750,000. 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 Institutional Class Shares. .. There is no minimum amount for additional investments. .. There are no sales charges for buying or selling these shares. You'll find more information about buying and selling Institutional Class Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying and selling shares, which may be different from those described here, and about its related services and programs. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying or selling, or you need help placing an order, please call your investment professional at 1.800.303.7371. 12 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. NATIONS CASH RESERVES RESERVES THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS DAY, THANKSGIVING DAY AND CHRISTMAS DAY. [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY THE FUND EVERY BUSINESS 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 at 5:00 p.m. Eastern time each business day (unless the Fund closes early). 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. Although we try to maintain a net asset value per share of $1.00 for the Fund, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in Nations Cash Reserves. HOW ORDERS ARE PROCESSED Orders to buy or sell shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an order is also called the trade date. We may refuse any order to buy shares. If this happens, we'll return any money we've received. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Institutional Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early), or we'll refuse the order: . 5:30 p.m. Eastern time for Nations Cash Reserves, except: . Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 13 [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by the Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 14 [Graphic] FINANCIAL INSTITUTIONS AND INTERMEDIARIES MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] Shareholder administration fees BA Advisors, its affiliates and/or other financial institutions and intermediaries may receive a maximum annual shareholder administration fee of 0.04% of the average daily net assets of Institutional Class Shares of the Fund under a shareholder administration plan. Fees are calculated daily and paid monthly. Over time, these fees will increase the cost of your investment. The Fund pays these fees to eligible financial institutions and intermediaries for as long as the plan continues. We may reduce or discontinue payments at any time. BA Advisors and Stephens may pay amounts from their own assets to servicing agents of the Fund for services they provide. 15 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Fund does not expect to realize any capital gain, any capital gain realized by the Fund will be distributed at least once a year. The Fund declares distributions of net investment income each business day, and pays them on the first business day of each month. Normally, the Fund will declare and pay distributions of net investment income as indicated above. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.303.7371. 16 [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 of the Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Fund does not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest the 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as the Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. 17 [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. 18 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0316 0.0192 LESS DISTRIBUTIONS: Dividends from net investment income (0.0316) (0.0192) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 3.21% 1.90% =================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,257,737 $651,116 Ratio of operating expenses to average net assets 0.24%(a)(b) 0.24%+(a) Ratio of net investment income to average net assets 2.88% 6.18%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.31%(a) 0.31%+(a)
* Cash Reserves Institutional Class Shares commenced operations on November 30, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 19 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 20 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 21 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns 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. 22 SEC file number: Nations Funds Trust, 811-09645 SVBINST-0802 [Graphic] Where to find more information You'll find more information about Nations Cash Reserves 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 calling 1.800.303.7371. 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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - -------------------------------- Prospectus -- Trust Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 49. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Trust Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts for which they act as fiduciary, agent or custodian. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 33. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP -------------------------------------------------- NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP -------------------------------------------------- NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP -------------------------------------------------- NATIONS GOVERNMENT RESERVES 13
Sub-adviser: BACAP -------------------------------------------------- NATIONS MUNICIPAL RESERVES 16 Sub-adviser: BACAP -------------------------------------------------- NATIONS TAX-EXEMPT RESERVES 20 Sub-adviser: BACAP -------------------------------------------------- NATIONS CALIFORNIA TAX-EXEMPT RESERVES 24 Sub-adviser: BACAP -------------------------------------------------- NATIONS NEW YORK TAX-EXEMPT RESERVES 28 Sub-adviser: BACAP -------------------------------------------------- OTHER IMPORTANT INFORMATION 31 -------------------------------------------------- HOW THE FUNDS ARE MANAGED 33
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 36 Shareholder administration fees 41 Distributions and taxes 42 -------------------------------------------------- FINANCIAL HIGHLIGHTS 44 -------------------------------------------------- TERMS USED IN THIS PROSPECTUS 49 -------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Trust Class 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. [CHART] 2000 2001 ----- ----- 6.36% 4.12% *Year-to-date return as of June 30, 2002: 0.92% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.63% Worst: 4th quarter 2001: 0.62%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 4.12% 5.24%
*The inception date of Trust Class Shares is May 17, 1999. 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] 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. [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) Trust Class 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 0.15% Shareholder administration fees 0.10% 0.12% Other expenses ----- Total annual Fund operating expenses 0.37% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $112 $201 $461
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other important information AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Trust Class 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. [CHART] 2001 ----- 4.04% *Year-to-date return as of June 30, 2002: 0.87% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.41% Worst: 4th quarter 2001: 0.59%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 4.04% 5.11%
*The inception date of Trust Class Shares is March 22, 2000. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.13% Other expenses ----- Total annual Fund operating expenses 0.38% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $114 $205 $473
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONER'S APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Trust Class 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. [CHART] 2000 2001 ----- ----- 6.09% 3.88% *Year-to-date return as of June 30, 2002: 0.86% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.58% Worst: 4th quarter 2001: 0.56%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 3.88% 4.97%
*The inception date of Trust Class Shares is May 17, 1999. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.12% Other expenses ----- Total annual Fund operating expenses 0.37% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $112 $201 $461
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Trust Class 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. [CHART] 2000 2001 ----- ----- 6.23% 3.95% *Year-to-date return as of June 30, 2002: 0.83% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.60% Worst: 4th quarter 2001: 0.57%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 3.95% 5.08%
*The inception date of Trust Class Shares is May 17, 1999. 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] 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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.13% Other expenses ----- Total annual Fund operating expenses 0.38% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $114 $205 $473
15 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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 cash the Fund holds does not earn income. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 17 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Trust Class 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. [CHART] 2000 2001 ----- ----- 3.93% 2.57% *Year-to-date return as of June 30, 2002: 0.64% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.03% Worst: 4th quarter 2001: 0.41%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 2.57% 3.23%
*The inception date of Trust Class Shares is May 17, 1999. 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] 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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.15% Other expenses ----- Total annual Fund operating expenses 0.40% (0.10)% Fee waivers and/or reimbursements ------- 0.30% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $118 $214 $495
19 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] RISKS AND OTHER THINGS TO CONSIDER Nations Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 21 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 22 [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] 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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.13% Other expenses ----- Total annual Fund operating expenses 0.38% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $114 $205 $473
23 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 25 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS, AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Trust Class 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. [CHART] 2000 2001 ----- ----- 3.35% 2.22% *Year-to-date return as of June 30, 2002: 0.61% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.89% Worst: 4th quarter 2001: 0.38%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Trust Class Shares 2.22% 2.84%
*The inception date of Trust Class Shares is May 24, 1999. 26 [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] 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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.13% Other expenses ----- Total annual Fund operating expenses 0.38% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Trust Class Shares $31 $114 $205 $473
27 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 34. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 28 [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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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] 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. [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 Trust Class (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 0.15% Shareholder administration fees 0.10% 0.41% Other expenses/1/ ----- Total annual Fund operating expenses 0.66% (0.36)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.30% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Trust Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Trust Class Shares $31 $175
30 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 31 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 32 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 33 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
34 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. The Funds also pay shareholder administration fees to BA Advisors or financial institutions for providing services to investors. 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. 35 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 Trust Class Shares of the Funds. Here are some general rules about this class of shares: ..Trust Class 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: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers .institutional investors .charitable foundations .endowments .other funds in the Nations Funds Family. ..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 Trust Class Shares. ..There is no minimum amount for additional investments. ..There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Trust Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 36 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 37 [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: .You buy Trust Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 38 [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 39 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Trust Class Shares of a Fund for: .Primary A shares of all other Nations Funds, except Nations Money Market Funds .Trust Class Shares of Nations Money Market Funds. .You must exchange at least $250,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). 40 [Graphic] FINANCIAL INSTITUTIONS AND INTERMEDIARIES MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] Shareholder administration fees BA Advisors, its affiliates and/or other financial institutions and intermediaries may receive a maximum annual shareholder administration fee of 0.10% of the average daily net assets of Trust Class Shares of the Funds under a shareholder administration plan. Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, over time, they will increase the cost of your investment, and may cost you more than any sales charges you may pay. The Funds pay these fees to eligible financial institutions and intermediaries for as long as the plan continues. We may reduce or discontinue payments at any time. BA Advisors and Stephens may pay amounts from their own assets to servicing agents of the Funds for services they provide. 41 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 42 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 43 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. 44 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0310 0.0618 0.0463 LESS DISTRIBUTIONS: Dividends from net investment income (0.0310) (0.0618) (0.0463) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 3.14% 6.36% 4.72% =============================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,686,258 $2,676,204 $1,719,142 Ratio of operating expenses to average net assets 0.30%(a)(b) 0.30%(a) 0.30%+(a)(b) Ratio of net investment income to average net assets 2.82% 6.12% 5.27%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.37%(a) 0.37%(a) 0.39%+(a)
* Cash Reserves Trust Class Shares commenced operations on May 17, 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. (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 MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0301 0.0615 0.0016 LESS DISTRIBUTIONS: Dividends from net investment income (0.0301) (0.0615) (0.0016) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 3.05% 6.33% 0.16% =============================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,311,771 $67,422 $38 Ratio of operating expenses to average net assets 0.30%(a) 0.30%(a)(b) 0.30%+(a)(b) Ratio of net investment income to average net assets 2.75% 6.09% 5.54%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.38%(a) 0.37%(a) 0.43%+(a)
* Money Market Reserves Trust Class Shares commenced operations on March 22, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 45
NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0292 0.0593 0.0436 LESS DISTRIBUTIONS: Dividends from net investment income (0.0292) (0.0593) (0.0436) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.96% 6.09% 4.45% ========================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $399,582 $315,854 $506,339 Ratio of operating expenses to average net assets 0.30%(a) 0.30%(a)(b) 0.30%+(a)(b) Ratio of net investment income to average net assets 2.71% 5.89% 4.96%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.37%(a) 0.37%(a) 0.38%+(a)
* Treasury Reserves Trust Class Shares commenced operations on May 17, 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. (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 RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0293 0.0605 0.0448 LESS DISTRIBUTIONS: Dividends from net investment income (0.0293) (0.0605) (0.0448) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.97% 6.22% 4.57% ========================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $289,252 $222,765 $125,504 Ratio of operating expenses to average net assets 0.30%(a) 0.30%(a)(b) 0.30%+(a)(b) Ratio of net investment income to average net assets 2.60% 5.96% 5.16%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.38%(a) 0.39%(a) 0.39%+(a)
* Government Reserves Trust Class Shares commenced operations on May 17, 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. (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%. 46 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0205 0.0382 0.0280 LESS DISTRIBUTIONS: Dividends from net investment income (0.0205) (0.0382) (0.0280) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 2.07% 3.88% 2.83% ================================================================================ RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $491,711 $488,191 $526,831 Ratio of operating expenses to average net assets 0.30% 0.30% 0.30%+ Ratio of net investment income to average net assets 1.93% 3.83% 3.19%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.40% 0.39% 0.40%+
* Municipal Reserves Trust Class Shares commenced operations on May 17, 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. NATIONS TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TRUST CLASS SHARES 03/31/02* 03/31/01 03/31/00 03/31/99 03/31/98 OPERATING PERFORMANCE: Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0204 0.0383 0.0321 0.0312 0.0345 LESS DISTRIBUTIONS: Dividends from net investment income (0.0204) (0.0383) (0.0321) (0.0312) (0.0345) Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.06% 3.89% 3.26% 3.17% 3.48% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $2,606,052 $2,383,067 $2,037,742 $2,132,148 $2,001,083 Ratio of operating expenses to average net assets 0.30% 0.30% 0.30% 0.30%(a) 0.30%(a) Ratio of net investment income to average net assets 2.00% 3.80% 3.20% 3.11% 3.43% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.33% 0.33% 0.42% 0.55%(a) 0.56%(a)
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Tax Exempt Fund Primary A Shares which were reorganized into Nations Tax-Exempt Reserves Trust Class Shares as of May 10, 2002. ++ Total return 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%. 47 NATIONS CALIFORNIA TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED TRUST CLASS SHARES 03/31/02 03/31/01 03/31/00* Net asset value, beginning of period $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0189 0.0323 0.0239 LESS DISTRIBUTIONS: Dividends from net investment income (0.0189) (0.0323) (0.0239) Net asset value, end of period $1.00 $1.00 $1.00 TOTAL RETURN++ 1.91% 3.27% 2.41% ======================================================================== RATIO TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $360,892 $338,801 $394,837 Ratio of operating expenses to average net assets 0.30% 0.30% 0.30%+ Ratio of net investment income to average net assets 1.27% 3.23% 2.70%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.38% 0.38% 0.38%+
* California Tax-Exempt Reserves Trust Class Shares commenced operations on May 24, 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. NATIONS NEW YORK TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
PERIOD ENDED TRUST CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 Net investment income 0.0012 LESS DISTRIBUTIONS: Dividends from net investment income (0.0012) Net asset value, end of period $1.00 TOTAL RETURN++ 0.12% ======================================================== RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $826 Ratio of operating expenses to average net 0.30%+ assets Ratio of net investment income to average net assets 0.93%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.61%+
* New York Tax-Exempt Reserves Trust Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 48 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 49 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 50 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 51 SEC file number: Nations Funds Trust, 811-09645 TRUST - 0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Liquidity Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 50. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Liquidity Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------------------ NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP ------------------------------------------------------ NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP ------------------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP ------------------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP ------------------------------------------------------ OTHER IMPORTANT INFORMATION 32 ------------------------------------------------------ HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 How selling and servicing agents are paid 42 Distributions and taxes 43 ------------------------------------------------------ FINANCIAL HIGHLIGHTS 45 ------------------------------------------------------ TERMS USED IN THIS PROSPECTUS 50 ------------------------------------------------------ WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Liquidity Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.45% 2.78% 3.83% 5.86% 5.29% 5.46% 5.42% 5.06% 6.31% 4.06% *Year-to-date return as of June 30, 2002: 0.90% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.62% Worst: 4th quarter 2001: 0.61%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Liquidity Class Shares 4.06% 5.26% 4.75% 4.84%
*The inception date of Liquidity Class Shares is January 9, 1991. 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] 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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% 0.12% Other expenses ----- Total annual Fund operating expenses 1.12% (0.77)% Fee waivers and/or reimbursements ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $279 $542 $1,294
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Liquidity Class 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. [CHART] 1999 2000 2001 ----- ----- ----- 5.05% 6.30% 3.99% *Year-to-date return as of June 30, 2002: 0.84% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.61% Worst: 4th quarter 2001: 0.58%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Liquidity Class Shares 3.99% 5.12%
*The inception date of Liquidity Class Shares is August 7, 1998. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses 0.13% ----- Total annual Fund operating expenses 1.13% Fee waivers and/or reimbursements (0.78)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $282 $547 $1,305
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Liquidity Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.31% 2.61% 3.77% 5.70% 5.17% 5.32% 5.23% 4.77% 6.03% 3.83% *Year-to-date return as of June 30, 2002: 0.84% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.57% Worst: 4th quarter 2001: 0.55%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Liquidity Class Shares 3.83% 5.03% 4.57% 4.64%
*The inception date of Liquidity Class Shares is January 11, 1991. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.90% Other expenses 0.12% ----- Total annual Fund operating expenses 1.17% Fee waivers and/or reimbursements (0.82)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $290 $564 $1,347
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Liquidity Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.42% 2.64% 3.67% 5.66% 5.19% 5.34% 5.27% 4.87% 6.17% 3.90% *Year-to-date return as of June 30, 2002: 0.80% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.59% Worst: 4th quarter 2001: 0.55%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Liquidity Class Shares 3.90% 5.11% 4.61% 4.69%
*The inception date of Liquidity Class Shares is January 14, 1991. 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] 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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses 0.13% ----- Total annual Fund operating expenses 1.13% Fee waivers and/or reimbursements (0.78)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $282 $547 $1,305
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Liquidity Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.53% 1.95% 2.52% 3.64% 3.27% 3.42% 3.24% 3.00% 3.88% 2.52% *Year-to-date return as of June 30, 2002: 0.61% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.02% Worst: 4th quarter 2001: 0.39%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 Life of 1 year 5 years 10 years Fund* Liquidity Class Shares 2.52% 3.21% 2.99% 3.21%
*The inception date of Liquidity Class Shares is June 1, 1990. 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] 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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses 0.15% ----- Total annual Fund operating expenses 1.15% Fee waivers and/or reimbursements (0.80)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $286 $556 $1,326
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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] 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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses 0.13% ----- Total annual Fund operating expenses 1.13% Fee waivers and/or reimbursements (0.78)% ------- 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this information will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $282 $547 $1,305
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Adviser Class 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- 2.37% 3.40% 2.96% 3.14% 2.82% 2.60% 3.20% 2.07% *Year-to-date return as of June 30, 2002: 0.53% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 0.88% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 2.07% 2.76% 2.74%
*The inception date of Adviser Class Shares is March 1, 1993. 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] 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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses 0.13% ----- Total annual Fund operating expenses 1.13% Fee waivers and/or reimbursements (0.78)% ------- 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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Liquidity Class Shares $36 $282 $547 $1,305
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Liquidity Class (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 0.15% Distribution (12b-1) and shareholder servicing fees 0.85% Other expenses/1/ 0.41% ----- Total annual Fund operating expenses 1.41% Fee waivers and/or reimbursements (1.06)% ------- Total net expenses/2/ 0.35% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Liquidity Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Liquidity Class Shares $36 $342
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 36 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 Liquidity Class Shares of the Funds. Here are some general rules about this class of shares: .Liquidity Class Shares are available on a direct basis or through certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment is $500,000. 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 Liquidity Class Shares. .There is no minimum for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Liquidity Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 37 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 38 [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: .You buy Liquidity Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. 39 .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 other information we need to prove that the order is properly authorized. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 40 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Liquidity Class Shares of a Fund for Liquidity Class Shares of any other Nations Money Market Fund. .You must exchange at least $500,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 41 [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 OF THE 1940 ACT. THE 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. DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES Stephens and selling and servicing agents are compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. Stephens may be reimbursed for distribution-related expenses up to an annual maximum of 0.30% of the average daily net assets of Liquidity Class Shares of the Funds, some or all of which may be paid to selling agents. Stephens may not carry forward any of these expenses for reimbursement in future years. Stephens may also receive a maximum annual distribution (12b-1) fee of 0.30% of the average daily net assets of Liquidity Class Shares of the Funds (up to 0.35% of Liquidity Class Shares of Nations Treasury Reserves). Stephens may use this fee to compensate certain financial institutions that provide administrative or distribution services. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Liquidity Class Shares of the Funds. 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 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. OTHER COMPENSATION Selling and servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .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 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. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 42 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 43 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 44 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Liquidity Class Shares of Nations Tax-Exempt Reserves are not provided because this class of shares of this Fund 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. 45 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Year ended LIQUIDITY CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0305 0.0613 0.0517 0.0470 0.0539 0.0516 LESS DISTRIBUTIONS: Dividends from net investment income (0.0305) (0.0613) (0.0517) (0.0470) (0.0539) (0.0516) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.09% 6.30% 5.30% 4.80% 5.53% 5.28% ============================================================================================================ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,742,687 $1,476,883 $1,396,969 $1,423,382 $1,107,869 $419,851 Ratio of operating expenses to average net assets 0.35%(a)(b) 0.35%(a) 0.35%(a)(b) 0.35%+(a) 0.35%(b) 0.35% Ratio of net investment income to average net assets 2.77% 6.07% 5.22% 5.09%+ 5.39% 5.17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.12%(a) 1.12%(a) 1.14%(a) 1.28%+(a) 1.29% 0.60%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. NATIONS MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended LIQUIDITY CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99*,** Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0296 0.0610 0.0520 0.0281 LESS DISTRIBUTIONS: Dividends from net investment income (0.0296) (0.0610) (0.0520) (0.0281) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.00% 6.27% 5.32% 2.87% ====================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $566,000 $1,085,231 $946,156 $1,078 Ratio of operating expenses to average net assets 0.35%(a) 0.35%(a)(b) 0.35%(a)(b) 0.35%+(a) Ratio of net investment income to average net assets 2.70% 6.04% 5.49% 4.72%+ Ratio of operating expenses to average net assets without waivers and/ or expense reimbursements 1.13%(a) 1.12%(a) 1.18%(a) 1.31%+(a)
* Money Market Reserves Liquidity Class Shares commenced operations on August 7, 1998. ** Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 46 NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Year ended LIQUIDITY CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0287 0.0588 0.0489 0.0448 0.0526 0.0504 LESS DISTRIBUTIONS: Dividends from net investment income (0.0287) (0.0588) (0.0489) (0.0448) (0.0526) (0.0504) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.90% 6.04% 5.00% 4.58% 5.38% 5.15% ======================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $370,139 $348,850 $364,761 $304,387 $743,410 $81,575 Ratio of operating expenses to average net assets 0.35%(a) 0.35%(a)(b) 0.35%(a)(b) 0.35%+(a) 0.35% 0.35% Ratio of net investment income to average net assets 2.66% 5.84% 4.91% 4.84%+ 5.26% 5.05% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.17%(a) 1.17%(a) 1.18%(a) 1.35%+(a) 1.35% 0.61%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating ratio was less than 0.01%. NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Year ended LIQUIDITY CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0286 0.0600 0.0501 0.0454 0.0528 0.0505 LESS DISTRIBUTIONS: Dividends from net investment income (0.0286) (0.0600) (0.0501) (0.0454) (0.0528) (0.0505) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.91% 6.16% 5.12% 4.63% 5.40% 5.19% ==================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $164,296 $468,083 $140,328 $59,551 $32,773 $6,482 Ratio of operating expenses to average net assets 0.35%(a) 0.35%(a)(b) 0.35%(a)(b) 0.35%+(a) 0.35% 0.35%(a) Ratio of net investment income to average net assets 2.55% 5.91% 5.11% 4.90%+ 5.28% 5.07% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.13%(a) 1.14%(a) 1.14%(a) 1.29%+(a) 1.30% 0.64%(a)
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 47 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Year ended Year ended Year ended Period ended Year ended Year ended LIQUIDITY CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0200 0.0377 0.0314 0.0278 0.0341 0.0323 LESS DISTRIBUTIONS: Dividends from net investment income (0.0200) (0.0377) (0.0314) (0.0278) (0.0341) (0.0323) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.02% 3.83% 3.18% 2.81% 3.43% 3.29% ============================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $45,728 $35,569 $89,050 $68,393 $53,074 $54,677 Ratio of operating expenses to average net assets 0.35% 0.35% 0.35% 0.35%+ 0.35%(a) 0.35% Ratio of net investment income to average net assets 1.88% 3.78% 3.14% 2.95%+ 3.38% 3.23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.15% 1.14% 1.15% 1.33%+ 1.33% 0.67%
* Fiscal year changed to March 31. Prior to this, the fiscal year end was April 30. + 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 interest expense on the operating expense ratio was 0.01%. NATIONS CALIFORNIA TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD RESERVES
Year ended LIQUIDITY CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0095 LESS DISTRIBUTIONS: Dividends from net investment income (0.0095) Net asset value, end of period $1.00 TOTAL RETURN++ 0.95% ===================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,150 Ratio of operating expenses to average net assets 0.35%+ Ratio of net investment income to average net assets 1.23%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.13%+
* California Tax-Exempt Reserves Liquidity Class Shares commenced operations on August 10, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 48 NATIONS NEW YORK TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD RESERVES
Period ended LIQUIDITY CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0013 LESS DISTRIBUTIONS: Dividends from net investment income (0.0013) Net asset value, at end of period $1.00 TOTAL RETURN++ 0.13% ======================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.35%+ Ratio of net investment income to average net assets 0.88%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 5.36%+
* New York Tax-Exempt Reserves Liquidity Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 49 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 50 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 51 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 52 SEC file number: Nations Funds Trust, 811-09645 LIQUIDITY-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Capital Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] Nations Funds An overview of the Funds - -------------------------------------------------------------------------------- [Graphic] 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] 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Capital Class Shares of the Funds. This class of shares is designed primarily for eligible institutional and individual investors on a direct basis or through certain financial institutions or intermediaries. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 (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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP ------------------------------------------ NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP ------------------------------------------ NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP ------------------------------------------ NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP ------------------------------------------ NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP ------------------------------------------ NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP ------------------------------------------ NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP ------------------------------------------ NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP ------------------------------------------ OTHER IMPORTANT INFORMATION 32 ------------------------------------------ HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 How orders are processed 38 Distributions and taxes 42 -------------------------------------------------- FINANCIAL HIGHLIGHTS 44 -------------------------------------------------- TERMS USED IN THIS PROSPECTUS 49 -------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Capital Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.55% 2.89% 3.90% 6.02% 5.44% 5.62% 5.58% 5.22% 6.47% 4.22% * Year-to-date return as of June 30, 2002: 0.97% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.66% Worst: 4th quarter 2001: 0.65%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Capital Class Shares 4.22% 5.42% 4.88% 5.05%
*The inception date of Capital Class Shares is October 10, 1990. 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] 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. [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) Capital Class 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 0.15% Other expenses 0.12% ----- Total annual Fund operating expenses 0.27% Fee waivers and/or reimbursements (0.07)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $80 $145 $336
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S ''FIRST-TIER'' BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Capital Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 4.02% 3.07% 4.02% 5.78% 5.28% 5.62% 5.55% 5.21% 6.46% 4.15% *Year-to-date return as of June 30, 2002: 0.92% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.65% Worst: 4th quarter 2001: 0.61%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Capital Class Shares 4.15% 5.39% 4.91% 5.63%
*The inception date of Capital Class Shares is December 7, 1988. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Capital Class 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 0.15% Other expenses 0.13% ----- Total annual Fund operating expenses 0.28% Fee waivers and/or reimbursements (0.08)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: . you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods . you reinvest all dividends and distributions in the Fund . your investment has a 5% return each year . the Fund's operating expenses remain the same as shown in the table above . the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $82 $149 $348
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment,or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Capital Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.67% 2.98% 4.03% 5.87% 5.33% 5.47% 5.39% 4.93% 6.19% 3.98% * Year-to-date return as of June 30, 2002: 0.91% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.61% Worst: 4th quarter 2001: 0.59%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Capital Class Shares 3.98% 5.19% 4.78% 4.84%
*The inception date of Capital Class Shares is January 11, 1991. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Capital Class 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 0.15% Other expenses 0.12% ----- Total annual Fund operating expenses 0.27% Fee waivers and/or reimbursements (0.07)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $80 $145 $336
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S ''FIRST-TIER'' BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Capital Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 3.53% 2.74% 3.74% 5.89% 5.33% 5.50% 5.42% 5.03% 6.33% 4.06% *Year-to-date return as of June 30, 2002: 0.88% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.62% Worst: 4th quarter 2001: 0.59%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Capital Class Shares 4.06% 5.27% 4.75% 4.72%
*The inception date of Capital Class Shares is January 17, 1991. 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] 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. [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) Capital Class 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 0.15% Other expenses 0.13% ----- Total annual Fund operating expenses 0.28% Fee waivers and/or reimbursements (0.08)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The Investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $82 $149 $348
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Capital Class 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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 - ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.61% 2.02% 2.59% 3.80% 3.44% 3.60% 3.39% 3.16% 4.03% 2.67% *Year-to-date return as of June 30, 2002: 0.69% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.06% Worst: 4th quarter 2001: 0.43%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Capital Class Shares 2.67% 3.37% 3.13% 3.27%
* The inception date of Capital Class Shares is October 23, 1990. 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] 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. [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) Capital Class 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 0.15% Other expenses 0.15% ----- Total annual Fund operating expenses 0.30% Fee waivers and/or reimbursements (0.10)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements.There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $86 $159 $371
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART]
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.34% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22%
*Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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] 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. [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) Capital Class 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 0.15% Other expenses 0.13% ----- Total annual Fund operating expenses 0.28% Fee waivers and/or reimbursements (0.08)% ------- 0.20% Total net expenses/2/ =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $82 $149 $348
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak perfomance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Capital Class 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. [CHART] 2001 ----- 2.33% *Year-to-date return as of June 30, 2002: 0.66% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 2001: 0.73% Worst: 4th quarter 2001: 0.40%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Capital Class Shares 2.33% 2.60%
*The inception date of Capital Class Shares is October 3, 2000. 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] 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. [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) Capital Class 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 0.15% Other expenses 0.13% ----- Total annual Fund operating expenses 0.28% Fee waivers and/or reimbursements (0.08)% ------- 0.20% Total net expenses/2/ =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Capital Class Shares $20 $82 $149 $348
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 (Fees paid directly from your investment) Capital Class 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 0.15% Other expenses/1/ 0.41% ----- Total annual Fund operating expenses 0.56% Fee waivers and/or reimbursements (0.36)% ------- 0.20% Total net expenses/2/ =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Capital Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Capital Class Shares $20 $143
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. 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. 36 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 FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS DAY, THANKSGIVING DAY AND CHRISTMAS DAY. [Graphic] Buying, selling and exchanging shares This prospectus offers Capital Class Shares of the Funds. Here are some general rules about this class of shares: .Capital Class Shares are available to eligible institutions and individuals on a direct basis or through certain financial institutions or intermediaries. .The minimum initial investment is $1,000,000. 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 Capital Class Shares. .There is no minimum for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Capital Class 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 Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 37 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 38 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Capital Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. 39 .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 40 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Capital Class Shares of a Fund for Capital Class Shares of any other Nations Money Market Fund. .You must exchange at least $1,000,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 41 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 42 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 43 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Capital Class Shares of Nations Tax-Exempt Reserves are not provided because this class of shares for this Fund had not yet commenced operations during the period indicated. This information has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations Money Market Reserves for the fiscal period from December 1, 1997 through May 15, 1998 and for the fiscal 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. 44
NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Year ended Year ended CAPITAL CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0320 0.0628 0.0532 0.0484 0.0554 0.0531 LESS DISTRIBUTIONS: Dividends from net investment income (0.0320) (0.0628) (0.0532) (0.0484) (0.0554) (0.0531) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.25% 6.46% 5.46% 4.95% 5.70% 5.44% ========================================================================================================================= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $39,231,604 $20,037,526 $8,642,609 $4,379,430 $3,051,559 $1,684,233 Ratio of operating expenses to average net assets 0.20%(a)(b) 0.20%(a) 0.20%(a)(b) 0.20%+(a) 0.20%(b) 0.20% Ratio of net investment income to average net assets 2.92% 6.22% 5.37% 5.24%+ 5.54% 5.32% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.27%(a) 0.27%(a) 0.29%(a) 0.43%+(a) 0.44% 0.45%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%.
NATIONS MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Period ended Year ended Year ended CAPITAL CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99*/,/** 05/15/98 11/30/97 11/30/96 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0311 0.0625 0.0535 0.0438 0.0252 0.0545 0.0516 LESS DISTRIBUTIONS: Dividends from net investment income (0.0311) (0.0625) (0.0535) (0.0438) (0.0252) (0.0545) (0.0516) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.16% 6.43% 5.48% 4.47% 2.55% 5.58% 5.29% ================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $11,084,336 $6,103,253 $4,064,349 $595,482 $118,880 $177,908 $133,044 Ratio of operating expenses to average net assets 0.20%(a) 0.20%(a)(b) 0.20%(a)(b) 0.20%+(a) 0.20%+ 0.20% 0.35% Ratio of net investment income to average net assets 2.85% 6.19% 5.64% 4.87%+ 5.54%+ 5.45% 5.16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.28%(a) 0.27%(a) 0.33%(a) 0.46%+(a) 0.27%+ 0.28% 0.35%
* The financial information for the fiscal periods through May 15, 1998 reflect the financial information for the Emerald Prime Advantage Institutional Fund, which was reorganized into Capital Class Shares as of May 22, 1998. ** Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 45
NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Year ended Year ended CAPITAL CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0302 0.0603 0.0504 0.0462 0.0541 0.0519 LESS DISTRIBUTIONS: Dividends from net investment income (0.0302) (0.0603) (0.0504) (0.0462) (0.0541) (0.0519) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.06% 6.20% 5.15% 4.72% 5.55% 5.30% ====================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,715,126 $1,900,312 $1,026,684 $1,382,688 $246,058 $468,975 Ratio of operating expenses to average net assets 0.20%(a) 0.20%(a)(b) 0.20%(a)(b) 0.20%+(a) 0.20% 0.20% Ratio of net investment income to average net assets 2.81% 5.99% 5.06% 4.99%+ 5.41% 5.20% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.27%(a) 0.27%(a) 0.28%(a) 0.45%+(a) 0.45% 0.46%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%.
NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Year ended Year ended CAPITAL CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0303 0.0615 0.0516 0.0468 0.0543 0.0520 LESS DISTRIBUTIONS: Dividends from net investment income (0.0303) (0.0615) (0.0516) (0.0468) (0.0543) (0.0520) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 3.07% 6.32% 5.28% 4.78% 5.57% 5.33% ====================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,818,554 $852,138 $381,336 $229,561 $190,607 $125,377 Ratio of operating expenses to average net assets 0.20%(a) 0.20%(a)(b) 0.20%(a)(b) 0.20%+(a) 0.20% 0.20%(a) Ratio of net investment income to average net assets 2.70% 6.06% 5.26% 5.05%+ 5.43% 5.22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.28%(a) 0.29%(a) 0.29%(a) 0.44%+(a) 0.45% 0.49%(a)
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 46
NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Year ended Year ended Year ended Period ended Year ended Year ended CAPITAL CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: 0.0215 Net investment income 0.0392 0.0329 0.0292 0.0353 0.0337 LESS DISTRIBUTIONS: Dividends from net investment income (0.0215) (0.0392) (0.0329) (0.0292) (0.0353) (0.0337) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.18% 3.99% 3.34% 2.96% 3.61% 3.44% ===================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $456,528 $145,248 $172,693 $134,268 $74,251 $59,701 Ratio of operating expenses to average net assets 0.20% 0.20% 0.20% 0.20%+ 0.20%(a) 0.20% Ratio of net investment income to average net assets 2.03% 3.93% 3.29% 3.10%+ 3.53% 3.38% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.30% 0.29% 0.30% 0.48%+ 0.48% 0.52%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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 interest expense on the operating expense ratio was 0.01%.
NATIONS CALIFORNIA TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD RESERVES Year ended Period ended CAPITAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0199 0.0153 LESS DISTRIBUTIONS: Dividends from net investment income (0.0199) (0.0153) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 2.01% 1.54% =============================================================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $102,040 $30 Ratio of operating expenses to average net assets 0.20% 0.20%+ Ratio of net investment income to average net assets 1.38% 3.33%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.28% 0.28%+
* California Tax-Exempt Reserves Capital Class Shares commenced operations on October 3, 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. 47
NATIONS NEW YORK TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD RESERVES Period ended CAPITAL CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0013 LESS DISTRIBUTIONS: Dividends from net investment income (0.0013) Net asset value, end of period $1.00 TOTAL RETURN++ 0.13% ================================================================================================================= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $20,015 Ratio of operating expenses to average net assets 0.20%+ Ratio of net investment income to average net assets 1.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 4.51%+
* New York Tax-Exempt Reserves Capital Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 48 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 49 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 50 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 51 SEC file number: Nations Funds Trust, 811-09645 CAPITAL - 0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Money Market Funds - ------------------ Prospectus -- Institutional Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 [LOGO] 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Institutional Class Shares of the Funds. This class of shares is designed primarily for institutional investors that purchase their shares through financial institutions or intermediaries. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor. You can also 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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP -------------------------------------------------- NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP -------------------------------------------------- NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP -------------------------------------------------- NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP -------------------------------------------------- NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP -------------------------------------------------- NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP -------------------------------------------------- NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP -------------------------------------------------- NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP -------------------------------------------------- OTHER IMPORTANT INFORMATION 32 -------------------------------------------------- HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 Shareholder administration fees 43 Distributions and taxes 44 -------------------------------------------------- FINANCIAL HIGHLIGHTS 46 -------------------------------------------------- TERMS USED IN THIS PROSPECTUS 51 -------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Institutional Class 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. [CHART] 2001 ----- 4.18% * Year-to-date return as of June 30, 2002: 0.95% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.43% Worst: 4th quarter 2001: 0.64%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 4.18% 4.37%
*The inception date of Institutional Class Shares is November 30, 2000. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.12% Other expenses ----- Total annual Fund operating expenses 0.31% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $93 $167 $387
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Institutional Class 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. [CHART] 2001 ------- 4.11% * Year-to-date return as of June 30, 2002: 0.90% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.42% Worst: 4th quarter 2001: 0.60%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 4.11% 4.39%
*The inception date of Institutional Class Shares is November 17, 2000. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.13% Other expenses ----- Total annual Fund operating expenses 0.32% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $95 $172 $398
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Institutional Class 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. [CHART] 2001 ------ 3.94% * Year-to-date return as of June 30, 2002: 0.89% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.36% Worst: 4th quarter 2001: 0.58%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 3.94% 4.21%
*The inception date of Institutional Class Shares is November 21, 2000. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.12% Other expenses ----- Total annual Fund operating expenses 0.31% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $93 $167 $387
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Institutional Class 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. [CHART] 2001 ------ 4.02% * Year-to-date return as of June 30, 2002: 0.86% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 1.39% Worst: 4th quarter 2001: 0.58%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 4.02% 4.28%
*The inception date of Institutional Class Shares is November 21, 2000. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.13% Other expenses ----- Total annual Fund operating expenses 0.32% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $95 $172 $398
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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 cash the Fund holds does not earn income. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Institutional Class 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. [CHART] 2001 ----- 1.97% * Year-to-date return as of June 30, 2002: 0.67% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 1st quarter 2001: 0.64% Worst: 4th quarter 2001: 0.32%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Institutional Class Shares 1.97% 2.20%
*The inception date of Institutional Class Shares is November 21, 2000. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.15% Other expenses ----- Total annual Fund operating expenses 0.34% (0.10)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003, 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 Institutional Class Shares $25 $99 $181 $421
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.13% Other expenses ----- Total annual Fund operating expenses 0.32% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $95 $172 $398
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Adviser Class 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ----- ----- ----- ----- ----- ----- ----- ----- 2.37% 3.40% 2.96% 3.14% 2.82% 2.60% 3.20% 2.07% *Year-to-date return as of June 30, 2002: 0.53% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 0.88% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 2.07% 2.76% 2.74%
*The inception date of Adviser Class Shares is March 1, 1993. 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] 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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.13% Other expenses ----- Total annual Fund operating expenses 0.32% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Institutional Class Shares $25 $95 $172 $398
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN OTHER IMPORTANT INFORMATION. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes, 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 Institutional (Fees paid directly from your investment) Class 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 0.15% Shareholder administration fees 0.04% 0.41% Other expenses/1/ ----- Total annual Fund operating expenses 0.60% (0.36)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.24% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Institutional Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Institutional Class Shares $25 $156
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/This fee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 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 0.10% 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. The Funds also pay shareholder administration fees to BA Advisors, its affiliates and/or other financial institutions and intermediaries for providing services to investors. 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. 36 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 Institutional Class Shares of the Funds. Here are some general rules about this class of shares: .Institutional Class Shares are available to institutional investors on a direct basis or through financial institutions or intermediaries. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries, including financial planners and investment advisers. .The minimum initial investment is $750,000. 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 Institutional Class Shares. .There is no minimum amount for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Institutional Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor. You can also contact your investment professional. 37 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 38 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. 39 [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: .You buy Institutional Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 40 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 41 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Institutional Class Shares of a Fund for Institutional Class Shares of any other Nations Money Market Fund. .You must exchange at least $750,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 42 [Graphic] FINANCIAL INSTITUTIONS AND INTERMEDIARIES MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] Shareholder administration fees BA Advisors, its affiliates and/or other financial institutions and intermediaries may receive a maximum annual shareholder administration fee of 0.04% of the average daily net assets of Institutional Class Shares of the Funds under a shareholder administration plan. 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 sales charges you may pay. The Funds pay these fees to eligible financial institutions and intermediaries for as long as the plan continues. We may reduce or discontinue payments at any time. BA Advisors and Stephens may pay amounts from their own assets to servicing agents of the Funds for services they provide. 43 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor. 44 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 45 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Institutional Class Shares of Nations Tax-Exempt Reserves 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. 46 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0316 0.0192 LESS DISTRIBUTIONS: Dividends from net investment income (0.0316) (0.0192) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 3.21% 1.90% ==================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,257,737 $651,116 Ratio of operating expenses to average net assets 0.24%(a)(b) 0.24%+(a) Ratio of net investment income to average net assets 2.88% 6.18%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.31%(a) 0.31%+(a)
* Cash Reserves Institutional Class Shares commenced operations on November 30, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. NATIONS MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0307 0.0221 LESS DISTRIBUTIONS: Dividends from net investment income (0.0307) (0.0221) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 3.12% 2.23% =================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $535,650 $574,968 Ratio of operating expenses to average net assets 0.24%(a) 0.24%+(a)(b) Ratio of net investment income to average net assets 2.81% 6.15%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.32%(a) 0.31%+(a)
* Money Market Reserves Institutional Class Shares commenced operations on November 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. (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 TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0298 0.0206 LESS DISTRIBUTIONS: Dividends from net investment income (0.0298) (0.0206) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 3.02% 2.08% =================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $383,265 $29,572 Ratio of operating expenses to average net assets 0.24%(a) 0.24%+(a)(b) Ratio of net investment income to average net assets 2.77% 5.95%+ RATIO OF OPERATING EXPENSES TO AVERAGE NET ASSETS WITHOUT WAIVERS AND/OR EXPENSE REIMBURSEMENTS 0.31%(A) 0.31%+(A)
* Treasury Reserves Institutional Class Shares commenced operations on November 21, 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0299 0.0210 LESS DISTRIBUTIONS: Dividends from net investment income (0.0299) (0.0210) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 3.03% 2.12% ======================================================================= RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $86,551 $260,087 Ratio of operating expenses to average net assets 0.24%(A) 0.24%+(A) Ratio of net investment income to average net assets 2.66% 6.02%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.32%(a) 0.33%+(a)
* Government Reserves Institutional Class Shares commenced operations on November 21, 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%. 48 NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0163 0.0110 LESS DISTRIBUTIONS: Dividends from net investment income (0.0163) (0.0110) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 1.64% 1.10% ====================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $85,432 $16,116 Ratio of operating expenses to average net assets 0.24% 0.24%+ Ratio of net investment income to average net assets 1.99% 3.89%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.34% 0.33%+
* Municipal Reserves Institutional Class Shares commenced operations on November 21, 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 CALIFORNIA TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD RESERVES
YEAR ENDED PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02 03/31/01* Net asset value, beginning of period $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0061 0.0003 LESS DISTRIBUTIONS: Dividends from net investment income (0.0061) (0.0003) Net asset value, end of period $1.00 $1.00 TOTAL RETURN++ 0.61% 0.03% ====================================================================== RATIO TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ --# $1,000 Ratio of operating expenses to average net assets 0.24% 0.24%+ Ratio of net investment income to average net assets 1.34% 3.29%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.32% 0.32%+
* California Tax-Exempt Reserves Institutional Class Shares commenced operations on March 28, 2001. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $500. 49 NATIONS NEW YORK TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD RESERVES
PERIOD ENDED INSTITUTIONAL CLASS SHARES 03/31/02* Net asset value, beginning of period $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.0013 LESS DISTRIBUTIONS: Dividends from net investment income (0.0013) Net asset value, end of period $1.00 TOTAL RETURN++ 0.13% ===================================================== RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.24%+ Ratio of net investment income to average net assets 0.99%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 4.55%+
* New York Tax-Exempt Reserves Institutional Class Shares commenced on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & 51 Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 52 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 53 SEC file number: Nations Funds Trust, 811-09645 INST-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds Money Market Funds - ---------------------------------- Prospectus -- Adviser Class Shares August 1, 2002 Nations Cash Reserves Nations Money Market Reserves Nations Treasury Reserves Nations Government Reserves Nations Municipal Reserves Nations Tax-Exempt Reserves Nations California Tax-Exempt Reserves Nations New York Tax-Exempt Reserves 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 - ----------------- [LOGO] 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 50. 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 Money Market Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Adviser Class Shares of the Funds. This class of shares is designed primarily for financial institutions and intermediaries for their own accounts, and for certain of their client accounts. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUNDS The Money Market Funds seek to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. ARE THESE FUNDS 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. The Money Market Funds may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs They may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also 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 34. [Graphic] About the Funds NATIONS CASH RESERVES 4 Sub-adviser: BACAP --------------------------------------------------- NATIONS MONEY MARKET RESERVES 7 Sub-adviser: BACAP --------------------------------------------------- NATIONS TREASURY RESERVES 10 Sub-adviser: BACAP --------------------------------------------------- NATIONS GOVERNMENT RESERVES 13 Sub-adviser: BACAP --------------------------------------------------- NATIONS MUNICIPAL RESERVES 17 Sub-adviser: BACAP --------------------------------------------------- NATIONS TAX-EXEMPT RESERVES 21 Sub-adviser: BACAP --------------------------------------------------- NATIONS CALIFORNIA TAX-EXEMPT RESERVES 25 Sub-adviser: BACAP --------------------------------------------------- NATIONS NEW YORK TAX-EXEMPT RESERVES 29 Sub-adviser: BACAP --------------------------------------------------- OTHER IMPORTANT INFORMATION 32 --------------------------------------------------- HOW THE FUNDS ARE MANAGED 34
[Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 37 How orders are processed 38 How selling and servicing agents are paid 42 Distributions and taxes 43 ---------------------------------------------------- FINANCIAL HIGHLIGHTS 45 ---------------------------------------------------- TERMS USED IN THIS PROSPECTUS 50 ---------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
3 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Adviser Class 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- 5.76% 5.19% 5.36% 5.32% 4.96% 6.21% 3.96% *Year-to-date return as of June 30, 2002: 0.85% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.59% Worst: 4th quarter 2001: 0.59%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 3.96% 5.16% 5.23%
*The inception date of Adviser Class Shares is September 22, 1994. 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] 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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.12% Other expenses ----- Total annual Fund operating expenses 0.52% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $160 $284 $646
6 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MONEY MARKET RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund's investment objective is to provide a high level of current income consistent with liquidity, the preservation of capital and a stable net asset value. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. 7 [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN Other Important information AND IN THE SAI. [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Money Market Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. [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 Adviser Class 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. [CHART] 1999 2000 2001 ---- ---- ---- 5.35% 6.20% 3.89% *Year-to-date return as of June 30, 2002: 0.79% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd quarter 2000: 1.59% Worst: 4th quarter 2001: 0.55%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year Fund* Adviser Class Shares 3.89% 5.14%
*The inception date of Adviser Class Shares is July 2, 1998. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.13% Other expenses ----- Total annual Fund operating expenses 0.53% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $162 $288 $657
9 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TREASURY RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. Treasury obligations, and repurchase agreements secured by U.S. Treasury obligations. The Fund will only buy first-tier securities. These securities include primarily: .U.S. Treasury obligations .repurchase agreements and reverse repurchase agreements secured by U.S. Treasury obligations and U.S. government obligations .obligations whose principal and interest are backed by the U.S. government The Fund may invest in other money market funds that invest in these instruments, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Treasury Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Some of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which may be free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. [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 Adviser Class 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- 5.60% 5.07% 5.22% 5.12% 4.67% 5.93% 3.72% *Year-to-date return as of June 30, 2002: 0.79% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.54% Worst: 4th quarter 2001: 0.53%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 3.72% 4.93% 5.04%
*The inception date of Adviser Class Shares is September 22, 1994. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.12% Other expenses ----- Total annual Fund operating expenses 0.52% (0.07)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $160 $284 $646
12 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS GOVERNMENT RESERVES [Graphic] INVESTMENT OBJECTIVE This Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES This Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in U.S. government obligations. The Fund will only buy first-tier securities. These securities include primarily U.S. government obligations and U.S. Treasury obligations, the interest on which is generally free from state income tax. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Government Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .Tax considerations - Most of the distributions paid by the Fund come from interest on U.S. government and U.S. Treasury obligations, which for most states is free from state income tax, but will be subject to federal income tax and may be subject to other state and local taxes. Any portion of a distribution that comes from income paid on other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. You should consult with your own tax adviser to determine the tax consequences to you of investing in the Fund. 14 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Adviser Class 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- 5.55% 5.06% 5.24% 5.16% 4.77% 6.07% 3.80% *Year-to-date return as of June 30, 2002: 0.75% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 3rd and 4th quarters 2000: 1.56% Worst: 4th quarter 2001: 0.53%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 3.80% 5.01% 5.07%
*The inception date of Adviser Class Shares is September 22, 1994. 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] 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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.13% Other expenses ----- Total annual Fund operating expenses 0.53% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $162 $288 $657
16 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS MUNICIPAL RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income taxes. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may invest all or any portion of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Municipal Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to the federal alternative minimum tax, state, local and other 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, local and other taxes. Shares of Nations Municipal Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 18 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Adviser Class 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. [CHART] 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- 3.55% 3.18% 3.34% 3.15% 2.90% 3.77% 2.41% *Year-to-date return as of June 30, 2002: 0.56% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.99% Worst: 4th quarter 2001: 0.37%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 2.41% 3.11% 3.19%
*The inception date of Adviser Class Shares is September 22, 1994. 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] 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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.15% Other expenses ----- Total annual Fund operating expenses 0.55% (0.10)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $166 $297 $680
20 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT- TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY AN NRSRO OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. NATIONS TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks as high a level of current interest income exempt from federal income taxes as is consistent with liquidity and stability of principal. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. The Fund normally invests all of its assets in municipal securities which pay interest that is free from federal income and alternative minimum taxes. The Fund invests in municipal securities that, at the time of investment, are considered by the portfolio management team to have minimal credit risk and to be of high quality. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 Tax-Exempt Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax, but may be subject to state, local and other 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 Nations Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. 22 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND 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. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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. [CHART] 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.54% 1.97% 2.47% 3.43% 3.06% 3.22% 2.93% 2.73% 3.58% 2.22% *Year-to-date return as of June 30, 2002: 0.43% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd and 4th quarters 2000: 0.94% Worst: 4th quarter 2001: 0.31%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years 10 years Fund* Investor A Shares 2.22% 2.93% 2.81% 3.05%
*The inception date of Investor A Shares is April 5, 1991. 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] 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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% Other expenses 0.13% ----- Total annual Fund operating expenses 0.53% Fee waivers and/or reimbursements (0.08)% ------- Total net expenses/2/ 0. 45% ======
/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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $162 $288 $657
24 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS CALIFORNIA TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and California state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax and California individual income tax. These securities are issued by or on behalf of the State of California, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 California Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and California state individual income tax, but may be subject to alternative minimum taxes, 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 Nations California Tax-Exempt Reserves would not be suitable investments for tax-advantaged accounts and tax-exempt investors. .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. A slow-down in the economy and a drop in revenues from personal income tax on capital gains and stock options caused by the weak performance of the stock market have contributed to an overall decline in the current finances of California and its municipalities. The State projects a deficit of $23.6 billion for fiscal year 2002-03. Further, the State continues to experience significant energy-related challenges and commitments. As of July 1, the State Legislature has not approved a budget for fiscal year 2002-03. It is unclear how the current economic conditions or the energy-situation may affect the Fund. Adverse conditions affecting California generally could have an impact on the State and California municipal securities. 26 [Graphic] MANY THINGS AFFECT A FUND'S PERFORMANCE, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S HOLDINGS AND FUND EXPENSES. FOR THE FUND'S CURRENT 7-DAY YIELD, PLEASE CALL US AT 1.800.626.2275 IF YOU'RE AN INSTITUTIONAL INVESTOR, OR 1.800.321.7854 IF YOU'RE AN INDIVIDUAL INVESTOR. YOU CAN ALSO CONTACT YOUR INVESTMENT PROFESSIONAL. [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 Adviser Class 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. [CHART] 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- 2.37% 3.40% 2.96% 3.14% 2.82% 2.60% 3.20% 2.07% *Year-to-date return as of June 30, 2002: 0.53% BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 2nd quarter 1995: 0.88% Worst: 4th quarter 2001: 0.34%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001
Life of 1 year 5 years Fund* Adviser Class Shares 2.07% 2.76% 2.74%
*The inception date of Adviser Class Shares is March 1, 1993. 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] 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. [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) Adviser Class 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 0.15% Shareholder servicing fees 0.25% 0.13% Other expenses ----- Total annual Fund operating expenses 0.53% (0.08)% Fee waivers and/or reimbursements ------- Total net expenses/2/ 0.45% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Adviser Class Shares $46 $162 $288 $657
28 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 35. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. NATIONS NEW YORK TAX-EXEMPT RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks current income exempt from federal income tax and New York state individual income tax, a stable share price, and daily liquidity. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. Under normal circumstances, the Fund will invest at least 80% of its assets in securities that pay interest that is free from federal income tax and New York state individual income tax. These securities are issued by or on behalf of the State of New York, its political subdivisions, agencies, instrumentalities and authorities, and other qualified issuers. The Fund may invest up to 20% of its assets in municipal securities that finance private projects, called private activity bonds. The Fund may also invest in instruments issued by certain trusts or other special purpose issuers, including pass-through certificates representing participations in, or debt instruments backed by, the securities and other assets owned by these issuers. The Fund may invest in other money market funds, consistent with its investment objective and strategies. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating local, national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument, and structural analysis, which includes evaluating the arrangements between the municipality and others involved in the issuance of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or 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 New York Tax-Exempt Reserves has the following risks: .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 personal 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. Although the Fund tries to maintain a share price of $1.00, an investment in the Fund could lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. .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. .Tax considerations - Most distributions paid by the Fund come from interest on municipal securities, which is generally free from federal income tax and New York State and New York City individual income tax, but may be subject to alternative minimum taxes 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 Nations New York Tax-Exempt Reserves would not be a suitable investment for tax-advantaged accounts and tax-exempt investors. .State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by New York State, New York City and New York's other municipalities, is more vulnerable to unfavorable developments in New York than funds that invest in municipal bonds of many different states. Although New York's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment and a very small share of the nation's farming and mining activity, adverse conditions affecting any one of these industries could have a negative impact on New York municipal securities. Travel and tourism also constitute an important part of the New York State and City economies. The September 11, 2001 terrorist attack on the World Trade Center in New York City has had and is likely to continue to have an adverse effect on all areas of the New York economy. The financial sector activity remains the largest risk to the New York economy with Wall Street compensation continuing its decline. While the potential economic benefits of the recovery and rebuilding efforts in New York may serve to off-set these losses, a general risk does exist that issuers of municipal securities held by the Fund may not be able to make their timely payments of principal and interest. 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. TOTAL NET EXPENSES ARE ACTUAL EXPENSES PAID BY THE FUND AFTER WAIVERS AND/OR REIMBURSEMENTS. [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. [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 (Fees paid directly from your investment) Adviser Class 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 0.15% Shareholder servicing fees 0.25% Other expenses/1/ 0.41% ----- Total annual Fund operating expenses 0.81% Fee waivers and/or reimbursements (0.36)% ------- Total net expenses/2/ 0.45% =====
/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 waive fees and/or reimburse expenses until July 31, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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: .you invest $10,000 in Adviser Class Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 and are not reflected in the 3 year example Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Adviser Class Shares $46 $223
31 [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: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Funds, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of their total assets in securities of the same issuer, other than U.S. government securities; however, they may invest up to 25% of their total assets in first-tier securities of a single issuer for up to three business days (except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves) .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier securities, except for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves, which also may invest in second-tier securities. .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. .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 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 a Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 32 .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. Any cash a Fund holds for defensive or other reasons may not earn income. .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. .Information for federally chartered credit unions - Shares of Nations Treasury Reserves and Nations Government Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration Rules and Regulations and the National Credit Union Administration Letter Number 155. 33 [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 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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, 2003. 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 Cash Reserves 0.15% 0.15% Nations Money Market Reserves 0.15% 0.15% Nations Treasury Reserves 0.15% 0.15% Nations Government Reserves 0.15% 0.15% Nations Municipal Reserves 0.15% 0.13% Nations Tax-Exempt Reserves 0.15%/1/ 0.17% Nations California Tax-Exempt Reserves 0.15% 0.15% Nations New York Tax-Exempt Reserves 0.15% N/A
/1/Thisfee is the current contract level, which has been reduced from the contract level that was in effect during the last fiscal year. 34 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 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: .change, add or terminate one or more sub-advisers; .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Reserves Cash Investment Team Nations Money Market Reserves Cash Investment Team Nations Treasury Reserves Cash Investment Team Nations Government Reserves Cash Investment Team Nations Municipal Reserves Cash Investment Team Nations Tax-Exempt Reserves Cash Investment Team Nations California Tax-Exempt Reserves Cash Investment Team Nations New York Tax-Exempt Reserves Cash Investment Team
35 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 OTHER SERVICE PROVIDERS The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay shareholder servicing fees and/or other compensation to companies for 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 0.10% 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. 36 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 Adviser Class Shares of the Funds. Here are some general rules about this class of shares: .Adviser Class Shares are available on a direct basis or through financial institutions and intermediaries for their own accounts, and for certain client accounts for which they may provide automated cash management or other services. These include: .Bank of America and certain of its affiliates .certain other financial institutions and intermediaries. .The minimum initial investment is $100,000. 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 Adviser Class Shares. .There is no minimum for additional investments. .There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Adviser Class 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 services and programs. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. If you have questions about buying, selling or exchanging, or you need help placing an order, please call us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. You can also contact your investment professional. 37 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE MONEY MARKET FUNDS RESERVE THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 at the following times (unless the Fund closes early): .5:00 p.m. Eastern time each business day for each share class of Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves .2:30 p.m. Eastern time each business day for each share class of Nations Government Reserves .12:00 noon Eastern time each business day for each share class of Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time each business day for each share class of Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves 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. Although we try to maintain a net asset value per share of $1.00 for the Funds, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Money Market Funds. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by the following times on a business day (unless the Fund closes early) will receive that day's net asset value per share: .5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern time on the last business day of the calendar year .Orders must be received for Nations Money Market Reserves by 3:00 p.m. Eastern time on business days that precede the national holidays observed by the Fund .Orders must be received for Nations Treasury Reserves by 3:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by the Fund .2:30 p.m. Eastern time for Nations Government Reserves .12:00 noon Eastern time for Nations Municipal Reserves and Nations Tax-Exempt Reserves .11:30 a.m. Eastern time for Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves Investors are encouraged to place orders to sell as early in the day as possible. Orders received after these times will receive the next business day's net asset value per share. The business day that applies to an 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. 38 [Graphic] THE NET ASSET VALUE PER SHARE IS THE PRICE OF A SHARE CALCULATED BY A FUND EVERY BUSINESS DAY. 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .You buy Adviser Class Shares at net asset value per share. .We must receive payment by the following times on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early): .5:30 p.m. Eastern time for Nations Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves, except: .Payment must be received for Nations Cash Reserves by 4:00 p.m. Eastern time on the last business day of the calendar year .Payment must be received for Nations Money Market Reserves by 4:00 p.m. Eastern time on business days that precede the national holidays observed by this Fund .Payment must be received for Nations Treasury Reserves by 4:00 p.m. Eastern time on the last business day of each calendar quarter and business days that precede the national holidays observed by this Fund .4:00 p.m. Eastern time for Nations Government Reserves, Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves If we receive payment after these times, we'll refuse the order. We'll return any payment received for orders that we refuse. We can change these times under certain circumstances, for example, when there's more wiring activity than normal. .Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. .Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. 39 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE How orders are processed. [Graphic] SELLING SHARES Here are some general rules for selling shares: .We normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. .You can sell up to $50,000 in shares by telephone if you qualify for telephone orders. .If you paid for 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. .Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. .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 other information we need to prove that the order is properly authorized. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds of Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves or Nations Government Reserves for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .We can delay payment of the sale proceeds of Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves or Nations New York Tax-Exempt Reserves for up to seven days. .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: .if the value of your account falls below $500. We'll give you 30 days notice in writing if we're going to do this .if a financial institution or intermediary tells us to sell your shares under arrangements made with you .under certain other circumstances allowed under the 1940 Act 40 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND POLICIES 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: .You can exchange Adviser Class Shares of a Fund for Adviser Class Shares of any other Nations Money Market Fund. .You must exchange at least $100,000 at a time. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We may limit the number of exchanges you can make within a specified period of time. .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). .You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 41 [Graphic] THE SERVICING 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. SHAREHOLDER SERVICING FEES Servicing agents are compensated for providing services to investors under a shareholder servicing plan. Servicing agents may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Adviser Class Shares of the Funds. 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 sales charges you may pay. The Funds pay these fees to eligible servicing agents for as long as the plan continues. We may reduce or discontinue payments at any time. OTHER COMPENSATION Servicing agents may also receive: .a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds .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 servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other servicing agents. Selected servicing agents may also receive compensation for opening a minimum number of accounts. Stephens may cancel any compensation program at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 42 [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: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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. Although the Funds do not expect to realize any capital gain, any capital gain realized by a Fund will be distributed at least once a year. The Funds declare distributions of net investment income each business day, and pay them on the first business day of each month. Normally, each Fund will declare and pay distributions of net investment income as indicated above. The Funds may, however, declare and pay distributions of net investment income more frequently. 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 paid (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. 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 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if you're an individual investor. 43 [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 of a Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Funds do not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. NATIONS MUNICIPAL RESERVES, NATIONS TAX-EXEMPT RESERVES, NATIONS CALIFORNIA TAX-EXEMPT RESERVES, NATIONS NEW YORK TAX-EXEMPT RESERVES In general, you will not be subject to federal income tax on distributions from Nations Municipal Reserves, Nations Tax-Exempt Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves of their tax-exempt interest income. Distributions from Nations California Tax-Exempt Reserves of its interest income from California municipal securities will not be subject to California state individual income tax. Distributions from Nations New York Tax-Exempt Reserves of its interest income from New York municipal securities will not be subject to New York State and New York City individual income tax. Distributions from these Funds, however, may be subject to other state and local taxes. Although these Funds do not intend to earn any taxable income or capital gain, any distributions of such income or capital gain generally are subject to tax. A portion of the distributions from Nations Municipal Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves may also be subject to alternative minimum taxes. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest a Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 44 WITHHOLDING TAX We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts paid in securities redemptions and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .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 As long as a Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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. Financial highlights for Adviser Class Shares of Nations Tax-Exempt Reserves 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. 45 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED ADVISER CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0295 0.0603 0.0507 0.0461 0.0529 0.0506 LESS DISTRIBUTIONS: Dividends from net investment income (0.0295) (0.0603) (0.0507) (0.0461) (0.0529) (0.0506) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.99% 6.20% 5.19% 4.71% 5.43% 5.19% ================================================================================================================ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $7,873,470 $5,939,163 $4,780,346 $870,170 $672,417 $247,551 Ratio of operating expenses to average net assets 0.45%(a)(b) 0.45%(a) 0.45%(a)(b) 0.45%+(a) 0.45%(b) 0.45% Ratio of net investment income to average net assets 2.67% 5.97% 5.12% 4.99%+ 5.29% 5.07% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.52%(a) 0.52%(a) 0.54%(a) 0.68%+(a) 0.69% 0.70%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. NATIONS MONEY MARKET RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED ADVISER CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99*/,/** OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 Net investment income 0.0286 0.0600 0.0548 0.0344 LESS DISTRIBUTIONS: Dividends from net investment income (0.0286) (0.0600) (0.0548) (0.0344) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.90% 6.17% 5.62% 3.46% ========================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $967,747 $622,177 $553,728 $6,377 Ratio of operating expenses to average net assets 0.45%(a) 0.45%(a)(b) 0.45%(a)(b) 0.45%+(a) Ratio of net investment income to average net assets 2.60% 5.94% 5.39% 4.62%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.53%(a) 0.52%(a) 0.58%(a) 0.71%+(a)
* Money Market Reserves Adviser Class Shares commenced operations on July 2, 1998. ** Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 46
NATIONS TREASURY RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED ADVISER CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0277 0.0578 0.0479 0.0439 0.0516 0.0494 LESS DISTRIBUTIONS: Dividends from net investment income (0.0277) (0.0578) (0.0479) (0.0439) (0.0516) (0.0494) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.80% 5.93% 4.89% 4.48% 5.28% 5.06% =================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,568,691 $1,918,597 $1,460,966 $344,906 $222,760 $154,256 Ratio of operating expenses to average net assets 0.45%(a) 0.45%(a)(b) 0.45%(a)(b) 0.45%+(a) 0.45% 0.45% Ratio of net investment income to average net assets 2.56% 5.74% 4.81% 4.74%+ 5.16% 4.95% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.52%(a) 0.52%(a) 0.53%(a) 0.70%+(a) 0.70% 0.71%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%.
NATIONS GOVERNMENT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED ADVISER CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0278 0.0590 0.0491 0.0445 0.0518 0.0495 LESS DISTRIBUTIONS: Dividends from net investment income (0.0278) (0.0590) (0.0491) (0.0445) (0.0518) (0.0495) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.81% 6.06% 5.02% 4.54% 5.30% 5.07% =================================================================================================================== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $794,855 $1,190,853 $477,205 $88,836 $70,164 $24,845 Ratio of operating expenses to average net assets 0.45%(a) 0.45%(a)(b) 0.45%(a)(b) 0.45%+(a) 0.45% 0.45%(a) Ratio of net investment income to average net assets 2.45% 5.81% 5.01% 4.80%+ 5.18% 4.97% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.53%(a) 0.54%(a) 0.54%(a) 0.69%+(a) 0.70% 0.74%(a)
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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%. (b) The effect of interest expense on the operating expense ratio was less than 0.01%. 47
NATIONS MUNICIPAL RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED ADVISER CLASS SHARES 03/31/02 03/31/01 03/31/00 03/31/99* 04/30/98 04/30/97 OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0190 0.0367 0.0304 0.0270 0.0332 0.0313 LESS DISTRIBUTIONS: Dividends from net investment income (0.0190) (0.0367) (0.0304) (0.0270) (0.0332) (0.0313) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.92% 3.73% 3.08% 2.73% 3.34% 3.19% =========================================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $158,556 $129,807 $77,511 $55,434 $29,936 $7,296 Ratio of operating expenses to average net assets 0.45% 0.45% 0.45% 0.45%+ 0.45%(a) 0.45% Ratio of net investment income to average net assets 1.78% 3.68% 3.04% 2.85%+ 3.28% 3.13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.55% 0.54% 0.55% 0.73%+ 0.73% 0.77%
* Fiscal year end changed to March 31. Prior to this, the fiscal year end was April 30. + 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 interest expense on the operating expense ratio was 0.01%.
NATIONS CALIFORNIA TAX-EXEMPT RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED ADVISER CLASS SHARES 03/31/02 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 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 Net investment income 0.0174 0.0308 0.0232 0.0052 0.0268 0.0309 0.0291 LESS DISTRIBUTIONS: Dividends from net investment income (0.0174) (0.0308) (0.0232) (0.0052) (0.0268) (0.0309) (0.0291) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 1.75% 3.12% 2.32% 0.52% 2.71% 3.13% 2.95% ========================================================================================================================== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $298,268 $318,737 $360,319 $636,000 $709,000 $671,000 $472,000 Ratio of operating expenses to average net assets 0.45% 0.45% 0.45%+ 0.50%+ 0.49%(a) 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 1.13% 3.08% 2.55%+ 2.49%+ 2.65% 3.06% 2.92% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.53% 0.53% 0.53%+ 0.52%+ 0.49%(a) 0.50%(a) 0.50%(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Tax-Exempt Money Market Fund Horizon Service Shares, which were reorganized into the California Tax-Exempt Reserves Adviser Class 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. + 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%. 48 NATIONS NEW YORK TAX-EXEMPT FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD RESERVES
PERIOD ENDED ADVISER CLASS SHARES 03/31/02* OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 Net investment income 0.0008 LESS DISTRIBUTIONS: Dividends from net investment income (0.0008) Net asset value, end of period $1.00 TOTAL RETURN++ 0.08% ================================================================================ RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (in 000's) $1 Ratio of operating expenses to average net assets 0.45%+ Ratio of net investment income to average net assets 0.78%+ Ratio of expenses to average net assets without waivers and/or expense reimbursements 4.76%+
* New York Tax-Exempt Reserves Adviser Class Shares commenced operations on February 15, 2002. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 49 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. 50 High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 51 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 52 SEC file number: Nations Funds Trust, 811-09645 ADVISER-0802 [Graphic] Where to find more information You'll find more information about Nations Money Market 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: 1.800.626.2275 (Institutional Investors) 1.800.321.7854 (Individual Investors) By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nationsfunds.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. [LOGO] Nations Funds [GRAPHIC] Nations Cash Reserves - ---------------------------- Prospectus -- Marsico Shares August 1, 2002 THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVE 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 [LOGO] 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 28. 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 of the Nations Money Market Funds -- Nations Cash Reserves. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. This prospectus offers Marsico Class Shares of Nations Cash Reserves. This class of shares is designed for investors in the Marsico Focus Fund, the Marsico Growth Fund, the Marsico 21st Century Fund, and the Marsico International Opportunities Fund. Please turn to Buying, selling and exchanging shares for more information about who is eligible to buy this class of shares. ABOUT THE FUND This Fund seeks to provide income while protecting the principal of your original investment by investing in money market instruments. Money market instruments include short-term debt securities that are U.S. government issued or guaranteed or have relatively low risk. Your original investment and your return aren't guaranteed, however, and returns will vary as short-term interest rates change. Over time, the return on money market funds may be lower than the return on other kinds of mutual funds or investments. 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. This Fund may be suitable for you if: .you're looking for a relatively low risk investment with stability of principal .you have short-term income needs It may not be suitable for you if: .you're looking for higher returns .you're more comfortable with bank deposits that are FDIC-insured 2 You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 5. FOR MORE INFORMATION If you have any questions about the Fund, please call us at 1.888.860.8686 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. 3 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 12. [Graphic] About the Fund NATIONS CASH RESERVES 5 Sub-adviser: BACAP ------------------------------------------------- OTHER IMPORTANT INFORMATION 10 ------------------------------------------------- HOW THE FUND IS MANAGED 12 [Graphic] About your investment INFORMATION FOR INVESTORS Buying, selling and exchanging shares 15 How orders are processed 17 Shareholder servicing and administration fees 23 Distributions and taxes 24 ------------------------------------------------- FINANCIAL HIGHLIGHTS 26 ------------------------------------------------- TERMS USED IN THIS PROSPECTUS 28 ------------------------------------------------- WHERE TO FIND MORE INFORMATION BACK COVER
4 [Graphic] ABOUT THE SUB-ADVISER BACAP IS THIS FUND'S SUB-ADVISER. BACAP'S CASH INVESTMENT TEAM MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND. [Graphic] YOU'LL FIND MORE ABOUT BACAP ON PAGE 13. THIS FUND, LIKE ALL MONEY MARKET FUNDS, IS SUBJECT TO CERTAIN INVESTMENT LIMITATIONS. THESE ARE DESCRIBED IN Other important information. THE FUND IS LISTED ON THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' APPROVED LIST OF MONEY MARKET MUTUAL FUNDS. NATIONS CASH RESERVES [Graphic] INVESTMENT OBJECTIVE The Fund seeks to preserve principal value and maintain a high degree of liquidity while providing current income. [Graphic] PRINCIPAL INVESTMENT STRATEGIES The Fund pursues its objective by generally investing in a diversified portfolio of high quality money market instruments that, at the time of investment, are considered to have remaining maturities of 397 days or less. The Fund will only buy first-tier securities. These securities include primarily: .commercial paper .bank obligations .short-term debt securities, including instruments issued by certain trusts or other special purpose issuers, like pass-through certificates representing participations in, or instruments backed by, the securities and other assets owned by these issuers .short-term taxable municipal securities .repurchase agreements secured by first-tier securities, U.S. government obligations or U.S. Treasury obligations The Fund may also invest in other money market funds, consistent with its investment objective and strategies. When the team believes market conditions warrant, the Fund may invest more than 25% of its assets in U.S. dollar denominated bank obligations, including obligations of U.S. banks, foreign branches of U.S. banks and U.S. branches of foreign banks. 5 [Graphic] FIRST-TIER SECURITIES A FIRST-TIER SECURITY IS A SHORT-TERM DEBT SECURITY THAT'S AN ELIGIBLE INVESTMENT FOR MONEY MARKET FUNDS. IT'S "FIRST-TIER" BECAUSE IT'S BEEN GIVEN THE HIGHEST CREDIT RATING BY A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION OR IS CONSIDERED TO BE OF COMPARABLE QUALITY. [Graphic] YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND IN OTHER IMPORTANT INFORMATION AND IN THE SAI. The team tries to maintain a constant net asset value of $1.00 per share for the Fund. The team uses extensive research, including economic, technical and security analysis to select individual investments. .Economic analysis includes evaluating national and global economic conditions, as well as interest rate movements. .Technical analysis includes identifying categories of money market instruments that offer the highest yields and assessing the market for potential investments. .Security analysis includes evaluating the credit quality of an instrument. Securities are normally held to maturity, but the team may sell a security before it matures to meet cash flow needs, to manage the portfolio's maturity, if the team determines that the security is no longer a suitable investment, or for other reasons. [Graphic] RISKS AND OTHER THINGS TO CONSIDER Nations Cash Reserves has the following risks: .Investment strategy risk - Although the Fund tries to maintain a share price of $1.00, an investment in the Fund may lose money. An investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, the FDIC or any other government agency. .Income/principal payment risk - The Fund's ability to pay distributions depends on the creditworthiness of the issuers of the securities the Fund holds. The Fund may not be able to pay distributions, or could lose money, if the issuer of a security is unable to pay interest or repay principal when it's due. 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 1.888.860.8686 OR CONTACT YOUR INVESTMENT PROFESSIONAL FOR THE FUND'S CURRENT 7-DAY 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 Marsico 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. [CHART] 6.11% 3.92% 2000 2001 *Year-to-date return as of June 30, 2002: 0.82%
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD Best: 4th quarter 2000: 1.58% Worst: 1st quarter 2001: 0.59% AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 2001 Life of 1 year Fund* Marsico Shares 3.92% 4.97%
*The inception date of Marsico Shares is January 26, 1999. 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. [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 Marsico (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 0.15% Shareholder servicing and administration fees 0.35% Other expenses 0.12% ----- Total annual Fund operating expenses 0.62% Fee waivers and/or reimbursements (0.07)% ------- Total net expenses/2/ 0.55% =====
/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 needed, 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, 2003. The figure shown here is after waivers and/or reimbursements. There is no guarantee that this limitation will continue. The investment adviser is entitled to recover from the Fund any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this arrangement if such recovery does not cause the Fund's expenses to exceed the expense limitation in effect at the time of recovery. 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 the Fund with the cost of investing in other mutual funds. This example assumes: .you invest $10,000 in Marsico Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods .you reinvest all dividends and distributions in the Fund .your investment has a 5% return each year .the Fund's operating expenses remain the same as shown in the table above .the waivers and/or reimbursements shown above expire July 31, 2003 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 Marsico Shares $56 $192 $340 $770
9 [Graphic] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 5. The following are some other risks and information you should consider before you invest: .Special rules for money market funds - Money market funds must comply with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule 2a-7 sets out certain limits on investments, which are designed to help protect investors from risk of loss. These limits apply at the time an investment is made. The Fund, like all money market funds: .may only invest in securities with a remaining maturity of 397 days or less, or that have maturities longer than 397 days but have demand, interest rate reset features or guarantees that are 397 days or less .must maintain an average dollar-weighted maturity of 90 days or less .may normally invest no more than 5% of its total assets in securities of the same issuer, other than U.S. government securities; however, it may invest up to 25% of its total assets in first-tier securities of a single issuer for up to three business days .may generally only invest in U.S. dollar denominated instruments that are determined to have minimal credit risk and are first-tier. .Changing investment objectives 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. .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 10 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. .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. Any cash the Fund holds for defensive or other reasons may not earn income. .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, 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 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. 11 [Graphic] BANC OF AMERICA ADVISORS, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 [Graphic] How the Fund is managed INVESTMENT ADVISER BA Advisors is the investment adviser to over 70 mutual fund portfolios in the Nations Funds Family, including the Money Market 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 investment sub-advisers for the services they provide to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for the Fund until July 31, 2003. 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. BA Advisors can receive a maximum annual investment advisory fee of 0.15%, calculated as a percentage of average daily net assets of the Fund. BA Advisors received an actual investment advisory fee of 0.15% during the Fund's last fiscal year, after waivers and/or reimbursements. 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: .change, add or terminate one or more sub-advisers; 12 [Graphic] BANC OF AMERICA CAPITAL MANAGEMENT, LLC ONE BANK OF AMERICA PLAZA CHARLOTTE, NORTH CAROLINA 28255 .continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or .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. 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 $180 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 55 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 Cash Investment Team is responsible for making the day-to-day investment decisions for the Fund. 13 [Graphic] STEPHENS INC. 111 CENTER STREET LITTLE ROCK, ARKANSAS 72201 [Graphic] PFPC INC. 400 BELLEVUE PARKWAY WILMINGTON, DELAWARE 19809 OTHER SERVICE PROVIDERS The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. The Fund may pay a shareholder servicing fee and/or other compensation to companies for 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 0.10% 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. 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. 14 About your investment - -------------------------------------------------------------------------------- [Graphic] WE'VE USED THE TERM, investment professional, TO REFER TO THE PERSON WHO HAS ASSISTED YOU WITH BUYING NATIONS FUNDS. WHEN YOU SELL SHARES OF A MUTUAL FUND, THE FUND IS EFFECTIVELY "BUYING" THEM BACK FROM YOU. THIS IS CALLED A redemption. [Graphic] MARSICO FUNDS MARSICO FUNDS C/O UMB FUND SERVICES, INC. P.O. BOX 3210 MILWAUKEE, WI 53202 [Graphic] Buying, selling and exchanging shares This prospectus offers Marsico Shares of Nations Cash Reserves. Marsico Shares are available only to investors in the Marsico Focus Fund, the Marsico Growth Fund, the Marsico 21st Century Fund, and the Marsico International Opportunities Fund (Marsico Funds). You don't pay any sales charges when you buy or sell Marsico Shares of the Fund. You can invest in the Fund only through the Fund's servicing agent, UMB Fund Services, Inc. Please call the servicing agent at 1.888.860.8686 for information about its procedures and account requirements, which may be different from those described here. We encourage you to consult with an investment professional who can open an account for you through the servicing agent and help you with your investment decisions. Once you have an account, you can buy and sell shares by contacting your investment professional or the servicing agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. The table on the next page summarizes some key information about buying and selling shares. This information applies only to transactions by the servicing agent and other authorized agents. Please contact your investment professional or call the servicing agent if you have questions or you need help placing an order. 15
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: .$2,500 for regular accounts .$1,000 for traditional and Roth IRAs, and Coverdell Education Savings Accounts .$500 for spousal IRA accounts .$500 for SEP IRA accounts .$500 for transfers to minor accounts minimum additional investment: .$100 for all accounts Using our minimum initial investment: You can buy shares twice a Automatic .$1,000 month, monthly or quarterly, Investment Plan minimum additional investment: using automatic transfers from .$50 your bank account. - ------------------------------------------------------------------------------------------------ Selling shares In a lump sum .you can sell up to $50,000 of We usually send you or your your shares by telephone, selling agent the sale proceeds otherwise there are no limits on the same day that we to the amount you can sell receive your order. .other restrictions may apply to If you paid for your shares with withdrawals from retirement a check that wasn't certified, plan accounts 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. Using our .minimum $100 per withdrawal Your account balance must be Systematic at least $10,000 to set up the Withdrawal Plan plan. You can make withdrawals twice a month, monthly, quarterly or annually. We'll send your money by check or deposit it directly to your bank account. - ------------------------------------------------------------------------------------------------ Exchanging In a lump sum .minimum $2,500 per You can generally exchange shares exchange Marsico Shares of the Fund for shares of Marsico Funds. Using our .minimum $50 per exchange You must already have an Automatic investment in the Funds into Exchange which you want to exchange. Feature You can make exchanges monthly or quarterly.
16 [Graphic] A BUSINESS DAY IS ANY DAY THAT THE FEDERAL RESERVE BANK OF NEW YORK AND THE NEW YORK STOCK EXCHANGE (NYSE) ARE OPEN. THE FUND RESERVES THE RIGHT TO CLOSE EARLY ON BUSINESS DAYS PRECEDING OR FOLLOWING NATIONAL HOLIDAYS, IF THE PRIMARY GOVERNMENT SECURITIES DEALERS HAVE CLOSED EARLY AND/OR IF THE BOND MARKET ASSOCIATION RECOMMENDS THAT THE SECURITIES MARKETS CLOSE EARLY. EITHER THE FEDERAL RESERVE BANK OF NEW YORK OR 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, COLUMBUS DAY, VETERANS 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 of each share class of Nations Cash Reserves at 5:00 p.m. Eastern time each business day (unless the Fund closes early). 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. Although we try to maintain a net asset value per share of $1.00 for the Fund, we can't guarantee that we will be able to do so. 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. We use the amortized cost method, which approximates market value, to value the assets in the Fund. HOW ORDERS ARE PROCESSED Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents by 5:00 p.m. Eastern time on a business day (unless the Fund closes early) will receive that day's net asset value per share, except, orders must be received by 3:00 p.m. Eastern time on the last business day of the calendar year. Orders received after this time 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 the servicing agent. 17 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: .If you sign up for telephone orders after you open your account, you must have your signature guaranteed. .Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. .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. .Telephone orders may be difficult to complete during periods of significant economic or market change. [Graphic] BUYING SHARES Here are some general rules for buying shares: .We'll process your order only if we receive payment in federal funds by 5:30 p.m. Eastern time on the business day Stephens, PFPC or their agents receive the order (unless the Fund closes early), except, payment must be received by 4:00 p.m. Eastern time on the last business day of the calendar year. Otherwise, we'll cancel your order. .The servicing agent is responsible for sending orders to us and ensuring that we receive your money on time. .Shares you buy are recorded on the books of the Fund. We don't issue certificates. .All purchases must be made in U.S. dollars and checks drawn on U.S. banks. No cash, credit cards or third party checks will be accepted. 18 MINIMUM INITIAL INVESTMENT The minimum initial amount you can buy is usually $2,500. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: .$1,000 for traditional and Roth individual retirement accounts (IRAs), and Coverdell Education Savings Accounts .$500 for spousal IRA accounts .$500 for SEP IRA accounts .$500 for transfers to minor accounts .$1,000 using our Automatic Investment Plan MINIMUM ADDITIONAL INVESTMENT You can make additional purchases of $100, or $50 if you use our Automatic Investment Plan. Automatic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Fund. You can contact your investment professional or the servicing agent to set up the plan. Here's how the plan works: .You can buy shares twice a month, monthly or quarterly. .You can choose to have your money transferred on or about the 15th or the last day of the month. 19 [Graphic] FOR MORE INFORMATION ABOUT TELEPHONE ORDERS, SEE HOW ORDERS ARE PROCESSED. [Graphic] SELLING SHARES Here are some general rules for selling shares: .If you're selling your shares through the servicing agent, we'll normally send the sale proceeds by Fedwire on the same business day that Stephens, PFPC or their agents receive your order. The servicing agent is responsible for depositing the sale proceeds to your account on time. .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 on the same business day that the Fund receives your order. .You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. .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. .Under certain circumstances allowed under the 1940 Act, we can pay you in securities or other property when you sell your shares. .We can delay payment of the sale proceeds for one day, or longer than one day if there is a non-routine closure of the Fedwire or Federal Reserve Banks or under the extraordinary circumstances described in Section 22(e) of the 1940 Act. Generally, those extraordinary circumstances are when: (i) the NYSE is closed or trading is restricted, (ii) an emergency exists which makes the disposal of securities owned by a Fund or the fair determination of the value of the Fund's net assets not reasonably practicable, or (iii) the SEC by order permits the suspension of the right of redemption for the protection of investors. .Other restrictions may apply to retirement plan accounts. For more information about 20 these restrictions, please contact your retirement plan administrator. We may sell your shares: .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 .if the servicing agent tells us to sell your shares under arrangements made between the servicing agent and you .under certain other circumstances allowed under the 1940 Act Systematic Withdrawal Plan The Systematic Withdrawal Plan lets you withdraw $100 or more twice a month, monthly, quarterly or annually. You can contact your investment professional or the servicing agent to set up the plan. Here's how the plan works: .Your account balance must be at least $10,000 to set up the plan. .If you set up the plan after you've opened your account, your signature must be guaranteed. .You can choose to have us transfer your money on or about the 15th or the 25th of the month. .We'll send you a check or deposit the money directly to your bank account. .You can cancel the plan by giving the servicing agent 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. 21 [Graphic] YOU SHOULD MAKE SURE YOU UNDERSTAND THE INVESTMENT OBJECTIVE AND STRATEGIES OF THE MARSICO FUND YOU'RE EXCHANGING INTO. PLEASE READ ITS PROSPECTUS CAREFULLY BEFORE YOU INVEST. [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: .You can exchange Marsico Shares of the Fund for shares of Marsico Funds. .You must exchange at least $2,500, or $50 using our Automatic Exchange Feature. .The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. .You may only make exchanges into a Fund that is legally sold in your state of residence. .You generally may only make an exchange into a Fund that is accepting investments. .We or Marsico Funds may limit the number of exchanges you can make within a specified period of time. .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). .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 $50 or more of Marsico Shares of the Fund for shares of Marsico Funds every month or every quarter. You can contact your investment professional or the servicing agent to set up the plan. Here's how automatic exchanges work: .Send your request to the servicing agent in writing or call 1.888.860.8686. .If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. .You must already have an investment in the Funds you want to exchange. .You can choose to have us transfer your money on or about the 1st or the 15th day of the month. .The rules for making exchanges apply to automatic exchanges. 22 [Graphic] THE SERVICING AGENT MAY CHARGE OTHER FEES FOR SERVICES PROVIDED TO YOUR ACCOUNT. [Graphic] Shareholder servicing and administration fees The servicing agent is compensated for providing services to investors under a shareholder servicing plan. The servicing agent may receive a maximum annual shareholder servicing fee of 0.25% of the average daily net assets of Marsico Shares of the Fund. Administration agents are compensated for providing services to investors under a shareholder administration plan. Administration agents may receive a maximum annual shareholder administration fee of 0.10% of the average daily net assets of Marsico Shares of the Fund. Fees are calculated daily and paid monthly. Over time, these fees will increase the cost of your investment. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment, and may cost you more than any sales charges you may pay. The Fund pays these fees to the servicing agent or administration agents for as long as the plan continues. We may reduce or discontinue payments at any time. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 23 [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. [Graphic] Distributions and taxes ABOUT DISTRIBUTIONS A mutual fund can make money two ways: .It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. .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 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. Although the Fund does not expect to realize any capital gain, any capital gain realized by the Fund will be distributed at least once a year. The Fund declares distributions of net investment income each business day (unless the Fund closes early), and pays these distributions monthly. Normally, the Fund will declare and pay distributions of net investment income as indicated above. The Fund may, however, declare and pay distributions of net investment income more frequently. 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 paid. Shares are eligible to receive net investment income distributions from the settlement 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. 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 1.888.860.8686. 24 [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. FOR MORE INFORMATION ABOUT TAXES, PLEASE SEE THE SAI. HOW TAXES AFFECT YOUR INVESTMENT Distributions of the Fund's ordinary income and any net short-term capital gain generally are taxable to you as ordinary income. Although the Fund does not expect to realize any capital gain, any distributions of net long-term capital gain generally are taxable to you as long-term capital gain. In general, corporate shareholders will not be able to deduct any distributions 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. 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 distributions. U.S. GOVERNMENT OBLIGATIONS If you invest in U.S. government obligations directly, interest on those obligations is free from state and local individual income taxes. Distributions you receive that come from interest the 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 paid in securities and exchanges) if: .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 .the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records .the IRS informs us that you're otherwise subject to backup withholding 25 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 As long as the Fund continually maintains a $1.00 net asset value per share, you ordinarily will not recognize a taxable gain or loss on the redemption or exchange of your shares of the Fund. [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 accountant's 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. 26 NATIONS CASH RESERVES FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED MARSICO SHARES 03/31/02* 03/31/01 03/31/00 03/31/99** OPERATING PERFORMANCE: Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 Net investment income 0.0292 0.0596 0.0497 0.0080 LESS DISTRIBUTIONS: Dividends from net investment income (0.0292) (0.0596) (0.0497) (0.0080) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 TOTAL RETURN++ 2.96% 6.13% 5.08% 0.80% ------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $35,759 $39,894 $19,552 $17,970 Ratio of operating expenses to average net assets 0.55%(a)(b) 0.55%(a) 0.55%(a) 0.55%+(a) Ratio of net investment income to average net assets 2.92% 5.94% 4.96% 4.96%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.58%(a) 0.58%(a) 0.60%(a) 0.59%+(a)
* The financial information for the fiscal periods through March 31, 2002 reflect the financial information for Nations Prime Fund Marsico Shares which were reorganized into Nations Cash Reserves Marsico Shares as of May 10, 2002. ** Prime Fund Marsico Shares commenced operations on January 26, 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. (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%. 27 [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 value based on current market factors. 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 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. You realize a capital gain when you sell a security for more than you paid for it. You realize a capital loss when you sell a security for less than you paid for it. Commercial paper - a short-term debt security issued by banks, corporations, municipalities and other borrowers. Common stock - a security that represents part equity ownership in a company. Common stock typically allows you to vote at shareholder meetings and to share in the company's profits by receiving dividends. Debt security - when you invest in a debt security, you are typically lending your money to 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 U.S. Treasury obligations and commercial paper. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Equity security - an investment that gives you 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 of 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 issued by a registered investment company, or is a government security. 28 Fixed income security - an intermediate to long-term debt security that matures in more than one year. Guaranteed investment contract - an investment instrument issued by a rated insurance company in return for a payment by an investor. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to an NRSRO such as Standard & Poor's Corporation or Moody's Investors Service, Inc. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by the Fund's Board. Please see the SAI for more information about credit ratings. 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. For Nations Treasury Reserves and Nations Government Reserves, money market instruments do not include either commercial paper or municipal securities. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public 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 these securities is exempt from federal income taxes and is generally exempt from state taxes if you live in the state that issued the security. If you live 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 or kinds of 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. 29 Participation - a pass-through certificate representing a share in a pool of debt obligations or other instruments. Pass-through certificate - securitized mortgages or other debt securities with interest and principal paid by a servicing intermediary shortly after interest payments are received from borrowers. Private activity bond - a municipal security that is used to finance private projects or other projects that aren't qualified for tax purposes. Interest on private activity bonds is generally taxable, unless it is specifically exempted, or may be treated as a tax preference item for federal alternative minimum tax purposes. 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. 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. 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. Settlement date - the date on which an order is settled either by payment or delivery of securities. Special purpose issuer - an entity organized solely to issue asset-backed securities on a pool of assets it owns. 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. 30 SEC file number: Nations Funds Trust, 811-09645 MARSICOPRO - 0802 [Graphic] Where to find more information You'll find more information about Nations Cash Reserves 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: 1.888.860.8686 By mail: Nations Cash Reserves-Marsico Shares c/o UMB Fund Services, Inc. P.O. Box 3210 Milwaukee, WI 53201-3210 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. [LOGO] NATIONS FUNDS STATEMENT OF ADDITIONAL INFORMATION NATIONS FUNDS TRUST Government & Corporate Bond Funds International/Global Stock Funds Nations Bond Fund Nations Emerging Markets Fund Nations Government Securities Fund Nations Global Value Fund Nations High Yield Bond Fund Nations International Equity Fund Nations Intermediate Bond Fund Nations International Value Fund Nations Short-Intermediate Government Fund Nations Marsico International Opportunities Fund Nations Short-Term Income Fund Nations Strategic Income Fund Stock Funds Nations Asset Allocation Fund Municipal Bond Funds Nations Capital Growth Fund Nations Intermediate Municipal Bond Fund Nations Classic Value Fund Nations Municipal Income Fund Nations Convertible Securities Fund Nations Short-Term Municipal Income Fund Nations Financial Services Fund Nations LargeCap Value Fund State Municipal Bond Funds Nations Marsico 21st Century Fund Nations California Intermediate Municipal Bond Fund Nations Marsico Focused Equities Fund Nations California Municipal Bond Fund Nations Marsico Growth Fund Nations Florida Intermediate Municipal Bond Fund Nations MidCap Growth Fund Nations Florida Municipal Bond Fund Nations MidCap Value Fund Nations Georgia Intermediate Municipal Bond Fund Nations Research Fund Nations Kansas Municipal Income Fund Nations SmallCap Value Fund Nations Maryland Intermediate Municipal Bond Fund Nations Small Company Fund Nations North Carolina Intermediate Municipal Bond Fund Nations Strategic Growth Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Value Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Index Funds Nations Virginia Intermediate Municipal Bond Fund Nations LargeCap Index Fund Nations Managed Index Fund Money Market Funds Nations MidCap Index Fund Nations California Tax-Exempt Reserves Nations SmallCap Index Fund Nations Cash Reserves Nations Government Reserves LifeGoal Portfolios Nations Money Market Reserves Nations LifeGoal Balanced Growth Portfolio Nations Municipal Reserves Nations LifeGoal Growth Portfolio Nations New York Tax-Exempt Reserves Nations LifeGoal Income and Growth Portfolio Nations Tax-Exempt Reserves Nations Treasury Reserves
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, 2002 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, NC 28255, or by calling Nations Funds at 800-321-7854 or 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, 2002, 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 THE TRUST .................................................................. 2 DESCRIPTION OF THE FUNDS AND THE INVESTMENTS AND RISKS OF THEIR FUNDS ................. 2 General ............................................................................ 2 Investment Policies and Limitations ................................................ 2 Fundamental Policy Restrictions ................................................. 3 Non-Fundamental Policy Restrictions ............................................. 4 Exemptive Orders ................................................................ 4 Permissible Fund Investments and Investment Techniques ............................. 5 The International/Global Stock Funds ............................................ 5 The Stock Funds ................................................................. 6 The Index Funds ................................................................. 7 LifeGoal Portfolios ............................................................. 7 Government & Corporate Bond Funds ............................................... 8 Municipal Bond Funds ............................................................ 9 State Municipal Bond Funds ...................................................... 9 Money Market Funds .............................................................. 9 Descriptions of Permissible Investments ............................................ 9 Asset-Backed Securities ......................................................... 9 Bank Obligations (Domestic and Foreign) ......................................... 10 Borrowings ...................................................................... 11 Common Stock .................................................................... 11 Convertible Securities .......................................................... 12 Corporate Debt Securities ....................................................... 13 Derivatives ..................................................................... 13 Dollar Roll Transactions ........................................................ 14 Foreign Securities .............................................................. 14 Futures and Options ............................................................. 16 Guaranteed Investment Contracts and Funding Agreements .......................... 19 High Yield/Lower-Rated Debt Securities .......................................... 19 Linked Securities and Structured Products ....................................... 20 Money Market Instruments ........................................................ 21 Mortgage-Backed Securities ...................................................... 21 Municipal Securities ............................................................ 22 Other Investment Companies ...................................................... 25 Pass Through Securities (Participation Interests and Company Receipts) .......... 26 Preferred Stock ................................................................. 27 Private Placement Securities and Other Restricted Securities .................... 28 REITs and Master Limited Partnerships ........................................... 28 Repurchase Agreements ........................................................... 29 Reverse Repurchase Agreements ................................................... 29 Securities Lending .............................................................. 30 Short Sales ..................................................................... 30 Stripped Securities ............................................................. 30 Swap Contracts .................................................................. 31 U.S. Government Obligations ..................................................... 31 Variable- and Floating-Rate Instruments ......................................... 32 Warrants and Rights ............................................................. 32 When-Issued Purchases, Delayed Delivery and Forward Commitments ................. 32 Zero-Coupon, Pay-In-Kind and Step-Coupon Securities ............................. 33 Other Considerations ............................................................... 34
i Temporary Defensive Purposes ................................................... 34 Portfolio Turnover ............................................................. 34 Concentrating in the Financial Services Industry ............................... 35 MANAGEMENT OF THE TRUST .............................................................. 35 The Trustees and Principal Officers ............................................... 35 Board Committees .................................................................. 37 Board Compensation ................................................................ 38 Retirement Plan ................................................................... 40 Nations Funds Deferred Compensation Plan .......................................... 41 Beneficial Equity Ownership Information ........................................... 41 Ownership of Securities of Adviser, Distributor, or Related Entities .............. 42 Disclosure of Other Transactions Involving Trustees ............................... 42 Approval of Advisory and Sub-Advisory Agreements .................................. 43 Codes of Ethics ................................................................... 44 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES .................................. 45 INVESTMENT ADVISORY AND OTHER SERVICES ............................................... 45 Investment Adviser and Sub-Advisers ............................................... 45 BA Advisors, BACAP and Marsico Capital ......................................... 45 Sub-Advisers Unaffiliated with BA Advisors ..................................... 45 Investment Advisory and Sub-Advisory Agreements ................................ 46 Expense Limitations ............................................................ 47 Advisory Fee Rates ............................................................. 49 Advisory Fees Paid ............................................................. 49 Sub-Advisory Fee Rates ......................................................... 53 Sub-Advisory Fees Paid ......................................................... 53 Co-Administrators and Sub-Administrator ........................................... 54 Co-Administrators .............................................................. 54 Sub-Administrator .............................................................. 55 Co-Administration and Sub-Administration Fees Paid ............................. 55 12b-1 Plans ....................................................................... 59 Expenses .......................................................................... 67 Other Service Providers ........................................................... 68 Transfer Agents and Custodian .................................................. 68 Independent Accountants ........................................................ 68 Counsel ........................................................................ 69 BROKERAGE ALLOCATION AND OTHER PRACTICES ............................................. 69 General Brokerage Policy, Brokerage Transactions and Broker Selection ............. 69 Aggregate Brokerage Commissions ................................................... 71 Brokerage Commissions Paid to Affiliates .......................................... 72 Directed Brokerage ................................................................ 73 Securities of Regular Broker/Dealers .............................................. 75 Monies Paid to Broker/Dealers from the Adviser's or Distributor's Profit .......... 76 CAPITAL STOCK ........................................................................ 76 Description of the Trust's Shares ................................................. 76 About the Trust's Capital Stock ................................................... 77 PURCHASE, REDEMPTION AND PRICING OF SHARES ........................................... 79 Purchase, Redemption and Exchange ................................................. 79 Offering Price .................................................................... 79 INFORMATION CONCERNING TAXES ......................................................... 81 General ........................................................................... 81 Equalization Accounting ........................................................... 82 Excise Tax ........................................................................ 82 Investment through Master Portfolios .............................................. 82 Taxation of Fund Investments ...................................................... 82 Taxation of Distributions ......................................................... 84
ii Disposition of Fund Shares ........................................................... 85 Foreign Taxes ........................................................................ 85 Federal Income Tax Rates ............................................................. 85 Corporate Shareholders ............................................................... 86 Foreign Shareholders ................................................................. 86 Backup Withholding ................................................................... 86 Tax-Deferred Plans ................................................................... 87 Special Tax Considerations Pertaining to all the Tax-Exempt Funds .................... 87 Special Tax Considerations Pertaining to the California Funds ........................ 87 Special Tax Considerations Pertaining to the Florida Funds ........................... 88 Special Tax Considerations Pertaining to the Georgia Intermediate Bond Fund .......... 88 Special Tax Considerations Pertaining to the Kansas Income Fund ...................... 89 Special Tax Considerations Pertaining to the Maryland Intermediate Bond Fund ......... 89 Special Tax Considerations Pertaining to New York Tax-Exempt Reserves ................ 89 Special Tax Considerations Pertaining to the North Carolina Intermediate Bond Fund ... 89 Special Tax Considerations Pertaining to the South Carolina Intermediate Bond Fund ... 90 Special Tax Considerations Pertaining to the Tennessee Intermediate Bond Fund ........ 90 Special Tax Considerations Pertaining to the Virginia Intermediate Bond Fund ......... 90 UNDERWRITER COMPENSATION AND PAYMENTS ................................................... 90 FUND PERFORMANCE ........................................................................ 91 Advertising Fund Performance ......................................................... 91 Yield Calculations ................................................................... 93 Money Market Funds ................................................................ 93 Non-Money Market Funds ............................................................ 95 Total Return Calculations ............................................................ 98 Cumulative Return .................................................................... 98 After-Tax Return Calculations ........................................................... 99 APPENDIX A--DESCRIPTION OF SECURITY RATINGS ............................................. A-1 APPENDIX B--GLOSSARY .................................................................... B-1 APPENDIX C--DESCRIPTION OF STATE CONDITIONS ............................................. C-1 APPENDIX D--CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS .................................. D-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 generally 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: Nations Funds Trust, which is the Delaware business trust that "houses" the Funds; the investment policies and permissible investments of the Funds; the management of the Funds, including the Board of Trustees, 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.nationsfunds.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 requires that every mutual fund provide certain information in its SAI (in addition to the information required to be in its prospectus), 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/companysearch.htm. The name of the "Company Name" that investors should search for is "Nations Funds Trust." 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 or (800) 626-2275 for institutional money market investors. 1 HISTORY OF the TRUST Nations Funds Trust is a registered investment company in the Nations Funds Family. The Nations Funds Family currently has more than 70 distinct investment portfolios and total assets in excess of $150 billion. The Trust was organized as a Delaware business trust on October 22, 1999. Each Fund has a fiscal year end of March 31st. DESCRIPTION OF THE FUNDS AND THE INVESTMENTS AND RISKS OF THEIR FUNDS General All the Funds are open-end, management investment companies and are diversified, with the exception of the State Municipal Bond Funds, California Tax-Exempt Reserves, New York Tax-Exempt Reserves, Financial Services 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, including shareholder rights. 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: High Yield Bond Fund, Intermediate Bond Fund, International Equity Fund, International Value Fund, Marsico Focused Equities Fund, Marsico Growth Fund, Marsico 21/st/ Century Fund, Marsico International Opportunities Fund, SmallCap Value Fund and Strategic Growth 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 International/Global Stock Funds, Stock Funds, Government & Corporate Bond Funds, Municipal 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." Shares of Government Reserves and Treasury Reserves are intended to qualify as eligible investments for federally chartered credit unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of the National Credit Union Administration ("NCUA") Rules and Regulations and NCUA Letter Number 155. Shares of Government Reserves and Treasury Reserves, however, may or may not qualify as eligible investments for particular state-chartered credit unions. A state-chartered credit union should consult qualified legal counsel to determine whether the Funds is a permissible investment under the law applicable to it. 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 the 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 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. 2 Fundamental Policy Restrictions 1. Each Fund may not 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 management investment companies. 2. Each Fund may not 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. Each Fund may not 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. Each Fund may not 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. Each Fund may not 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. Each Fund may not 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. Each Fund may not, except for the State Municipal Bond Funds, California Tax-Exempt Reserves, New York Tax-Exempt Reserves, Financial Services 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. 8. Under normal circumstances, . Florida Intermediate Bond Fund and Florida Bond Fund will each invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax, and Florida state intangibles tax. . Municipal Reserves, Intermediate Municipal Bond Fund, Municipal Income Fund, Texas Intermediate Bond Fund and Short-Term Municipal Income Fund will each invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax. . Tax-Exempt Reserves will invest at least 80% of its assets in securities that pay interest exempt from federal income tax. . California Tax-Exempt Reserves and New York Tax-Exempt Reserves will invest at least 80% of their assets in securities that pay interest exempt from federal income tax and state individual income tax. 3 . California Municipal Bond Fund and California Intermediate Municipal Bond Fund will invest at lest 80% of their assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax, and California individual income tax. . Kansas Income Fund, Georgia Intermediate Bond Fund, Maryland Intermediate Bond Fund, New York Tax-Exempt Reserves, North Carolina Intermediate Bond Fund, South Carolina Intermediate Bond Fund and Virginia Intermediate Bond Fund, will invest at least 80% of their assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax, and state individual income tax. . Tennessee Intermediate Bond Fund will invest at least 80% of its assets in securities that pay interest exempt from federal income tax, other than the federal alternative minimum tax, and the Tennessee Hall Income Tax on unearned income. 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. Any Fund that is purchased by another Fund in reliance on Section 12(d)(1)(G) of the 1940 Act or an exemptive order granting relief from Section 12(d)(1)(G) will not purchase shares of a related registered open-end investment company in reliance on Section 12(d)(1)(F) or Section 12(d)(1)(G) of the 1940 Act. 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. 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 Municipal Bond Funds, California Tax-Exempt Reserves, New York Tax-Exempt Reserves, Financial Services Fund and Marsico Focused Equities Fund may not purchase securities of any one issuer (other than U.S. Government Obligations and securities of other investment companies) 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 described in otherwise applicable restrictions: 4 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 the condition 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. 4. The Funds soon expect to receive an exemptive order from the SEC, under which a Fund may, subject to certain conditions, borrow money from other Funds in the Nations Funds Family for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with Fund investment policies and restrictions. All loans are set at an interest rate between the rates charged on overnight repurchase agreements and short-term bank loans. 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 management 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 and the CFTC), provided that the use of derivatives will not alter the fundamental characteristics of the Fund, and the Fund will segregate assets as required by the 1940 Act (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 position 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." The International/Global Stock Funds 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 in each case and not in the aggregate: corporate debt securities; derivatives, including futures and options; foreign securities (other than the types described in the prospectus); and REITs and master limited partnerships. 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 5 less than 10% of its total assets in each case and not in the aggregate: convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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 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 in each case and not in the aggregate: corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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 master limited partnerships. 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 in each case and not in the aggregate: 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. 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 in each case and not in the aggregate: convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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 linked securities and structured products, 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. The Stock Funds Asset Allocation Fund, Capital Growth Fund, Classic Value Fund, Convertible Securities Fund, Financial Services Fund, LargeCap Value Fund, MidCap Growth Fund, MidCap Value Fund, Research Fund, Small Company Fund, SmallCap Value Fund, Strategic Growth Fund and Value 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 in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities (except for Convertible Securities Fund); derivatives, including futures, options, linked securities and structured products, 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. Capital Growth Fund, Convertible Securities Fund, LargeCap Value Fund, MidCap Growth Fund, MidCap Value Fund, SmallCap Value Fund, Small Company Fund, Strategic Growth Fund and Value 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 6 these Funds. Marsico Growth 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 in each case and not in the aggregate: convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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 linked securities and structured products, 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 Index Funds The LargeCap Index Fund, Managed Index Fund, MidCap Index Fund and SmallCap 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 in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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. 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 International/Global Stock Funds, Stock Funds, Government & Corporate Bond Funds and Money Market Funds in the Nations Funds Family. 7 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, 2002. (before fee (after fee waivers waivers and/or LifeGoal Portfolios' Underlying Funds and/or expense expense reimbursements) reimbursements) Value Fund 0.95% 0.95% Strategic Growth Fund 0.94% 0.94% Marsico Focused Equities Fund 1.11% 1.11% MidCap Growth Fund 0.97% 0.97% Small Company Fund 1.15% 1.22% International Value Fund 1.23% 1.23% International Equity Fund 1.16% 1.16% Emerging Markets Fund 2.04% 2.04% International Bond Portfolio 0.10% 0.12% Bond Fund 0.68% 0.68% High Yield Bond Fund 0.93% 1.00% Short-Term Income Fund 0.52% 0.62% MidCap Value Fund 1.25% 1.25% SmallCap Value Fund 1.30% 1.38% Marsico International Opportunities Fund 1.50% 4.00% Capital Growth Fund 0.97% 0.97% Cash Reserves--Capital Class 0.20% 0.27% 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. 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 any one industry unless they are permitted or required to do so in accordance with their own investment objective and principal investment strategies. Government & Corporate Bond Funds Bond Fund, Government Securities Fund, Intermediate Bond Fund, Short-Intermediate Government Fund, Short-Term Income 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 in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; municipal securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; 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 in each case and not in the aggregate: asset-backed securities, foreign securities and pass-through securities. 8 Municipal Bond Funds Intermediate Municipal Bond Fund, Municipal Income Fund and Short-Term Municipal 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 may invest in the following types of securities only in amounts of less than 10% of its total assets in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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. State Municipal Bond Funds California Bond Fund, California Intermediate Bond Fund, Florida Bond Fund, Florida Intermediate Bond Fund, Georgia Intermediate Bond Fund, Kansas Income 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: 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 in each case and not in the aggregate: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, linked securities and structured products, 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. Money Market Funds California Tax-Exempt Reserves, Cash Reserves, Government Reserves, Money Market Reserves, Municipal Reserves, New York Tax-Exempt Reserves, Tax-Exempt Reserves and Treasury 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: funding agreements, repurchase agreements and reverse repurchase agreements; 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. Descriptions of Permissible Investments Additional information about individual types of securities (including key considerations and risks) in which some or all of the Funds may invest 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 9 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 against 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. 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. As a general matter, obligations of "domestic banks," are not subject to the Funds' fundamental investment policies regarding concentration limits. For this purpose, the SEC 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. Certain Funds may invest in exchange-traded Eurodollar contracts. For information about these types of securities, see "Descriptions of Permissible Investments--Futures and Options." 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 amounts realized on those obligations, that foreign deposits may be seized or 10 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 in its Annual Report to Shareholders for the year ended March 31, 2002. As noted above, pursuant to an exemptive order expected from the SEC, a Fund will be able to, subject to certain conditions, borrow money from other Funds in the Nations Funds Family to for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with Fund investment policies and restrictions. All loans are set at an interest rate between the rates charged on overnight repurchase agreements and short-term bank loans. 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 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 11 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. 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. 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 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. 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 12 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 usually 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 unsecured 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-Rate Instruments" 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 forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indices, 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, linked securities and structured products, 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. 13 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: 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. See also "Descriptions of Permissible Investments--Futures and Options," "Descriptions of Permissible Investments--Linked Securities and Structured Products," "Descriptions of Permissible Investments--Stripped Securities," "Descriptions of Permissible Investments--Warrants and Rights" 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 or 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 determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principal place of business, the source of its revenue or other factors. 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 14 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." SPECIAL RISKS 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. In addition to adopting a single currency, member countries will no longer control their own monetary policies. Instead, the authority to direct monetary policy is now exercised by the 15 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. As of August 1, 2002, the euro was trading near highs against the U.S. dollar. 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 (including a single stock) 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. 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. The Funds may also invest in exchange-traded Eurodollar contracts, which are interest rate futures on the forward level of LIBOR. These contracts are generally considered liquid securities and trade on the Chicago Mercantile Exchange. Such Eurodollar contracts are generally used to "lock-in" or hedge the future level of short-term rates. 16 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 indices. 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. Indices 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 indices 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 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. 17 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 indices 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 portfolio, in anticipation of or during a market decline, through transactions in futures or put options on stock indices, 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 indices. 18 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 either themselves or with their Custodian 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 and Funding Agreements Guaranteed investment contracts, investment contracts or funding agreements are debt 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. 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 19 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." Linked Securities and Structured Products Linked securities, such as index-linked, equity-linked, credit-linked, commodity-linked and currency-linked securities, are types of derivative securities. See generally "Descriptions of Permissible Investments--Derivatives." Index-linked, equity-linked, credit-linked and commodity-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 linked security is a "structured" product. Structured products generally are individually negotiated agreements and may be traded over-the-counter. They are organized and operated to restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, or specified instruments (such as commercial bank loans) and the issuance by that entity or one or more classes of securities ("structured securities") backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create securities with different investment characteristics, such as varying maturities, payment priorities and interest rate provisions, and the extent of such payments made with respect to structured securities is dependent on the extent of the cash flow on the underlying instruments. Another 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." 20 With respect to structured products, because structured securities typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. Investments in structured securities are generally of a class that is either subordinated or unsubordinated to the right of payment of another class. Subordinated structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured securities are typically sold in private placement transactions, and there is currently no active trading market for these securities. See also, "Descriptions of Permissible Investments--Private Placement Securities and Other Restricted Securities." 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 redeemable for cash from the unit investment trust. The price of a SPDR is derived from 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, funding agreements, repurchase agreements, U.S. Government obligations, certain corporate debt securities, such as commercial paper and master notes (which are generally understood to be unsecured obligations of a firm (often private and/or unrated), privately negotiated by borrower and lender, that contemplates a series of recurring loans and repayments, governed in each case by the terms of the one master note). 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. 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 and Funding Agreements," "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 private, shareholder-owned company that purchases both government-backed and conventional mortgages from lenders and securitizes them. Its objective is to increase the affordability of home mortgage funds for low- and middle-income home buyers. FNMA is a congressionally chartered, company, although neither its stock nor the securities it issues are insured or guaranteed by the federal government. For example, the pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest only by FNMA. FHLMC is a publicly chartered agency 21 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 U.S. 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 interest and ultimately collection of principal 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 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 22 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 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. 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 23 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 participation's 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. Participation's in such loans, however, may not have such a demand provision and may not be otherwise marketable. 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 California, Florida, Georgia, Kansas, Maryland, New York, 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 California, Florida, Georgia, Kansas, Maryland, New York, 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 24 enacted, might materially and adversely affect the availability of municipal securities generally, or California, 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 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. 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 25 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 Board believes 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 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 26 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 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. Auction preferred stock ("APS") is a type of adjustable-rate preferred stock whose dividend is determined every seven weeks in a dutch auction process by corporate bidders. Shares are typically bought and sold at face values ranging from $100,000 to $500,000 per share. Auction preferred stock is sometimes known by the proprietary name given by the relevant broker, e.g., Merril Lynch's AMPS (auction market preferred stock), Salomon Smith Barney's DARTS or First Boston's STARS. Benefits of APS include: . reduced interest rate risk--Because these securities generally reset within a short period of time, the exposure to interest rate risk is somewhat mitigated. . preservation of principal--The frequency of the dividend reset provisions makes APS an attractive cash management instrument. The auction reset mechanism generally assures that the shares will trade at par on the auction date. For those that reset frequently the share price is not expected to fluctuate from par, however the reset rate will reflect factors such as market conditions, demand and supply for a particular credit confidence in the issuer. . credit quality--most corporate APS carry an investment grade credit rating from both Moody's and S&P, municipal APS typically carry the highest credit rating from both Moody's and S&P (Aaa/AAA). This is primarily because the issuers of municipal APS are required under the 1940 Act, to maintain at least 300% asset coverage for senior securities. . 70% dividend reduction--For corporate APS, qualified corporate buyers (except Subchapter S corporations) may deduct 70% of dividend received from federal income taxation under current regulations. However, in order to qualify for this deduction, the securities must be held a minimum of 46 days. Key Considerations and Risks: In addition to reinvestment risk if interest rates trend lower, some specific risks with regard to APS include: . failed auction--Such a breakdown of the auction process is unlikely; however, in the event that the process fails, the rate is reset at the maximum applicable rate, which is usually described in the prospectus and is typically influenced by the issuer's credit rating. In a failed auction, current shareholders are generally unable to sell some, or all, of the shares when the auction is completed. Typically, the liquidity for APS that have experienced a failed auction becomes very limited. If a failed auction were to occur, the shareholder may hold his or her shares until the next auction. Should there not be subsequent auctions that `unfail' the process, the shareholder may: 1) hold the APS in anticipation of a refinancing by the issuer that would cause the APS to be called, or 2) hold securities either indefinitely or in anticipation of the development of a secondary market. . early call risk--Although unlikely, the preferred shares are redeemable at any time, at the issuers option, at par plus accrued dividends. . loss of 70% dividend received deduction (DRD)--If a qualified corporation liquidates a position of APS in the secondary market prior to the 46-day holding period, the eligibility for DRD would be lost. 27 Also 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 may be 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 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. 28 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 skills 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. Mortgage 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 segregated account on its own books, or with its Custodian, in which it will maintain cash, U.S. Government securities or other liquid assets 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 29 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. A Fund will sometimes make short sales of securities when the Fund owns an equal amount of such securities as those securities sold short. This is a technique known as selling short "against the box." 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 not be closed out. There can be no assurance that the Fund will not incur significant losses in such a case. Selling securities short "against the box" entails many of the same risks and considerations described above. However, when a Fund sells short "against the box" it typically limits the amount of securities that the Fund has leveraged. 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 30 are re-sold separately, usually as zero-coupon bonds. Because stripped securities are typically products of brokerage houses and the U.S. Government, there 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 the Trust'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, equity, 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. 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 31 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 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 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 32 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, or the Fund itself, will segregate liquid assets equal to the amount of the 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, or the Fund itself, 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 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 33 payments until then. See "Descriptions of Permissible Investments--Stripped Securities." 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. 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. 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 Asset Allocation Fund, Value Fund, Marsico 21st Century Fund, LifeGoal Balanced Growth Portfolio, and Managed Index Fund were higher this year due to the prolonged market correction, generally volatile economy and changing market environment, which forced the Adviser to reposition Fund holdings. The portfolio turnover rates for the Bond Fund, Short-Intermediate Government Fund, Government Securities Fund and Strategic Income Fund were reflected as higher this year than in years past due to the fact that dollar roll transactions are now considered by those Funds as "positions held" rather than financing transactions. In addition, the fact that the Bond Fund and Strategic Income Fund now invest a portion of their assets in the High Yield Portfolio and 34 International Bond Portfolio (as described in the Funds' prospectuses) has resulted in the Adviser having to reposition Fund holdings. The portfolio turnover rates for the Marsico International Opportunities Fund and Emerging Markets Fund were higher this year than in years past due to increased volatility across markets both in terms of country and sector performance. Concentrating in the Financial Services Industry The Financial Services Fund concentrates its investments 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-Bliley 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 TRUST The business and affairs of the Trust are managed under the direction of the Board. The Board is generally responsible for the overall management and supervision of the business and affairs of the Trust and the Funds, which includes formulating policies for the Funds, approving major service provider contracts (including investment advisory agreements) and authorizing Trust officers to carry out the actions of the Board. A majority of the Trustees are not affiliated with the Adviser or otherwise "interested persons" as defined in the 1940 Act; these Trustees are referred to as Independent Trustees. Although all Trustees are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Trust, the Independent Trustees have particular responsibilities for assuring that the Trust is managed in the best interests of its shareholders, including being charged with certain specific legally mandated duties. The Board, including certain of its 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 Board reviews, 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 Trustees and Principal Officers The following table provides basic information about the Trustees and Officers of the Trust. Each Trustee and Officer serves an indefinite term, with the Trustees subject to retirement from service as required pursuant to the Trust's retirement policy at the end of the calendar year in which a Trustee turns 72, provided that any Trustee who was a trustee or director of any of the other Companies in the Nations Funds Family as of February 22, 2001, and who reached the age of 72 no later than the end of that calendar year may continue to serve as a Trustee of the Trust until the end of the calendar year in which such Trustee reaches age 75 and may continue to serve for successive annual periods thereafter upon the vote of a majority of the other Trustees. In the table below and throughout this section, information for Trustees who are not "interested" persons of the Trust, as that term is defined under the 1940 Act ("Independent Trustees"), appears separately from the information for the Interested Trustees. 35
Number of Term of Funds in Office and Fund Length of Principal Complex Position Held Time Served Occupation(s) Overseen by Other Directorships Held Name, Age and Address with the Trust During the Past Trustee by Trustee Five Years INDEPENDENT TRUSTEES William P. Carmichael Trustee Indefinite Senior Managing 81 Director, Cobra Age: 58 term; Director of The Electronics Corporation c/o Nations Funds Trustee Succession Fund (a (electronic equipment One Bank of America Plaza since 1999 company formed to manufacturer), Opta Food Charlotte, NC 28255 advise and buy Ingredients, Inc. (food family owned ingredients manufacturer) companies) from and Golden Rule Insurance 1998 through April Company since May, 1994; 2001. Trustee, Nations Funds Family (2 other registered investment companies) William H. Grigg Trustee Indefinite Retired; Chairman 85 Director, The Shaw Group, Age: 69 term; Emeritus since July Inc.; and Director and c/o Nations funds Trustee 1997, Chairman and Vice Chairman, Aegis One Bank of America Plaza since 1999 Chief Executive Insurance Services, Ltd. Charlotte, NC 28255 Officer through (a mutual fund insurance July 1997 - Duke company in Bermuda); Board Power Co. member, Nations Funds Family (6 other registered investment companies) Thomas F. Keller Trustee Indefinite R.J. Reynolds 81 Director, Wendy's Age: 70 term; Industries International, Inc. c/o Nations Funds Trustee Professor of (restaurant operating and One Bank of America Plaza since 1999 Business franchising); Director, Charlotte, NC 28255 Administration, Dimon, Inc. (tobacco); and Fuqua School of Director, Biogen, Inc. Business, Duke (pharmaceutical University, since biotechnology); Board July 1974; Dean, member, Nations Funds Fuqua School of Family (6 other registered Business Europe, investment companies) Duke University, July 1999 through June 2001 Carl E. Mundy, Jr. Trustee Indefinite President and Chief 81 Director - Shering-Plough Age: 66 term; Executive Officer - (pharmaceuticals and c/o Nations Funds Trustee USO from May 1996 health care products); One Bank of America Plaza since 1999 to May 2000; General Dynamics Charlotte, NC 28255 Commandant - United Corporation (defense States Marine Corps systems); Trustee, Nations from July 1991 to Funds Family (2 other July 1995; Member, registered investment Board of Advisors companies) to the Comptroller General of the United States; Chairman, Board of Trustees, Marine Corps University Foundation; Dr. Cornelius J. Pings Trustee Indefinite Retired; President, 81 Director, Farmers Group, Age: 73 term; Association of Inc. (insurance company); c/o Nations Funds Trustee American Trustee, Nations Funds One Bank of America Plaza since 1999 Universities Family (2 other registered Charlotte, NC 28255 through June 1998; investment companies) Charles B. Walker Trustee Indefinite Vice Chairman and 81 Director - Ethyl Age: 63 term; Chief Financial Corporation (chemical c/o Nations Funds Trustee Officer - Albemarle manufacturing); Trustee, One Bank of America Plaza since 1999 Corporation Nations Funds Family (2 Charlotte, NC 28255 (chemical other registered manufacturing) investment companies)
36
Number of Term of Funds in Office and Fund Length of Principal Complex Position Held Time Served Occupation(s) Overseen by Other Directorships Held Name, Age and Address with the Trust During the Past Trustee by Trustee Five Years INTERESTED TRUSTEES/(1)/ Edmund L. Benson, III Trustee Indefinite Director, President 81 Director, Insurance Age: 65 term; and Treasurer, Managers Inc. (insurance); c/o Nations Funds Trustee Saunders & Benson, Director, Insurance One Bank of America Plaza since 1999 Inc. (insurance) Managers, Inc. Charlotte, NC 28255 (insurance); Trustee, Nations Funds Family (2 other registered investment companies) James B. Sommers Trustee Indefinite Retired 81 Chairman - Central Age: 63 term; Piedmont Community c/o Nations Funds Trustee Director, College One Bank of America Plaza since 1999 Foundation; Board of Charlotte, NC 28255 Commissioners, Charlotte/Mecklenberg Hospital Authority; Trustee, Central Piedmont Community College, Mint Museum of Art; Trustee, Nations Funds Family (2 other registered investment companies) A. Max Walker President, Indefinite Independent 85 Chairman and Board member, Age: 80 Trustee and term; Financial Consultant Nations Funds Family (6 c/o Nations Funds Chairman of Trustee other registered One Bank of America Plaza the Board since 1999 investment companies) Charlotte, NC 28255 Thomas S. Word, Jr. Trustee Indefinite Partner - McGuire, 81 Director - Vaughan-Bassett Age: 63 term; Woods, Battle & Furniture Company, Inc. c/o Nations Funds Trustee Boothe LLP (law (furniture); Trustee, One Bank of America Plaza since 1999 firm) Nations Funds Family (2 Charlotte, NC 28255 other registered investment companies) OFFICERS Richard H. Blank, Jr. Secretary and n/a Senior Vice n/a none Age: 44 Treasurer President since Stephens Inc. 1998, and Vice 111 Center Street President from 1994 Little Rock, AR 72201 to 1998 -- Mutual Fund Services, Stephens Inc.; Secretary since September 1993 and Treasurer since November 1998 - Nations Funds Family (6 other registered investment companies)
________________ /(1)/ Basis of Interestedness. Mr. Benson's step-son is an employee of Bank of America, the parent of BA Advisors. Mr. Sommers own securities of Bank of America Corporation, the parent holding company of BA Advisors. Mr. Word is affiliated with a law firm which provides services to Bank of America and certain of its affiliates. Mr. A. Max Walker is an Interested Trustee by virtue of the fact that he also serves as President of the Trust. Board Committees The Trust has an Audit Committee, Governance Committee and Investment Committee. 37 The primary responsibilities of the Audit Committee are, as set forth in its charter, to make recommendations to the Board as to: the engagement or discharge of the 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 the 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 the Governance Committee are, as set forth in its charter, to make recommendations to the Board on issues related to the Independent Trustees and the composition and operation of the Board, and communicate with management on those issues. The Governance Committee also evaluates and nominates Trustee candidates. The members of the Governance Committees are: William H. Grigg (Chair), William P. Carmichael and Carl E. Mundy, Jr. The Governance Committee members are not "interested" persons (as defined in the 1940 Act). The Governance Committee generally does not consider unsolicited nominations to the Board. The primary responsibilities of the Investment Committee are, as set forth in its charter, to assist the Board in carrying out its oversight responsibilities in specific areas of investment management, both by acting as liaison between the full Board and the Adviser on investment matters, and by acting on behalf of the Board, on an interim basis, on investment issues in non-recurring or extraordinary circumstances when it is impractical to convene a meeting of the full Board. In carrying out these general responsibilities, the Investment Committee assists the Board 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 Committee by the full Board. The Committee reports their activities to the full Board on a regular basis and are responsible for making such recommendations with respect to the matters described above and other matters as the Committee may deem necessary or appropriate. The members of the Investment Committees are: William P. Carmichael (Chair), Edmund L. Benson, James B. Sommers and Thomas S. Word, Jr. Board Compensation Trustees 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, as follows: ----------------------------------------------------------------------------- Trustee Annual Retainer: $71,000 Board Chairman: Additional 25% of the base annual retainer. Terms: Payable in quarterly installments. Payable pro rata for partial calendar year service. Allocated across multiple registrants. Meeting Fees: $6,000 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 base retainer and all meeting fees as Trustee. 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. 38 - -------------------------------------------------------------------------------- Governance Committee Member Chairman: Additional 10% of the combined retainer and all meeting fees as Trustee. 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. - -------------------------------------------------------------------------------- Investment Committee Member Chairman: Additional 10% of the combined retainer and all meeting fees as Trustee. 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. 39 Compensation Table for the Fiscal Year Ended March 31, 2002
Pension or Estimated Total Compensation Aggregate Retirement Benefits Annual from the Nations Funds Compensation Accrued as Part of Benefits Upon Funds Complex Paid Name of Trustee from the Trust/(1)/ Fund Expenses Retirement to Directors/(2)(3)/ ------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------ William P. Carmichael $12,459 $ 47,734 $ 9,547 $ 38,032 ------------------------------------------------------------------------------------------------------------------ William H. Grigg 13,436 137,141 43,028 120,950 ------------------------------------------------------------------------------------------------------------------ Thomas F. Keller 13,436 130,353 42,271 120,950 ------------------------------------------------------------------------------------------------------------------ Carl E. Mundy 12,214 98,347 23,469 94,500 ------------------------------------------------------------------------------------------------------------------ Cornelius J. Pings 12,214 38,427 7,685 94,500 ------------------------------------------------------------------------------------------------------------------ Charles B. Walker 12,214 185,105 37,021 94,500 ------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------ Edmund L. Benson, III $12,214 $186,573 $37,315 94,500 ------------------------------------------------------------------------------------------------------------------ James B. Sommers 12,332 72,459 14,492 95,500 ------------------------------------------------------------------------------------------------------------------ A. Max Walker 15,268 120,169 48,034 139,125 ------------------------------------------------------------------------------------------------------------------ Thomas S. Word, Jr. 12,332 189,172 37,834 95,500
________________________ /(1)/ All Trustees receive reasonable reimbursements for expenses related to their attendance at meetings of the Board. Except to the extent that A. Max Walker, as Chairman of the Board, can be deemed to be an officer of the Trust, no officer of the Trust receives direct remuneration from the Trust for serving in such capacities. The dollar amount reflected in this column includes only those Funds that were "housed" in the Trust through March 31, 2002. On May 10, 2002 and May 17, 2002, all of the funds of NFT, NFI and NR (other registered investment companies in the Nations Funds Family) were reorganized into the Trust. Accordingly, compensation received by Trustees for supervising those funds housed in NFT, NFI and NR are not reflected in this column. /(2)/ Messrs. Grigg, Keller and A.M. Walker currently receive compensation from 7 investment companies that are deemed to be part of the Nations Funds "fund complex," as that term is defined under Item 13 of Form N-1A. Messrs. Benson, Carmichael, C. Walker, Sommers, Mundy and Word currently receive compensation from 3 investment companies deemed to be part of the Nations Funds complex. However, the dollar amount reflected in this column includes the additional compensation received from NFT, NFI and NR because during the fiscal year ended March 31, 2002, funds in the Nations Funds Family were still housed in those registered investment companies. /(3)/ Total compensation amounts include deferred compensation payable to or accrued for the following Trustees: Edmund L. Benson, III $45,596; William P. Carmichael $9,756; William H. Grigg $74,028; Thomas F. Keller $100,314; James B. Sommers $2,390; and Thomas S. Word, Jr. $92,157. Retirement Plan On November 29, 2001, the Board approved the termination of the Nations Funds Retirement Plan effective January 1, 2002. The eligible Trustees had the option of a rollover into the Nations Funds Deferred Compensation Plan on January 1, 2002 or to take a lump sum distribution, including interest, on January 1, 2003. The estimated annual benefits upon retirement stated above reflect the five year payout period, but will be paid out in a lump sum as the options state above. Under the terms of the Nations Funds Retirement Plan, which although now terminated was in effect through December 31, 2001, each eligible Trustee may be entitled to certain benefits upon retirement from the board of one or more of the Funds in the Nations Funds Fund Complex. Pursuant to the Retirement Plan, the normal retirement date is the date on which an eligible director has attained age 65 and has completed at least five years of continuous service with one or more of the Funds. If a director retires before reaching age 65, no benefits are payable. Each eligible director is entitled to receive an annual benefit from the Funds equal to 5% of the aggregate directors' fees payable by the Funds during the calendar year in which such director'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 director in quarterly installments for a period of no more than five years. If an eligible director dies after attaining age 65, such director'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 director if he had not died. The Retirement Plan is unfunded. The benefits owed to each director are unsecured and subject to the general creditors of the Funds. 40 Nations Funds Deferred Compensation Plan Under the terms of the Nations Funds Deferred Compensation Plan for Eligible Trustees (the "Deferred Compensation Plan"), each Trustee 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 Trustee for that calendar year. An application was submitted to and approved by the SEC to permit deferring Trustees 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 Trustees' deferral accounts will be paid in cash, in generally equal quarterly installments over a period of five years beginning on the first day of the first calendar quarter following the later of the quarter in which the Trustee attains age 65 or the quarter in which the Trustee terminates service as Trustee of the Funds. The Board, in its sole discretion, may accelerate or extend such payments after a Trustee's termination of service. If a deferring Trustee 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 Trustee's death. If a deferring Trustee 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 Trustee. Amounts payable under the Deferred Compensation Plan are not funded or secured in any way and deferring Trustees have the status of unsecured creditors of the Trust. Beneficial Equity Ownership Information As of the date of this SAI, Trustees and officers of the Trust, as a group, beneficially owned less than 1% of the outstanding shares of the Trust. The table below shows for each Trustee, the amount of Fund equity securities beneficially owned by the Trustee and the aggregate value of all investments in equity securities of the Fund Complex, stated as one of the following ranges: A = $0; B = $1-$10,000; C = $10,001-$50,000; D = $50,001-$100,000; and E = over $100,000. Beneficial Equity Ownership in Nations Funds Family Calendar Year Ended December 31, 2001
Aggregate Dollar Range of Equity Trustee Dollar Range of Equity Securities of a Fund Securities of Nations Funds Family - ------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------ William P. Carmichael MidCap Growth Fund - E E Small Company Growth Fund - E International Value Fund - D All Other Funds - A - ------------------------------------------------------------------------------------------------------------ William H. Grigg SmallCap Index Fund - D E Value Fund - C Intermediate Bond Fund - E International Value Fund - D Classic Value Fund - E MidCap Index Fund - D All Other Funds - A - ------------------------------------------------------------------------------------------------------------ Thomas F. Keller Managed Index Fund - E E North Carolina Int. Bond Fund - E Short-Intermediate Gov't Fund - E SmallCap Index Fund - E International Value Fund - E Classic Value Fund - E High Yield Bond Fund - E Marsico Focused Equities Fund - C Marsico 21/st/ Century Fund - B MidCap Index Fund - E All Other Funds - A
41 - ------------------------------------------------------------------------------------------------------------ Carl E. Mundy Short-Term Income Fund - C E Value Fund - C Convertible Securities Fund - C Classic Value Fund - C Global Value Fund - C High Yield Bond Fund - C LargeCap Value Fund - C Marsico Focused Equities Fund - D MidCap Value Fund - C All Other Funds - A - ------------------------------------------------------------------------------------------------------------ Cornelius J. Pings Intermediate Municipal Bond Fund - E E Municipal Income Fund - E Short-Term Muni. Income Fund - E Small Company Fund - B Strategic Growth Fund - E California Tax-Exempt Reserves - D Cash Reserves - C Convertible Securities Fund - C International Equity Fund - C All Other Funds - A - ------------------------------------------------------------------------------------------------------------ Charles B. Walker All Funds - A A - ------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES - ------------------------------------------------------------------------------------------------------------ Edmund L. Benson, III Managed Index Fund - C E All Other Funds - A - ------------------------------------------------------------------------------------------------------------ James B. Sommers Bond Fund - E E Strategic Income Fund - E Tax Exempt Reserves - E Cash Reserves - D Municipal Reserves - A All Other Funds - A - ------------------------------------------------------------------------------------------------------------ A. Max Walker Classic Value Fund - D E Global Value Fund - E High Yield Bond Fund - C LargeCap Value Fund - C Marsico Focused Equities Fund - E MidCap Value Fund - C All Other Funds - A - ------------------------------------------------------------------------------------------------------------ Thomas S. Word, Jr. Short-Term Income Fund - E E Cash Reserves - D Convertible Securities Fund - D International Value Fund - D Marsico 21/st/ Century Fund - D All Other Funds - A
Ownership of Securities of Adviser, Distributor, or Related Entities None of the Independent Trustees and/or their immediate family members own securities of the adviser, the distributor, or any entity controlling, controlled by, or under common control with the adviser or the distributor. Disclosure of Other Transactions Involving Trustees Mr. Grigg has an individual retirement account and two revocable trust brokerage accounts maintained at Bank of America and for which Bank of America serves as trustee. Mr. Grigg also maintains a brokerage account at Bank of America with a value of approximately $600,000. Mr. Keller has opened a line of credit with Bank of America, the maximum amount under which is $100,000. Mr. Keller also maintains a brokerage account at Bank of America with at value of approximately $50,000. 42 Mr. Word maintains an individual retirement account, managed on a discretionary basis, by Bank of America valued in excess of $300,000. Approval of Advisory and Sub-Advisory Agreements Under Section 15(c) of the Investment Company Act of 1940, the Board is generally required to approve annually the Advisory Agreements for the Funds. At each quarterly meeting the Board reviews the performance information and nature of services provided by the Advisers. At least annually, the Board is provided with quantitative and qualitative information to assist the Board in evaluating whether to approve the continuance of the Advisory Agreements. This information includes comparative fee information, profitability information, performance data, a description of the investment philosophy, experience and senior management of the Advisers, a description of the quality of services provided by the Advisers, as well as information about the financial condition of the Advisers. Before approving an Advisory Agreement with an Adviser, the Board reviewed a detailed profitability analysis of the Adviser based on the fees payable under the Advisory Agreement, including any fee waivers or fee caps, as well as any other relationships between the Funds and the Adviser and affiliates. The Board analyzed each Fund's contractual fees, including investment advisory and sub-advisory fees, administration fees, shareholder servicing fees and Rule 12b-1/distribution fees. The Board reviewed statistical information regarding the performance and expenses of the Funds and was provided with a detailed description of the methodology used to prepare this information. In addition to the performance information for each Fund, the Board reviewed the performance information for a group of funds that was similar to the specific Fund ("Peer Group"), the relevant Lipper category of funds ("Lipper Group"), and an appropriate broad-based market index. The Board also reviewed data relating to the risk of each Fund as compared to its total return. This data showed the statistical measurement of the volatility of each Fund's total return throughout a specific time-period. The Board also reviewed, for each Fund as compared to its Peer Group and Lipper Group, the: (i) combined contractual advisory and administration fees; (ii) net expense ratios; (iii) maximum contractual advisory fees permitted under the Advisory Agreement (excluding fee waivers and/or expense reimbursements); and (iv) projected contractual advisory fees showing the impact of breakpoints, if any, on contractual advisory fees. During its review, the Board considered the advisory fees paid by the Funds as well as the total fees paid to the Adviser for advisory and other services it provides to the Funds. The Board also reviewed information pertaining to the fee structure for each Fund and considered whether alternative fee structures (i.e. breakpoint fee structures, performance-based fees, fee waivers or fee caps) would be more appropriate or reasonable taking into consideration any economies of scale or other efficiencies that accrue from increases in a Fund's asset levels. The Board received and reviewed copies of each Adviser's latest Form ADV. In addition, the Board analyzed each Adviser's background and services that it provides to the Funds. Among other things, the Board reviewed and discussed the investment philosophy and experience of each Adviser. The Board discussed the fact that BA Advisors has established an investment program for each Fund and supervised and evaluated the various sub-adviser(s) who make the day-to-day investment decisions for the Funds. The Board recognized that BA Advisors has expertise in hiring and overseeing the activities of the sub-advisers in the various asset classes and the ability to oversee multiple sub-advisers many of whom have different investment philosophies and styles. The Board also recognized that the primary investment adviser's oversight responsibilities include the monitoring of Fund compliance with federal securities laws and regulations. The Board reviewed the Advisers compliance procedures including the Advisers' internal compliance policies relating to the respective Codes of Ethics and the Advisers' policies on personal trading, internal compliance procedures relating to the Funds' portfolio investments and operations, the process for monitoring and evaluating work performed by third parties, compliance by the distributor on behalf of the Funds with SEC and other regulatory requirements, maintenance of books and records of the Portfolios and recordkeeping systems of the Advisers, and other activities and clients of the Advisers. The Board also received and reviewed information on all SEC and other regulatory inquiries or audits of the Advisers, and a summary of communications from Portfolio shareholders received by the Advisers, the Funds or the Funds' transfer agent since the last approval of the Advisory Agreements. The Board also considered the background and 43 experience of the senior management of each Adviser and the level of attention given to the Funds by senior investment personnel of each Adviser. In addition to the above considerations, the Board also analyzed certain factors relating specifically to sub-advisers. For example, the Board considered each sub-adviser's investment strategies, research capabilities, means for executing portfolio transactions and scope of investment services. The Board analyzed the degree to which each sub-adviser who oversees several funds can manage across asset classes and whether its investment disciplines are driven by proprietary research. The Board reviewed the qualifications, backgrounds and responsibilities of the staff performing investment services for the Funds. The Board also reviewed the sub-adviser's procedures for selecting brokers to execute portfolio transactions for the Funds. More specifically, the Board reviewed the method by which each sub-adviser selects brokers and the factors that the sub-adviser considers prior to selecting a broker to execute portfolio transactions. One such factor was the sub-adviser's consideration of obtaining research services or other soft dollar arrangements through the allocation of Fund brokerage. The Board also considered the standards and performance in seeking best execution, whether and to what extent soft dollar credits are sought and how any such credits are utilized, the benefits from using an affiliated broker, the extent to which efforts are made to recapture transaction costs, and the existence of quality controls applicable to the Funds' portfolios. The Board reviewed the sub-adviser's method for allocating portfolio opportunities among the Funds and other advisory clients. Finally, in evaluating the Advisers, the Board recognized that the Advisers have the size, visibility and resources to attract and retain highly qualified investment professionals, including research, advisory, or marketing personnel. Similarly, the Board reviewed each entity's ability to provide a competitive compensation package, including incentive and retirement plans, to its employees such that each entity would be able to attract and retain high-quality employees. In addition, the Board reviewed recent and anticipated hirings and departures of personnel, the Advisers' policies relating to assignment of personnel devoted to the Funds, and the general nature of the compensation structure applicable to portfolio managers and key personnel. Based on the above analysis, the Board determined that the Advisory Agreements, including the fee levels, were fair and reasonable in light of all relevant circumstances. This determination, was based on the following factors more fully discussed above: (i) level of profits realized by the primary investment adviser from its advisory arrangement with the Funds; (ii) an analysis of advisory fees paid by the Funds compared to other similar funds; (iii) the scope of each Adviser's background and experience; (iv) and the quality of services provided by each of the Advisers. Codes of Ethics The Trust, 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 Board must review each Code of Ethics at least annually. The Codes of Ethics, among other things, prohibit each access person 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 the Trust, (ii) any employee of the Trust (or any company in a control relationship with the Trust) 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 the Trust, and (iii) any natural person in a control relationship with the Trust who obtains information concerning recommendations made to the Trust regarding the purchase or sale of securities. Fund managers and other persons who assist in the investment process are subject to additional restrictions, including a requirement that they disgorge to the Trust 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 access persons, other than Independent Trustees, submit reports to the Trust's designated compliance person regarding transactions involving securities which are eligible for purchase by a Fund. The Codes of Ethics for the Trust, Advisers and Stephens are on public file with, and are available from, the SEC. 44 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of July 5, 2002, 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 it is deemed to beneficially own greater than 25% of the outstanding shares by virtue of its fiduciary or trust roles. As of July 2, 2002, the Trustees and Officers of the Trust as a group owned less than 1% of each class of shares of each Fund. As of July 5, 2002, 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 the Trust to own beneficially 5% or more of any class of a Fund's outstanding shares) are shown in Appendix D to this SAI. 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 (whose investment advisory services are provided at the Master Portfolio level). 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), except as described below. Marsico Capital is investment sub-adviser to the Marsico 21st Century Master Portfolio, Marsico Focused Equities Master Portfolio, Marsico Growth Master Portfolio and Marsico International Opportunities Master Portfolio. It is also co-investment sub-adviser to International Equity 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 a wholly-owned subsidiary of Bank of America. 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 $275 billion, including more than $148 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 make 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 Classic Value Fund, Global Value Fund and 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. 45 MacKay Shields is the investment sub-adviser to the Nations High Yield Bond Master Portfolio. MacKay Shields is located at 9 West 57th Street, New York, NY 10019. Gartmore is the investment sub-adviser to the Emerging Markets Fund. 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 1360 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. INVESCO's International Equity Portfolio Management Team is responsible for the day-to-day investment decisions for INVESCO's managed portion of the assets of the International Equity Master Portfolio. 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 Group 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 Trust's Investment Advisory Agreement, BA Advisors, as investment adviser to the Funds, is responsible for the overall management and supervision of the investment management of each Fund. Pursuant to the terms of the Trust's respective Investment Sub-Advisory Agreements, BACAP, Gartmore, 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 Board and in conformity with the stated policies of each Fund. The Investment Advisory Agreement 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 the Trust or to any shareholder of the Trust for any act or omission in the course of rendering services 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 approval 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 the Trust's Board, including its Independent Trustees. 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 the Trust (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. 46 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, 2002, to July 31, 2003 Funds Advisory Co-Administration 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. Nations Funds Expense Commitments Established at Overall Fund Level Period from August 1, 2002, to July 31, 2003
Fund Level Expense Commitment* ----------------------------- Intermediate Municipal Fund** 0.50% Municipal Income Fund** 0.60% Short Term Municipal Fund ** 0.40% Florida Intermediate Bond Fund** 0.50% Georgia Intermediate Bond Fund** 0.50% Maryland Intermediate Bond Fund** 0.50% North Carolina Intermediate Bond Fund** 0.50% South Carolina Intermediate Bond Fund** 0.50% Tennessee Intermediate Bond Fund** 0.50% Texas Intermediate Bond Fund** 0.50% Virginia Intermediate Bond Fund** 0.50% California Municipal Bond Fund** 0.60% California Intermediate Bond Fund** 0.50% Florida Municipal Bond Fund** 0.60% Kansas Municipal Income 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% LargeCap Value Fund** 1.07% MidCap Value Fund** 1.25% Research Fund** 1.25% SmallCap Value Fund** 1.30% Small Company Fund** 1.15% Global Value Fund** 1.40% Marsico International Opportunities Fund 1.50%
* Waivers of BA Advisors advisory and/or co-administration fees and/or other expense reimbursements will result in the listed fund level expense commitments (excluding 12b-1 distribution/shareholder servicing/shareholder administration fees). ** BA Advisors is entitled to recover from the fund any fees waived and/or expenses reimbursed for a three year period following the date of such fee waiver and/or reimbursement if such recovery does not cause the Fund's total operating expenses to exceed the expense commitment in effect at the time of recovery. 47 Nations Funds Expense Commitments Established at Overall Fund Level Period from August 1, 2002, to July 31, 2003 Fund Level Expense Cap* ---------------------- California Tax-Exempt Reserves** 0.20% Cash Reserves** 0.20% Government Reserves** 0.20% Money Market Reserves** 0.20% Municipal Reserves** 0.20% New York Tax-Exempt Reserves** 0.20% Tax-Exempt Reserves** 0.20% Treasury Reserves** 0.20% * Waivers of BA Advisors advisory and/or co-administration fees and/or other expense reimbursements will result in the listed Fund level expense commitments (excluding 12b-1 distribution/shareholder servicing/shareholder administration fees). ** BA Advisors is entitled to recover from the fund any fees waived and/or expenses reimbursed for a three year period following the date of such fee waiver and/or reimbursement if such recovery does not cause the Fund's total operating expenses to exceed the expense commitment in effect at the time of recovery. Nations Funds Contractual Shareholder Administration Fee Waivers Period from August 1, 2002, to July 31, 2003
Shareholder Administration Waivers* ---------------------------------- Managed Index Fund (Primary B Shares) 0.10% Short-Intermediate Government Fund (Primary B Shares) 0.10% LifeGoal Balanced Growth Fund (Primary B Shares) 0.10% LifeGoal Growth Fund (Primary B Shares) 0.10% LifeGoal Income and Growth Fund (Primary B Shares) 0.10%
* The Shareholder Administration fees listed are being waived by BA Advisors. Nations Funds Contractual 12B-1 Distribution Fee Waivers Period from August 1, 2002, to July 31, 2003
Money Market Funds (Liquidity Class Shares) 12b-1 Distribution Fee Waivers* - ------------------------------------------- ------------------------------ California Tax-Exempt Reserves 0.60% Cash Reserves 0.60% Government Reserves 0.60% Money Market Reserves 0.60% Municipal Reserves 0.60% New-York Reserves 0.60% Tax-Exempt Reserves 0.60% Treasury Reserves 0.65% Money Market Funds (Liquidity Class Shares) Shareholder Servicing Fee Waivers* - ------------------------------------------- --------------------------------- California Tax-Exempt Reserves 0.10% Cash Reserves 0.10% Government Reserves 0.10% Money Market Reserves 0.10% Municipal Reserves 0.10% New-York Reserves 0.10% Tax-Exempt Reserves 0.10% Treasury Reserves 0.10%
* The 12b-1 Distribution/Shareholder Servicing fees listed are being waived by Stephens. 48 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 (or their accounting predecessors) 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, 2002.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- International/Global Stock Funds Emerging Markets Fund 236,922 72,411 0 Global Value Fund* n/a n/a n/a International Equity Fund(a) 4,887,814 0 0 Marsico International Opportunities Fund(a) 57,209 0 0 International Value Fund(a) 22,143,000 856,698 0 Stock Funds Asset Allocation Fund 2,611,501 0 0 Capital Growth Fund 3,395,912 0 0 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 3,447,508 0 0 Financial Services Fund 39,758 0 0 LargeCap Value Fund* n/a n/a n/a Marsico 21st Century Fund(a) 552,016 0 0 Marsico Focused Equities Fund(a) 13,056,375 0 0 Marsico Growth Fund(a) 3,755,395 0 0 MidCap Growth Fund 4,338,544 0 0 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 6,171,070 483,415 0 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund(a) 7,863,731 0 0 Value Fund 5,788,057 0 0 Index Funds LargeCap Index Fund 1,296,509 6,260,208 0 Managed Index Fund 504,448 805,940 0 MidCap Index Fund 457,811 1,373,438 0 SmallCap Index Fund 124,693 1,296,961 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 549,727 0 0 LifeGoal Growth Portfolio 260,630 0 0 LifeGoal Income and Growth Portfolio 83,928 0 0 Government & Corporate Bond Funds Bond Fund 9,605,604 8,090 0 Government Securities Fund 1,138,325 223,667 0 High Yield Bond Fund(a) 1,056,755 0 0 Intermediate Bond Fund(a) 719,176 0 0 Short-Intermediate Government Fund 1,655,393 0 0 Short-Term Income Fund 942,399 471,198 0 Strategic Income Fund 897,413 224,352 0 Municipal Bond Funds Intermediate Municipal Bond Fund 2,861,805 1,957,161 0 Municipal Income Fund 3,009,307 1,541,051 0 Short-Term Municipal Income Fund 257,463 585,027 0 State Municipal Bond Funds California Bond Fund 556,206 471,663 0 California Intermediate Bond Fund* n/a n/a n/a
49
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Florida Intermediate Bond Fund 447,727 504,103 0 Florida Bond Fund 356,176 349,405 0 Georgia Intermediate Bond Fund 240,768 368,907 0 Kansas Income Fund 228,903 304,118 0 Maryland Intermediate Bond Fund 354,636 448,899 0 North Carolina Intermediate Bond Fund 353,650 443,297 0 South Carolina Intermediate Bond Fund 466,600 510,455 0 Tennessee Intermediate Bond Fund 0 202,147 6,553 Texas Intermediate Bond Fund 572,871 566,524 0 Virginia Intermediate Bond Fund 606,971 600,975 0 Money Market Funds California Tax-Exempt Reserves 2,511,168 44,256 0 Cash Reserves 98,492,747 233,158 0 Government Reserves 7,351,685 359,294 0 Money Market Reserves 20,816,112 378,204 0 Municipal Reserves 2,728,445 338,336 0 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 4,722,722 866,126 0 Treasury Reserves 13,458,044 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. BA Advisors (or its predecessor) received fees from the Funds (or their accounting predecessors) 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 ----------- ------ ---------- International/Global Stock Funds Emerging Markets Fund $ 468,327 $ 8,175 0 Global Value Fund* n/a n/a n/a International Equity Fund(a) 7,605,647 0 0 Marsico International Opportunities Fund*(a) n/a n/a n/a International Value Fund(a) 10,415,621 1,301,950 0 Stock Funds Asset Allocation Fund 2,565,587 82,677 0 Capital Growth Fund 5,351,636 0 0 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 2,608,763 11,672 0 Financial Services Fund* n/a n/a n/a LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund(a)* n/a n/a n/a Marsico Focused Equities Fund(a) 17,179,527 0 0 Marsico Growth Fund(a) 4,704,076 0 0 MidCap Growth Fund 2,271,101 0 0 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 7,372,166 496,038 0 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund 8,005,892 0 0 Value Fund 8,461,521 0 0 Index Funds LargeCap Index Fund 1,785,004 8,419,477 0 Managed Index Fund 1,051,623 975,067 0 MidCap Index Fund 390,568 1,171,704 0 SmallCap Index Fund 45,344 851,334 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 442,504 0 0
50
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- LifeGoal Growth Portfolio 174,694 0 0 LifeGoal Income and Growth Portfolio 35,056 0 0 Government & Corporate Bond Funds Bond Fund 9,000,170 0 0 Government Securities Fund 894,401 210,434 0 High Yield Bond Fund(a) 207,035 0 0 Intermediate Bond Fund(a) 478,158 0 0 Short-Intermediate Government Fund 1,668,046 0 0 Short-Term Income Fund 764,098 382,049 0 Strategic Income Fund 940,869 257,368 0 Municipal Bond Funds Intermediate Municipal Bond Fund 2,639,691 1,761,372 0 Municipal Income Fund 2,734,689 1,395,598 0 Short-Term Municipal Income Fund 75,729 297,330 0 State Municipal Bond Funds California Bond Fund 556,565 370,790 0 California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 484,491 418,654 0 Florida Bond Fund 409,429 296,144 0 Georgia Municipal Intermediate Bond Fund 270,055 295,541 0 Kansas Income Fund* n/a n/a n/a Maryland Intermediate Bond Fund 404,437 385,463 0 North Carolina Intermediate Bond Fund 397,341 375,029 0 South Carolina Intermediate Bond Fund 505,560 435,423 0 Tennessee Intermediate Bond Fund 36,773 154,136 0 Texas Intermediate Bond Fund 675,275 532,923 0 Virginia Intermediate Bond Fund 659,389 530,703 0 Money Market Funds California Tax-Exempt Reserves 2,536,411 0 0 Cash Reserves 64,535,411 1,952,428 0 Government Reserves 3,404,245 295,529 0 Money Market Reserves 11,937,174 433,874 0 Municipal Reserves 2,148,980 168,322 0 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 4,559,708 460,917 0 Treasury Reserves 11,368,588 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year or commenced operations. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. BA Advisors (or its predecessor) received fees from the Funds (or their accounting predecessors) 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 ----------- ------ ---------- International/Global Stock Funds Emerging Markets Fund 132,817 222,899 0 Global Value Fund* n/a n/a n/a International Equity Fund(a) 3,330,623 35,663 0 Marsico International Opportunities Fund(a)* n/a n/a n/a International Value Fund(a) 1,160,122 142,388 0 Stock Funds Asset Allocation Fund 1,920,669 246,996 0 Capital Growth Fund 5,725,787 0 0 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 2,002,135 0 0 Financial Services Fund* n/a n/a n/a
51
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund(a)* n/a n/a n/a Marsico Focused Equities Fund(a) 3,616,135 0 0 Marsico Growth Fund(a) 1,027,192 0 0 MidCap Growth Fund* n/a n/a n/a MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 4,886,606 554,663 0 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund 3,061,314 0 0 Value Fund 13,096,565 37,291 0 Index Funds LargeCap Index Fund 578,210 3,748,074 0 Managed Index Fund 1,382,193 1,559,621 0 MidCap Index Fund 1,731,609 0 0 SmallCap Index Fund 302,157 537,268 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 63,702 0 0 LifeGoal Growth Portfolio 50,433 0 0 LifeGoal Income and Growth Portfolio 29,068 0 0 Government & Corporate Bond Funds Bond Fund 7,426,720 217,923 0 Government Securities Fund 824,307 225,795 0 High Yield Bond Fund(a)* n/a n/a n/a Intermediate Bond Fund(a)* n/a n/a n/a Short-Intermediate Government Fund 1,919,241 113,613 0 Short-Term Income Fund 893,075 525,771 0 Strategic Income Fund 837,734 455,939 0 Municipal Bond Funds Intermediate Municipal Bond Fund 2,041,136 1,632,783 0 Municipal Income Fund 2,009,025 1,263,949 0 Short-Term Municipal Income Fund 0 384,493 26,406 State Municipal Bond Funds California Bond Fund n/a n/a n/a California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 499,122 527,742 0 Florida Bond Fund 396,783 362,065 0 Georgia Intermediate Bond Fund 228,313 392,163 0 Kansas Income Fund* n/a n/a n/a Maryland Intermediate Bond Fund 349,789 475,432 0 North Carolina Intermediate Bond Fund 345,899 476,833 0 South Carolina Intermediate Bond Fund 491,652 559,670 0 Tennessee Intermediate Bond Fund 0 214,798 3,302 Texas Intermediate Bond Fund 805,727 723,266 0 Virginia Intermediate Bond Fund 578,309 603,026 0 Money Market Funds California Tax-Exempt Reserves 2,198,602 37,697 0 Cash Reserves 41,917,028 0 0 Government Reserves 2,507,819 166,533 0 Money Market Reserves 3,492,118 1,626,671 0 Municipal Reserves 1,809,661 233,731 0 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 4,157,168 2,375,631 0 Treasury Reserves 9,455,978 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year or commenced operations. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 52 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 rates 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 the Trust (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, 2002. 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 ----------- ------ ---------- International/Global Stock Funds (Sub-Adviser) Global Value Fund* (Brandes) n/a n/a n/a International Value Fund(a) (Brandes) 12,779,140 0 0 International Equity Master Portfolio(a) 3,469,272 0 0 (INVESCO) 1,160,418 0 0 (Marsico Capital) n/a n/a n/a (Putnam) 1,275,458 0 0 Emerging Markets Fund (Gartmore) 190,492 13,878 0 Stock Funds (Sub-Adviser) Classic Value Fund* (Brandes) n/a n/a n/a Government & Corporate Bond Funds (Sub-Adviser) High Yield Bond Fund(a) (MacKay Shields) 740,668 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year or commenced operations. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 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 ----------- ------ ---------- International/Global Stock Funds (Sub-Adviser) Global Value Fund* (Brandes) n/a n/a n/a International Value Fund(a) (Brandes) 6,522,895 0 0 International Equity Master Portfolio 4,923,656 0 0 (INVESCO) 1,575,243 0 0 (Marsico Capital) n/a n/a n/a (Putnam) 1,824,895 0 0 Emerging Markets Fund (Gartmore) 286,478 0 0 Stock Funds (Sub-Adviser) Classic Value Fund* (Brandes) n/a n/a n/a Government & Corporate Bond Funds (Sub-
53
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Adviser) High Yield Bond Fund(a) (MacKay Shields) 147,158 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year or commenced operations. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 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 ----------- ------ ---------- 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 International Equity Fund (Marsico Capital) n/a n/a n/a International Equity Fund (INVESCO) 489,476 0 0 International Equity Fund (Putnam) 490,887 0 0 Emerging Markets Fund (Gartmore) 102,346 0 0 Stock Funds (Sub-Adviser) Classic Value Fund* (Brandes) n/a n/a n/a Government & Corporate Bond Funds (Sub-Adviser) High Yield Bond Fund(a)* (MacKay Shields) n/a n/a n/a
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year or commenced operations. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. Co-Administrators and Sub-Administrator Co-Administrators Stephens and BA Advisors serve as Co-Administrators of the Funds. The Co-Administrators serve under a Co-Administration Agreement which provides 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 (except High Yield Bond Fund and Intermediate Bond Fund), Municipal Bond Funds, State Municipal Bond Funds and Emerging Markets Fund; 0.17% of Intermediate Bond Fund, International Equity Fund and International Value Fund; 0.18% of High Yield Bond Fund; and 0.23% of the Stock Funds (except the Marsico 21/st/ Century Fund, Marsico Focused Equities Fund and Marsico Growth Fund); 0.13% of Marsico 21/st/ Century Fund, Marsico Focused Equities Fund and Marsico Growth Fund; 0.12% of Marsico International Opportunities Fund; and for the LifeGoal Funds, an amount mutually agreed upon by the Trust, Stephens and BA Advisors. Pursuant to separate agreements for the LifeGoal Funds, BA Advisors has agreed to absorb all fees and expenses incurred under the Co-Administration Agreement. 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 the 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 the Trust, (iii) furnish corporate secretarial services to the Trust, including coordinating the preparation and distribution of materials for Board meetings, (iv) coordinate the provision of legal advice to each the Trust 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 the 54 Trust by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects of the Trust's operations. Stephens bears all expenses incurred in connection with the performance of its services. Also, pursuant to the 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 the Trust's reports to shareholders and the SEC, (iv) prepare and file the Trust's federal and state tax returns, (v) perform monthly compliance testing for the Trust, and (vi) prepare and furnish the Trust 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 the Trustees, 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 Agreement provides 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 a Sub-Administration Agreement. Pursuant to its 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 Fee Rate - ------------------ -------- First $2 billion 0.000100 Next $1 billion 0.000075 On excess (**$3.0 billion) 0.000025 Stock Funds (excluding Marsico 21st Century Fund) - ------------------------------------------------- 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 Government & Corporate Bond Funds, Municipal - -------------------------------------------- Bond Funds and State Municipal Bond Funds - ----------------------------------------- (excluding High Yield Bond Fund) - -------------------------------- 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/Global Stock Funds (& High Yield - ---------------------------------------------- Bond, Marsico 21st Century) - --------------------------- 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 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, 2002. ** denotes Greater Than 55
Net Co- Net Co- Net Sub- Administration Fees Administration Fees Administration Fees Paid to BA Advisors Paid to Stephens by Paid to BNY by the Fund by the Fund by the Fund ----------- ----------- ----------- International/Global Stock Funds Emerging Markets Fund 34,063 15,411 18,580 Global Value Fund* n/a n/a n/a International Equity Fund(a) 671,172 250,249 420,823 Marsico International Opportunities Fund(a) (175,518) 3,541 4,247 International Value Fund(a) 2,628,873 1,714,119 762,581 Domestic Stock Funds Asset Allocation Fund 441,907 261,212 220,952 Capital Growth Fund 574,575 344,682 282,376 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 583,626 347,937 288,327 Financial Services Fund (120,946) 3,443 2,868 LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund(a) 80,955 44,054 44,065 Marsico Focused Equities Fund(a) 1,912,305 1,401,174 657,278 Marsico Growth Fund(a) 549,440 318,134 267,083 MidCap Growth Fund 734,248 450,644 350,287 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 813,662 504,071 382,861 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund(a) 1,330,835 899,263 552,464 Value Fund 979,474 619,003 449,609 Index Funds LargeCap Index Fund 2,078,024 1,593,170 673,929 Managed Index Fund 360,311 213,010 180,153 MidCap Index Fund 194,986 297,865 250,131 SmallCap Index Fund 391,242 230,590 195,621 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 115,587 LifeGoal Growth Portfolio 0 0 57,352 LifeGoal Income and Growth Portfolio 0 0 18,466 Government & Corporate Bond Funds Bond Fund 2,642,952 2,132,435 512,145 Government Securities Fund 312,985 42,762 128,040 High Yield Bond Fund(a) 79,263 109,046 108,680 Intermediate Bond Fund(a) 62,411 102,935 67,954 Short-Intermediate Government Fund 606,951 364,226 242,777 Short-Term Income Fund 518,364 309,118 209,155 Strategic Income Fund 246,767 184,196 62,613 Municipal Bond Funds Intermediate Municipal Bond Fund 1,325,183 638,246 446,059 Municipal Income Fund 1,001,019 450,628 368,506 Short-Term Municipal Income Fund 308,948 126,547 126,167 State Municipal Bond Funds California Bond Fund 226,061 92,609 92,480 California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 261,744 107,096 107,077 Florida Bond Fund 155,223 63,507 63,503 Georgia Intermediate Bond Fund 167,657 68,594 68,589 Kansas Income Fund 117,264 47,975 47,971 Maryland Intermediate Bond Fund 220,960 90,416 90,393 North Carolina Intermediate Bond Fund 219,152 89,669 89,654 South Carolina Intermediate Bond Fund 268,694 109,913 109,922 Tennessee Intermediate Bond Fund 55,592 22,738 22,744 Texas Intermediate Bond Fund 313,325 128,196 128,179 Virginia Intermediate Bond Fund 332,184 135,898 135,894
56
Net Co- Net Co- Net Sub- Administration Fees Administration Fees Administration Fees Paid to BA Advisors Paid to Stephens by Paid to BNY by the Fund by the Fund by the Fund ----------- ----------- ----------- Money Market Funds California Tax-Exempt Reserves 89,052 127,741 170,366 Cash Reserves 12,787,659 4,935,389 1,845,490 Government Reserves 628,857 385,550 328,521 Money Market Reserves 2,007,085 1,059,545 553,250 Municipal Reserves 53,569 153,334 202,001 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves* n/a n/a n/a Treasury Reserves 1,391,878 672,780 424,308
*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. 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 Co- Net Co- Net Sub- Administration Fees Administration Fees Administration Fees Paid to BA Advisors Paid to Stephens by Paid to BNY by the Fund by the Fund by the Fund ----------- ----------- ----------- International/Global Stock Funds Emerging Markets Fund 52,473 20,930 31,427 Global Value Fund* n/a n/a n/a International Equity Fund(a) 479,212 (858) 0 Marsico International Opportunities Fund* n/a n/a n/a International Value Fund 760,259 674,374 715,033 Stock Funds Asset Allocation Fund 448,718 253,325 235,037 Capital Growth Fund 905,578 525,220 462,859 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 444,005 251,491 231,736 Financial Services Fund* n/a n/a n/a LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund* n/a n/a n/a Marsico Focused Equities Fund(a) 226,551 1,895,698 820,150 Marsico Growth Fund(a) 61,562 388,324 349,663 MidCap Growth Fund 385,056 217,631 200,935 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 959,959 558,019 486,530 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund 1,355,798 857,222 619,845 Value Fund 1,433,242 900,989 659,853 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 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 0 LifeGoal Growth Portfolio 0 0 0 LifeGoal Income and Growth Portfolio 0 0 0 Government & Corporate Bond Funds Bond Fund 2,480,212 1,844,144 625,739 Government Securities Fund 246,498 100,050 106,188 High Yield Bond Fund(a) 18,864 (143) 0 Intermediate Bond Fund(a) 59,915 (145) 0 Short-Intermediate Government Fund 613,022 348,268 261,944 Short-Term Income Fund 421,202 237,016 182,290
57
Net Co- Net Co- Net Sub- Administration Fees Administration Fees Administration Fees Paid to BA Advisors Paid to Stephens by Paid to BNY by the Fund by the Fund by the Fund ----------- ----------- ----------- Strategic Income Fund 264,204 149,245 113,775 Municipal Bond Funds Intermediate Municipal Bond Fund 1,212,901 522,003 465,628 Municipal Income Fund 910,700 372,166 369,251 Short-Term Municipal Income Fund 137,454 52,583 59,336 State Municipal Bond Funds California Bond Fund 204,486 78,239 88,218 California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 248,904 95,419 107,251 Florida Bond Fund 155,583 59,497 67,150 Georgia Intermediate Bond Fund 155,884 59,628 67,286 Kansas Income Fund n/a n/a n/a Maryland Intermediate Bond Fund 217,695 83,347 93,908 North Carolina Intermediate Bond Fund 212,876 81,419 91,891 South Carolina Intermediate Bond Fund 259,353 99,225 111,914 Tennessee Intermediate Bond Fund 52,618 20,112 22,726 Texas Intermediate Bond Fund 333,003 127,052 144,046 Virginia Intermediate Bond Fund 327,998 125,571 141,477 Money Market Funds California Tax-Exempt Reserves 22,788 133,051 200,229 Cash Reserves 7,732,817 3,291,794 1,523,440 Government Reserves 68,412 185,375 255,082 Money Market Reserves 1,315,239 611,718 582,038 Municipal Reserves 23,818 115,259 174,081 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 251,550 1,572,011 274,119 Treasury Reserves 1,256,962 561,689 568,459
*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. 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 Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- International/Global Stock Funds Emerging Markets Fund 35,672 13,984 24,755 Global Value Fund* n/a n/a n/a International Equity Fund 588,271 (42,082) 629,092 Marsico International Opportunities Fund* n/a n/a n/a International Value Fund 294,060 169,114 296,329 Stock Funds Asset Allocation Fund 360,382 196,260 196,572 Capital Growth Fund 842,870 518,471 519,822 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 331,021 179,186 180,558 Financial Services Fund* n/a n/a n/a LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund* n/a n/a n/a Marsico Focused Equities Fund 647,723 849,604 672,587 Marsico Growth Fund 181,239 212,496 212,943 MidCap Growth Fund 259,259 156,640 157,660 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 615,968 360,306 361,001 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund 475,051 278,951 279,665 Value Fund 1,883,413 1,490,058 885,891
58
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Index Funds LargeCap Index Fund 1,031,332 641,390 620,995 Managed Index Fund 688,841 427,658 427,965 MidCap Index Fund* n/a n/a n/a SmallCap Index Fund 198,238 122,199 122,303 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 0 LifeGoal Growth Portfolio 0 0 0 LifeGoal Income and Growth Portfolio 0 0 0 Government & Corporate Bond Funds Bond Fund 1,742,529 1,282,937 695,519 Government Securities Fund 205,715 124,194 103,347 High Yield Bond Fund(a)* n/a n/a n/a Intermediate Bond Fund 44,794 (126,787) 39,378 Short-Intermediate Government Fund 577,009 359,425 299,160 Short-Term Income Fund 409,185 252,740 210,308 Strategic Income Fund 227,764 150,040 124,984 Municipal Bond Funds Intermediate Municipal Bond Fund 860,494 356,849 445,145 Municipal Income Fund 616,848 255,948 319,268 Short-Term Municipal Income Fund 115,124 47,452 59,184 State Municipal Bond Funds California Bond Fund 180,645 65,472 82,112 California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 228,065 94,817 118,295 Florida Bond Fund 142,783 59,301 74,010 Georgia Intermediate Bond Fund 145,010 60,248 75,148 Kansas Income Fund* n/a n/a n/a Maryland Intermediate Bond Fund 193,877 80,206 100,043 North Carolina Intermediate Bond Fund 192,601 79,902 99,677 South Carolina Intermediate Bond Fund 245,858 102,081 127,349 Tennessee Intermediate Bond Fund 50,260 20,860 26,021 Texas Intermediate Bond Fund 356,530 148,383 185,113 Virginia Intermediate Bond Fund 278,270 114,867 143,281 Money Market Funds California Tax-Exempt Reserves (49,171) 109,923 183,206 Cash Reserves 1,113,257 2,010,983 1,294,123 Government Reserves 0 126,655 210,738 Money Market Reserves 17,089 241,385 375,048 Municipal Reserves (199) 98,213 163,412 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 282,587 1,384,832 257,352 Treasury Reserves 227,937 448,018 650,728
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 12b-1 Plans The Trust has 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 the Trust's Shares" for information about which Funds offer which classes of shares. With respect to a Fund's Investor A Shares, the Trust has adopted a combined distribution and shareholder servicing plan. The Investor A Distribution and Shareholder Servicing Plan and the Investor A Distribution Plan provide that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related 59 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 Trust has adopted a distribution plan. The Investor B 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 0.75% (on an annualized basis) of the average daily net asset value of the Investor B Shares of the 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 Trust has adopted a distribution plan. The Investor C 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 0.75% (on an annualized basis) of the average daily net asset value of the Investor C Shares of the Funds. With respect to a Fund's Daily Shares, the Trust has adopted a distribution plan. The Daily 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 0.35% (on an annualized basis) of the average daily net asset value of the Daily Shares of the Funds. With respect to a Fund's Liquidity Shares, the Trust has adopted a distribution plan. The Liquidity Distribution Plan provides that a Fund may pay the Distributor up to 0.60% (on an annualized basis) of the average daily net asset value of the Liquidity Shares of the Funds and up to 0.65% (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, the Trust 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 Market Shares of the Funds. With respect to a Fund's Service Class Shares, the Trust 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 and Servicing Plan, the Investor A Distribution Plan, Investor B Distribution Plan, Investor C Distribution Plan, Daily Class Distribution Plan, Market Class or Service 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 60 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 Trustees, 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, 2002 to July 31, 2003. 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 and the Investor A Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- International/Global Stock Funds Emerging Markets Fund 0 0 9,737 0 0 0 Global Value Fund* 0 0 n/a 0 0 0 International Equity Fund 0 0 89,152 0 0 0 Marsico International Opportunities Fund 0 0 5,266 0 0 0 International Value Fund 0 0 1,287,427 0 0 0 Stock Funds Asset Allocation Fund 0 0 582,504 0 0 0 Capital Growth Fund 0 0 78,341 0 0 0 Classic Value Fund* 0 0 n/a 0 0 0 Convertible Securities Fund 0 0 784,194 0 0 0 Financial Services Fund 0 0 210 0 0 0 LargeCap Value Fund* 0 0 n/a 0 0 0 Marsico 21/st/ Century Fund 0 0 42,279 0 0 0 Marsico Focused Equities Fund 0 0 1,209,735 0 0 0 Marsico Growth Fund(a) 0 0 427,761 0 0 0 MidCap Growth Fund 0 0 55,963 0 0 0 MidCap Value Fund* 0 0 n/a 0 0 0 Research Fund* 0 0 n/a 0 0 0 Small Company Fund 0 0 374,378 0 0 0 SmallCap Value Fund* 0 0 n/a 0 0 0 Strategic Growth Fund 0 0 64,414 0 0 0 Value Fund 0 0 149,744 0 0 0
61
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Index Funds LargeCap Index Fund 0 0 80,546 0 0 0 Managed Index Fund 0 0 73,096 0 0 0 MidCap Index Fund 0 0 1,436 0 0 0 SmallCap Index Fund 0 0 19,217 0 0 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 17,496 0 0 0 LifeGoal Growth Portfolio 0 0 32,744 0 0 0 LifeGoal Income and Growth Portfolio 0 0 6,745 0 0 0 Government & Corporate Bond Funds Bond Fund 0 0 120,510 0 0 0 Government Securities Fund 0 0 146,094 0 0 0 High Yield Bond Fund 0 0 42,899 0 0 0 Intermediate Bond Fund 0 0 152,551 0 0 0 Short-Intermediate Government Fund 0 0 108,674 0 0 0 Short-Term Income Fund 0 0 125,466 0 0 0 Strategic Income Fund 0 0 67,780 0 0 0 Municipal Bond Funds Intermediate Municipal Bond Fund 0 0 70,871 0 0 0 Municipal Income Fund 0 0 119,975 0 0 0 Short-Term Municipal Income Fund 0 0 174,460 0 0 0 State Municipal Bond Funds California Bond Fund 0 0 369,065 0 0 0 California Intermediate Bond Fund* 0 0 n/a 0 0 0 Florida Intermediate Bond Fund 0 0 18,013 0 0 0 Florida Bond Fund 0 0 115,141 0 0 0 Georgia Intermediate Bond Fund 0 0 31,906 0 0 0 Kansas Income Fund 0 0 6,377 0 0 0 Maryland Intermediate Bond Fund 0 0 45,896 0 0 0 North Carolina Intermediate Bond Fund 0 0 27,757 0 0 0 South Carolina Intermediate Bond Fund 0 0 43,543 0 0 0 Tennessee Intermediate Bond Fund 0 0 21,463 0 0 0 Texas Intermediate Bond Fund 0 0 13,619 0 0 0 Virginia Intermediate Bond Fund 0 0 110,399 0 0 0 Money Market Funds California Tax-Exempt Reserves* 0 0 n/a 0 0 0 Cash Reserves* 0 0 n/a 0 0 0 Government Reserves* 0 0 n/a 0 0 0 Money Market Reserves* 0 0 n/a 0 0 0 Municipal Reserves* 0 0 n/a 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves* 0 0 n/a 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Investor B Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities: 62
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- International/Global Stock Funds Emerging Markets Fund 0 0 12,895 0 0 0 Global Value Fund* 0 0 n/a 0 0 0 International Equity Fund 0 0 128,167 0 0 0 Marsico International Opportunities Fund 0 0 14,725 0 0 0 International Value Fund 0 0 708,566 0 0 0 Stock Funds Asset Allocation Fund 0 0 963,095 0 0 0 Capital Growth Fund 0 0 312,075 0 0 0 Classic Value Fund* 0 0 n/a 0 0 0 Convertible Securities Fund 0 0 535,304 0 0 0 Financial Services Fund 0 0 940 0 0 0 LargeCap Value Fund* 0 0 n/a 0 0 0 Marsico 21/st/ Century Fund 0 0 349,593 0 0 0 Marsico Focused Equities Fund 0 0 5,228,492 0 0 0 Marsico Growth Fund(a) 0 0 1,638,299 0 0 0 MidCap Growth Fund 0 0 335,047 0 0 0 MidCap Value Fund* 0 0 n/a 0 0 0 Research Fund* 0 0 n/a 0 0 0 Small Company Fund 0 0 105,396 0 0 0 SmallCap Value Fund* 0 0 n/a 0 0 0 Strategic Growth Fund 0 0 52,698 0 0 0 Value Fund 0 0 630,199 0 0 0 Index Funds LargeCap Index Fund 0 0 n/a 0 0 0 Managed 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 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 158,831 0 0 0 LifeGoal Growth Portfolio 0 0 160,388 0 0 0 LifeGoal Income and Growth Portfolio 0 0 65,028 0 0 0 Government & Corporate Bond Funds Bond Fund 0 0 92,993 0 0 0 Government Securities Fund 0 0 318,448 0 0 0 High Yield Bond Fund 0 0 292,325 0 0 0 Intermediate Bond Fund 0 0 25,901 0 0 0 Short-Intermediate Government Fund 0 0 90,455 0 0 0 Short-Term Income Fund 0 0 19,132 0 0 0 Strategic Income Fund 0 0 359,710 0 0 0 Municipal Bond Funds Intermediate Municipal Bond Fund 0 0 23,020 0 0 0 Municipal Income Fund 0 0 65,699 0 0 0 Short-Term Municipal Income Fund 0 0 19,695 0 0 0 State Municipal Bond Funds California Bond Fund 0 0 47,825 0 0 0 California Intermediate Bond Fund* 0 0 n/a 0 0 0 Florida Intermediate Bond Fund 0 0 38,406 0 0 0 Florida Bond Fund 0 0 78,929 0 0 0 Georgia Intermediate Bond Fund 0 0 50,853 0 0 0 Kansas Income Fund 0 0 1,626 0 0 0 Maryland Intermediate Bond Fund 0 0 40,541 0 0 0 North Carolina Intermediate Bond Fund 0 0 41,816 0 0 0 South Carolina Intermediate Bond Fund 0 0 55,218 0 0 0
63
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Tennessee Intermediate Bond Fund 0 0 10,605 0 0 0 Texas Intermediate Bond Fund 0 0 15,449 0 0 0 Virginia Intermediate Bond Fund 0 0 66,824 0 0 0 Money Market Funds California Tax-Exempt Reserves 0 0 48 0 0 0 Cash Reserves 0 0 270,337 0 0 0 Government Reserves 0 0 11,990 0 0 0 Money Market Reserves 0 0 67,541 0 0 0 Municipal Reserves 0 0 616 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves 0 0 1,397 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Investor C Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- International/Global Stock Funds Emerging Markets Fund 823 Global Value Fund* 0 0 n/a 0 0 0 International Equity Fund 0 0 8,551 0 0 0 International Value Fund 0 0 649,610 0 0 0 Marsico International Opportunities Fund 0 0 6,853 0 0 0 Stock Funds Asset Allocation Fund 0 0 27,430 0 0 0 Capital Growth Fund 0 0 26,415 0 0 0 Classic Value Fund* 0 0 n/a 0 0 0 Convertible Securities Fund 0 0 110,148 0 0 0 Financial Services Fund 0 0 77 0 0 0 LargeCap Value Fund* 0 0 n/a 0 0 0 Marsico 21/st/ Century Fund 0 0 40,966 0 0 0 Marsico Focused Equities Fund 0 0 1,444,523 0 0 0 Marsico Growth Fund(a) 0 0 228,089 0 0 0 MidCap Growth Fund 0 0 23,075 0 0 0 MidCap Value Fund* 0 0 n/a 0 0 0 Research Fund* 0 0 n/a 0 0 0 Small Company Fund 0 0 23,608 0 0 0 SmallCap Value* 0 0 n/a 0 0 0 Strategic Growth Fund 0 0 18,371 0 0 0 Value Fund 0 0 58,652 0 0 0 Index Funds LargeCap Index Fund 0 0 n/a 0 0 0 Managed 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
64
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 19,644 0 0 0 LifeGoal Growth Portfolio 0 0 20,738 0 0 0 LifeGoal Income and Growth Portfolio 0 0 9,364 0 0 0 Government & Corporate Bond Funds Bond Fund 0 0 13,788 0 0 0 Government Securities Fund 0 0 16,718 0 0 0 High Yield Bond Fund 0 0 47,524 0 0 0 Intermediate Bond Fund 0 0 11,116 0 0 0 Short-Intermediate Government Fund 0 0 29,212 0 0 0 Short-Term Income Fund 0 0 109,747 0 0 0 Strategic Income Fund 0 0 12,612 0 0 0 Municipal Bond Funds Intermediate Municipal Bond Fund 0 0 10,049 0 0 0 Municipal Income Fund 0 0 9,691 0 0 0 Short-Term Municipal Income Fund 0 0 96,447 0 0 0 State Municipal Bond Funds California Bond Fund 0 0 16,648 0 0 0 California Intermediate Bond Fund* 0 0 n/a 0 0 0 Florida Intermediate Bond Fund 0 0 4,172 0 0 0 Florida Bond Fund 0 0 1,307 0 0 0 Georgia Intermediate Bond Fund 0 0 7,475 0 0 0 Kansas Income Fund* 0 0 n/a 0 0 0 Maryland Intermediate Bond Fund 0 0 5,671 0 0 0 North Carolina Intermediate Bond Fund 0 0 1,764 0 0 0 South Carolina Intermediate Bond Fund 0 0 23,540 0 0 0 Tennessee Intermediate Bond Fund 0 0 562 0 0 0 Texas Intermediate Bond Fund 0 0 36 0 0 0 Virginia Intermediate Bond Fund 0 0 5,632 0 0 0 Money Market Funds California Tax-Exempt Reserves* 0 0 n/a 0 0 0 Cash Reserves 0 0 12,094 0 0 0 Government Reserves 0 0 2,150 0 0 0 Money Market Reserves 0 0 1,823 0 0 0 Municipal Reserves* 0 0 8 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves* 0 0 n/a 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Daily Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Money Market Funds
65
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- California Tax-Exempt Reserves 0 0 $ 2,727,885 0 0 0 Cash Reserves 0 0 49,695,672 0 0 0 Government Reserves 0 0 1,095,360 0 0 0 Money Market Reserves 0 0 22,441 0 0 0 Municipal Reserves 0 0 2,231,342 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves 0 0 4,049,223 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Investor Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Money Market Funds California Tax-Exempt Reserves 0 0 $ 258,747 0 0 0 Cash Reserves 0 0 6,078,882 0 0 0 Government Reserves 0 0 765,174 0 0 0 Money Market Reserves 0 0 78,589 0 0 0 Municipal Reserves 0 0 56,332 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves 0 0 733,336 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Liquidity Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Money Market Funds California Tax-Exempt Reserves* 0 0 n/a 0 0 0 Cash Reserves* 0 0 n/a 0 0 0 Government Reserves* 0 0 n/a 0 0 0 Money Market Reserves* 0 0 n/a 0 0 0 Municipal Reserves* 0 0 n/a 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves* 0 0 n/a 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Market Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities: 66
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Money Market Funds California Tax-Exempt Reserves 0 0 n/a 0 0 0 Cash Reserves 0 0 $7,142,717 0 0 0 Government Reserves 0 0 1,027,046 0 0 0 Money Market Reserves 0 0 2,794,389 0 0 0 Municipal Reserves* 0 0 385,466 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves 0 0 2,704,741 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. For the Service Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2002 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying Other than Comp. to Comp. to or Other Current Comp. to Broker/ Sales Financial Advertising Shareholders Distributor Dealers Personnel Charges ----------- ------------ ----------- ------- --------- ------- Money Market Funds California Tax-Exempt Reserves* 0 0 $ n/a 0 0 0 Cash Reserves 0 0 7,792,884 0 0 0 Government Reserves 0 0 239,050 0 0 0 Money Market Reserves 0 0 1,454,852 0 0 0 Municipal Reserves 0 0 251,748 0 0 0 New York Tax-Exempt Reserves* 0 0 n/a 0 0 0 Tax-Exempt Reserves* 0 0 n/a 0 0 0 Treasury Reserves 0 0 2,585,707 0 0 0
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year, had not yet commenced operations or does not offer this share class. Expenses The Distributor and Co-Administrators furnish, without additional cost to the Trust, the services of the Treasurer and Secretary of the Trust and such other personnel (other than the personnel of an Adviser) as are required for the proper conduct of the Trust'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 the Trust's shares and the costs of any other promotional or sales literature, except that to the extent permitted under the Distribution Plans of each Fund, sales-related expenses incurred by the Distributor may be reimbursed by the Trust. The Trust pays or causes to be paid all other expenses of the Trust, 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 the Trust for the safekeeping of its cash, Fund securities and other property, and any stock transfer, dividend or accounting agent or agents appointed by the Trust; brokerage commissions chargeable to the Trust in connection with Fund securities transactions to which the Trust is a party; all taxes, including securities issuance and transfer taxes; corporate fees payable by the Trust to federal, state or other governmental agencies; all costs and expenses in connection with the registration and maintenance of registration of the Trust 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 the Trust (including supplements thereto) and periodic reports and of printing and distributing such 67 prospectuses and statements of additional information (including supplements thereto) to the Trust's shareholders; all expenses of shareholders' and Trustee meetings and of preparing, printing and mailing proxy statements and reports to shareholders; fees and travel 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 the Trust's shares; fees and expenses of legal counsel and of independent auditors in connection with any matter relating to the Trust; membership dues of industry associations; interest payable on Trust borrowings; postage and long-distance telephone charges; insurance premiums on property or personnel (including officers and directors) of the Trust 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 the Trust's operation unless otherwise explicitly assumed by the Adviser), the Co-Administrators or Sub-Administrator. Expenses of the Trust which are not attributable to the operations of any class of shares or Fund are pro-rated among all classes of shares or Fund based upon the relative net assets of each class or Fund. Expenses 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 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 Custodian 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 Agreement, the Transfer Agent maintains shareholder account records for the Trust, handles certain communications between shareholders and the Trust, and distributes dividends and distributions payable by the Trust to shareholders, and produces statements with respect to account activity for the Trust 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 the Trust 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 Shares, Primary B Shares, Trust Class Shares and Capital Class Shares. BNY, 101 Barclay 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 Board 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 Board retains the responsibility for selecting foreign compulsory depositories, although BNY agrees to make certain findings with respect to such depositories and to monitor such depositories. The Board has delegated the responsibility for selecting foreign compulsory depositories to BA Advisors. Independent Accountants The Trust issues unaudited financial information semi-annually and audited financial statements annually. The annual financial statements for the Funds fiscal year ended March 31, 2002 have been audited by PricewaterhouseCoopers LLP. The Board has selected PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036, as the Trust's independent accountant to audit the Trust's books and review its tax returns for the fiscal year ended March 31, 2003. The Funds' Annual Reports for the fiscal period ended March 31, 2002 are incorporated herein by reference into this SAI. 68 Counsel Morrison & Foerster LLP serves as legal counsel to the Trust. Its address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006. BROKERAGE ALLOCATION AND OTHER PRACTICES General Brokerage Policy, Brokerage Transactions and Broker Selection Subject to policies established by the Board, the Adviser (which in this context refers to the investment sub-adviser(s) 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 the 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 69 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 Trust by improving the quality of the Adviser's investment advice. The advisory fees paid by the Trust 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 Trust 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 Trust 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 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 70 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 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 Trust has 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 the other Funds, or 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, 2002 March 31, 2001 March 31, 2000 International/Global Stock Funds Emerging Markets Fund 198,117 206,024 132,465 Global Value Fund* n/a n/a n/a International Equity Fund(a) 300,644 0 n/a Marsico International Opportunities Fund(a)* 90,748 n/a n/a International Value Fund 2,019,048 854,641 [ ] Stock Funds Asset Allocation Fund 753,739 351,804 358,923 Capital Growth Fund 770,687 1,213,901 698,225 Classic Value Fund* n/a n/a n/a Convertible Securities Fund 214,741 262,022 106,048 Financial Services Fund* 12,009 n/a n/a LargeCap Value Fund* n/a n/a n/a Marsico 21/st/ Century Fund(a)* 546,618 n/a n/a Marsico Focused Equities Fund(a) 3,897,321 3,634,474 2,288,935 Marsico Growth Fund(a) 915,809 875,130 501,608 MidCap Growth Fund 925,838 181,601 0 MidCap Value Fund* n/a n/a n/a Research Fund* n/a n/a n/a Small Company Fund 538,248 705,127 311,001 SmallCap Value Fund* n/a n/a n/a Strategic Growth Fund 1,632,307 1,355,837 411,252 Value Fund 3,090,456 5,004,600 4,529,543 Index Funds LargeCap Index Fund 22,424 139,356 0 MidCap Index Fund 225,486 169,671 0 SmallCap Index Fund 216,098 291,972 256,848 Managed Index Fund 1,265,813 533,076 467,939 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 0 LifeGoal Growth Portfolio 0 0 0
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Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended March 31, 2002 March 31, 2001 March 31, 2000 LifeGoal Income and Growth Portfolio 0 0 0 Government & Corporate Bond Funds Bond Fund 0 0 0 Government Securities Fund 0 0 0 High Yield Bond Fund(a) 32,642 6,362 0 Intermediate Bond Fund(a) 0 0 0 Short-Intermediate Government Fund 0 0 0 Short-Term Income Fund 0 0 0 Strategic Income Fund 0 0 0 Municipal Bond Funds Intermediate Municipal Bond Fund 0 0 0 Municipal Income Fund 0 0 0 Short-Term Municipal Income Fund 0 0 0 State Municipal Bond Funds California Bond Fund 0 0 0 California Intermediate Bond Fund* n/a n/a n/a Florida Intermediate Bond Fund 0 0 0 Florida Bond Fund 0 0 0 Georgia Intermediate Bond Fund 0 0 0 Kansas Income Fund 0 0 0 Maryland Intermediate Bond Fund 0 0 0 North Carolina Intermediate Bond Fund 0 0 0 South Carolina Intermediate Bond Fund 0 0 0 Tennessee Intermediate Bond Fund 0 0 0 Texas Intermediate Bond Fund 0 0 0 Virginia Intermediate Bond Fund 0 0 0 Money Market Funds California Tax-Exempt Reserves 0 0 0 Cash Reserves 0 0 0 Government Reserves 0 0 0 Money Market Reserves 0 0 0 Municipal Reserves 0 0 0 New York Tax-Exempt Reserves* n/a n/a n/a Tax-Exempt Reserves 0 0 0 Treasury Reserves 0 0 0
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 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 (or their Master Portfolios) have paid brokerage commissions to the indicated affiliated broker/dealers for the fiscal year ended March 31, 2002 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 21st Century Fund Banc of America Securities $ 9,937 1.82% LLC (a securities underwriting affiliate of Bank of America Corporation) Marsico Focused Equities Fund Banc of America Securities 332,812 8.54% LLC (a securities underwriting
72 affiliate of Bank of America Corporation) Marsico Growth Fund Banc of America Securities 74,933 8.18% LLC (a securities underwriting affiliate of Bank of America Corporation)
The following Funds (or their Master Portfolios) 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 Securities, $318,814 7.92% Inc (a broker/dealer subsidiary of Bank of America). Marsico Growth Fund Banc of America 68,542 7.09% Securities, Inc (a broker/dealer subsidiary of Bank of America). Marsico 21/st/ Century Fund Banc of America 16,157 3.34% Securities, Inc (a broker/dealer subsidiary of Bank of America). International Value Fund Banc of America 43,952 1.07% Securities, Inc (a broker/dealer subsidiary of Bank of America).
The following Funds (or their Master Portfolios) 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 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. No other Funds paid brokerage fees during the fiscal years ended March 31, 2002, 2001 and 2000. 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, 2002, the Funds directed brokerage transactions in this manner as follows: Amount of Related Transaction(s) Commission(s) International/Global Stock Funds Emerging Markets Fund $ 372,562 Global Value Fund* n/a n/a International Equity Fund(a) 3,948,960 $1,358,547 73
Amount of Related Transaction(s) Commission(s) Marsico International Opportunities Fund(a) 0 0 International Value Fund 0 0 Stock Funds Asset Allocation Fund 30,342 6,558 Capital Growth Fund 1,122,701 348,330 Classic Value Fund* n/a n/a Convertible Securities Fund 478,498 175,279 Financial Services Fund 0 0 LargeCap Value Fund* n/a n/a Marsico 21/st/ Century Fund(a) 557,515 5,066 Marsico Focused Equities Fund(a) 3,733,264 450,373 Marsico Growth Fund(a) 1,059,627 95,034 MidCap Growth Fund 925,001 160,399 MidCap Value Fund* n/a n/a Research Fund* n/a n/a Small Company Fund 439,508 49,435 SmallCap Value Fund(a)* n/a n/a Strategic Growth Fund(a) 0 0 Value Fund 3,090,436 467,504 Index Funds LargeCap Index Fund 29,671 6,324 Managed Index Fund 1,285,524 457,965 MidCap Index Fund 246,384 79,900 SmallCap Index Fund 229,305 83,451 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 LifeGoal Growth Portfolio 0 0 LifeGoal Income and Growth Portfolio 0 0 Government & Corporate Bond Funds Bond Fund 0 0 Government Securities Fund 0 0 High Yield Bond Fund(a) 366,071 8,351 Intermediate Bond Fund(a) 0 0 Short-Intermediate Government Fund 0 0 Short-Term Income Fund 0 0 Strategic Income Fund 0 0 Municipal Bond Funds Intermediate Municipal Bond Fund 0 0 Municipal Income Fund 0 0 Short-Term Municipal Income Fund 0 0 State Municipal Bond Funds California Bond Fund 0 0 California Intermediate Bond Fund* n/a n/a Florida Intermediate Bond Fund 0 0 Florida Bond Fund 0 0 Georgia Intermediate Bond Fund 0 0 Kansas Income Fund 0 0 Maryland Intermediate Bond Fund 0 0 North Carolina Intermediate Bond Fund 0 0 South Carolina Intermediate Bond Fund 0 0 Tennessee Intermediate Bond Fund 0 0 Texas Intermediate Bond Fund 0 0 Virginia Intermediate Bond Fund 0 0 Money Market Funds California Tax-Exempt Reserves 0 0 Cash Reserves 0 0 Government Reserves 0 0 Money Market Reserves 0 0
74 Amount of Related Transaction(s) Commission(s) Municipal Reserves 0 0 New York Tax-Exempt Reserves* n/a n/a Tax-Exempt Reserves 0 0 Treasury Reserves 0 0 *There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a) Because this Feeder Fund's advisory fees are paid at the Master Portfolio level, amounts shown are for its Master Portfolio, which include one or more additional feeder funds. 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, 2002, 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 ---- ------------- --------------- Stock Funds Asset Allocation Fund Merrill Lynch & Company, Inc. 2,849,301 Morgan Stanley Dean Witter & Company 2,619,067 Capital Growth Fund Merrill Lynch & Company, Inc. 3,971,964 Morgan Stanley Dean Witter & Company 4,019,093 Convertible Securities Fund Merrill Lynch & Company, Inc. 1,661,400 Financial Services Fund Bear Stearns Companies Inc. 112,950 Goldman Sachs Group 162,450 Merrill Lynch & Company 214,598 Morgan Stanley Dean Witter & Company 216,345 LargeCap Value Fund Goldman Sachs Group 230,138 Merrill Lynch & Company, Inc. 503,958 Morgan Stanley Dean Witter & Company 343,860 J.P. Morgan Chase & Company 270,940 Marsico 21st Century Fund Lehman Brothers Holdings Inc. 1,878,051 Marsico Focused Equities Fund Goldman Sachs Group, Inc. 44,322,678 Lehman Brothers Holdings Inc. 85,419,821 Marsico Growth Fund Goldman Sachs Group, Inc. 9,044,675 Lehman Brothers Holdings Inc. 18,088,728 MidCap Growth Fund Legg Mason, Inc. 10,689,834 MidCap Value Fund Legg Mason, Inc. 452,507 Strategic Growth Fund Merrill Lynch & Company, Inc. 19,817,733 Morgan Stanley Dean Witter & Company 15,058,203 Value Fund J.P. Morgan Chase & Company 10,900,736 Merrill Lynch & Company, Inc. 17,941,348 Morgan Stanley Dean Witter & Company 12,750,845 Index Funds LargeCap Index Fund Bear Stearns Companies Inc. 778,100 Lehman Brothers Holdings Inc. 1,958,592 Morgan Stanley Dean Witter & Company 7,834,277 Managed Index Fund Merrill Lynch & Company 1,982,604 Morgan Stanley Dean Witter & Company 2,321,055
75 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 the Trust's Shares The Funds of the Trust offer shares in the following classes. Note that the share classes that are shown below for the Research Fund are not currently offered to the general public for investment. In addition, subject to certain limited exceptions discussed in the Fund's prospectuses, the International Value Fund is no longer accepting new investments from current or prospective investors. The Trust, however, may at any time and without notice, offer any of these classes to the general public for investment.
Fund Primary A Primary B Investor Investor Investor Shares Shares A Shares B Shares C Shares International/Global Stock Funds X X X X Emerging Markets Fund X X X X Global Value Fund X X X X International Equity Fund X X X X Marsico International Opportunities Fund X X X X International Value Fund X X X X Stock Funds X X X X Asset Allocation Fund X X X X Capital Growth Fund X X X X Classic Value Fund X X X X Convertible Securities Fund X X X X Financial Services Fund X X X X LargeCap Value Fund X X X X Marsico 21st Century Fund X X X X Marsico Focused Equities Fund X X X X Marsico Growth Fund X X X X MidCap Growth Fund X X X X MidCap Value Fund X X X X Research Fund X X X X Small Company Fund X X X X SmallCap Value Fund X X X X Strategic Growth Fund X X X X Value Fund X X X X Index Funds LargeCap Index Fund X X MidCap Index Fund X X SmallCap Index Fund X X Managed Index Fund X X X LifeGoal Portfolios LifeGoal Balanced Growth Portfolio X X X X X LifeGoal Growth Portfolio X X X X X LifeGoal Income and Growth Portfolio X X X X X Government & Corporate Bond Funds Bond Fund X X X X
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Fund Primary A Primary B Investor A Investor B Investor C Shares Shares Shares Shares Shares Government Securities Fund X X X X High Yield Bond Fund X X X X Intermediate Bond Fund X X X X Short-Intermediate Government Fund X X X X X Short-Term Income Fund X X X X Strategic Income Fund X X X X Municipal Bond Funds Intermediate Municipal Bond Fund X X X X Municipal Income Fund X X X X Short-Term Municipal Income Fund X X X X State Municipal Bond Funds California Bond Fund X X X X California Intermediate Bond Fund X X X X Florida Intermediate Bond Fund X X X X Florida Bond Fund X X X X Georgia Intermediate Bond Fund X X X X Kansas Income Fund X X X X Maryland Intermediate Bond Fund X X X X North Carolina Intermediate Bond Fund X X X X South Carolina Intermediate Bond Fund X X X X Tennessee Intermediate Bond Fund X X X X Texas Intermediate Bond Fund X X X X Virginia Intermediate Bond Fund X X X X
The Money Market Funds offer Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor A Shares (only Cash Reserves, Treasury Reserves, Government Reserves and Tax-Exempt Reserves), Investor B Shares and Investor C Shares. In addition, Cash Reserves offers Marsico Shares. About the Trust's Capital Stock The Trust's Amended and Restated Declaration of Trust permits 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. Restrictions on Holding or Disposing of Shares. There are no restrictions on the right of shareholders to retain or dispose of the Fund's shares, other than the possible future termination of the Fund. The Fund may be terminated by reorganization into another mutual fund or by liquidation and distribution of the assets of the affected Fund. Unless terminated by reorganization or liquidation, the Fund will continue indefinitely. Shareholder Liability. The Trust is organized under Delaware law, which provides that shareholders of a business trust are entitled to the same limitations of personal liability as shareholders of a corporation organized under Delaware law. Effectively, this means that a shareholder of the Fund will not be personally liable for payment of the Fund's debts except by reason of his or her own conduct or acts. In addition, a shareholder could incur a financial loss on account of a Fund obligation only if the Fund itself had no remaining assets with which to meet such obligation. We believe that the possibility of such a situation arising is extremely remote. Dividend Rights. The shareholders of a Fund are entitled to receive any dividends or other distributions declared for such Fund. No shares have priority or preference over any other shares of the same Fund with respect to distributions. Distributions will be made from the assets of a Fund, and will be paid ratably to all shareholders of the 77 Fund (or class) according to the number of shares of such Fund (or class) held by shareholders on the record date. The amount of income dividends per share may vary between separate share classes of the same Fund based upon differences in the way that expenses are allocated between share classes pursuant to a multiple class plan. Voting Rights. 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 the Trust. 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 Trustees; (ii) approve investment advisory agreements and principal underwriting agreements; (iii) 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 the Trust 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. The Trust is not required to hold, and has no present intention of holding, annual meetings of shareholders. Liquidation Rights. In the event of the liquidation or dissolution of the Trust 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. Preemptive Rights. There are no preemptive rights associated with Fund shares. Conversion Rights. 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. Redemptions. 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. Sinking Fund Provisions. The Trust has no sinking fund provisions. Calls or Assessment. All Fund shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by the Trust. 78 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. Purchases and Redemptions The Funds have authorized one or more broker-dealers to accept purchase and redemption orders on the Funds' behalf. These broker-dealers are authorized to designate other intermediaries to accept purchase and redemption orders on the Funds' behalf. A Fund will be deemed to have received a purchase or redemption order when an authorized broker-dealer, or if applicable a broker-dealer's authorized designee, accepts the order. Customer orders will be priced at the Fund's net asset value next computed after they are accepted by an authorized broker-dealer or the broker's authorized designee. The Trust 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. The Trust also may make payment for redemptions in readily marketable securities or other property if it is appropriate to do so in light of the Trust'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). The Trust has 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. 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 Board. 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 and the NYSE are open: . California Tax-Exempt Reserves and New York Tax-Exempt Reserves--as of 11:30 a.m., Eastern time. . Municipal Reserves and Tax-Exempt Reserves--12:00 Noon, Eastern time. . Government Reserves--as of 2:30 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 79 meaning of the 1940 Act nor maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The Board has 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 as of the close of regular trading on the NYSE (which is usually 4:00 p.m.) on each day a Fund is open for business, unless a Board determines otherwise. The value of a Fund's portfolio securities for which a market quotation is available is determined in accordance with the Trust's valuation procedures. In general terms, the valuation procedures provide that: (i) exchange traded securities are valued at the last reported sales price on their primary exchange or the Nasdaq System, as reported by a reputable independent pricing service approved by the Adviser; (ii) non-exchange traded securities are valued at the mean between the latest bid and asked prices based upon quotes furnished by the appropriate market makers; (iii) debt securities are valued at prices obtained from a reputable independent pricing service approved by the Adviser. The service may value the debt securities relying not only on quoted prices, but also upon a consideration of additional factors such as yield, type of issue, coupon rate, and maturity; (iv) money market instruments are valued at amortized cost; (v) repurchase agreements are valued at a price equal to the amount of the cash invested in the repurchase agreement at the time of valuation; (vi) financial futures are valued at the latest reported sales price, forward foreign currency contracts are valued using market quotations from a widely used quotation system at the current cost of covering or off-setting the contract, exchange traded options are valued at the latest reported sales price and over-the-counter options will be valued using broker-dealer market quotations; and (vii) shares of open-end investment companies are valued at the latest net asset valued reported by the company. Securities for which market quotations are not readily available are valued at "fair value" as determined in good faith by the Board of the Adviser's valuation committee. In general, any one or more of the following factors may be taken into account in determining fair value: the fundamental analytical data relating to the security; the value of other financial instruments, including derivative securities, traded on other markets or among dealers; trading volumes on markets, exchanges, or among dealers; values of baskets of securities traded on other markets; changes in interest rates; observations from financial institutions; government (domestic or foreign) actions or pronouncements; other news events; information as to any transactions or offers with respect to the security; price and extent of public trading in similar securities of the issuer or comparable companies; nature and expected duration of the event, if any, giving rise to the valuation issue; pricing history of the security; the relative size of the position in the portfolio; and other relevant information. With respect to securities traded on foreign markets, the following factors also may be relevant: the value of foreign securities traded on other foreign markets; ADR trading; closed-end fund trading; foreign currency exchange activity; and the trading of financial products that are tied to baskets of foreign securities, such as WEBS. The Board has determined, and the valuation procedures provide, that in certain circumstances it may be necessary to use an alternative valuation method, such as in-kind redemptions with affiliated benefit plans where the Department of Labor requires that valuation to be done in accordance with Rule 17a-7 of the 1940 Act. 80 INFORMATION CONCERNING TAXES The following information supplements and should be read in conjunction with the section in each prospectus under the hearing "About you investment--Information for investors--Distributions and taxes." The prospectuses generally describe the federal income tax treatment of distributions by the Funds. This section of the SAI includes additional information concerning federal income and certain state taxes. It is based on the Code, applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this SAI and all of which are subject to change, including changes with retroactive effect. The following discussion does not address any state, local or foreign tax matters. A shareholder's tax treatment may vary depending upon his or her particular situation. Except as otherwise noted, a shareholder may be subject to special rules not discussed below if he or she is a certain kind of shareholder, including, but not limited to: an insurance company; a tax-exempt organization; a holder of Fund shares through a tax-advantaged account, such as a 401(k) Plan Account or an Individual Retirement Account ("IRA"); a financial institution or broker-dealer; a person who is neither a citizen nor resident of the United States or entity that is not organized under the laws of the United States or political subdivision thereof; a holder of Fund shares as part of a hedge, straddle or conversion transaction; a person that does not hold Fund shares as a capital asset or a shareholder subject to the federal alternative minimum tax. The Trust has not requested and will not request an advance ruling from the IRS as to the federal income tax matters described below. The IRS could adopt positions contrary to that discussed below and such positions could be sustained. In addition, the foregoing discussion and the discussions in the prospectuses applicable to each shareholder address only some of the federal income tax considerations generally affecting investments in the Funds. Prospective shareholders are urged to consult with their own tax advisors and financial planners as to the particular tax consequences to them of an investment in a Fund, including the applicability and effect of any state, local or foreign laws, and the effect of possible changes in applicable tax laws. General The Trust intends 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 the Trust 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. The qualifying income and diversification requirements applicable to a Fund may limit the extent to which it can engage in transactions in options, futures contracts, forward contracts and swap agreements. In addition, each Fund generally must distribute to its shareholders at least 90% of its (a) "investment company taxable income," which generally includes its ordinary income and net short-term capital gain, and (b) net tax-exempt income earned in each taxable year. As long as a Fund distributes all of its investment company taxable income and net capital gain to its shareholders, it generally will not be subject to federal income taxation on such income and gain. For this purpose, a Fund generally must make the distributions in the same year that it realizes the income and gain. However, in certain circumstances, a 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 year and pays the distribution by January 31 of the following year, the Fund and the shareholders will be treated 81 as if the Fund paid the distribution by December 31 of the first taxable year. Each Fund intends to distribute its net 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. However, no assurance can be given that the Funds will not be subject to federal income taxation. A Fund is permitted to carry forward a net capital loss for any year to offset its capital gains, if any, realized during the eight years following the year of the loss. A Fund's capital loss carryover is treated as a short-term capital loss in the year to which it is carried. If future capital gains are offset by carried-forward capital losses, such future capital gains are not subject to Fund-level federal income taxation, regardless of whether they are distributed to shareholders. Accordingly, the Funds do not expect to distribute such capital gains. The Funds cannot carry back or carry forward any net operating losses. Equalization Accounting The Funds may use the so-called "equalization accounting method" to allocate a portion of their "earnings and profits," as determined for federal income tax purposes (generally, a Fund's undistributed net investment income and realized capital gains with certain adjustments), to redemption proceeds for such purposes. This method permits the Funds 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's net income and gains (other than to the extent of its tax-exempt interest income, if any) to the extent it does not meet certain minimum distribution requirements with respect to such income and gains by the end of each calendar year. Each Fund intends to actually or be deemed to distribute substantially all of its net income and gains, if any, by the end of each calendar year and, thus, expects not to be subject to the excise tax. However, no assurance can be given that the Funds will not be subject to the excise tax. Investment through Master Portfolios The Feeder Funds seek to qualify as a regulated investment company by investing their assets through one or more Master Portfolios. Each Master Portfolio will be treated as a non-publicly traded partnership (or, in the event that a Feeder Fund is the sole investor in the corresponding Master Portfolio, as disregarded from the Feeder Fund) for federal income tax purposes rather than as a regulated investment company or a corporation under the Code. Under the rules applicable to a non-publicly traded partnership (or a disregarded entity), a proportionate share of any interest, dividends, gains and losses of a Master Portfolio will be deemed to have been realized (i.e., "passed-through") to its investors, including the corresponding Feeder Fund, regardless of whether any amounts are actually distributed by the Master Portfolio. Each investor in a Master Portfolio will be taxed on such share, as determined in accordance with the governing instruments of the particular Master Portfolio, the Code and Treasury Regulations in determining such investor's federal income tax liability. Therefore, to the extent that a Master Portfolio were to accrue but not distribute any income or gains, the corresponding Feeder Fund would be deemed to have realized its proportionate share of such income or gains without receipt of any corresponding distribution. However, each of the Master Portfolios will seek to minimize recognition by its investors (such as a corresponding Feeder Fund) of income and gains without a corresponding distribution. Furthermore, each Master Portfolio's assets, income and distributions will be managed in such a manner that an investor in a Master Portfolio will be able to continue to qualify as a regulated investment company by investing its assets through the Master Portfolio. Taxation of Fund Investments In general, if a Fund realizes gains or losses on the sale of portfolio securities, such gains or losses will be capital gains or losses and long-term capital gains or losses if the Fund has held the disposed securities for more than one year at the time of disposition. If a Fund purchases a debt obligation with original issue discount, generally at a price less than its principal amount ("OID"), such as a zero-coupon bond, the Fund may be required to annually include in its taxable income a 82 portion of the OID as ordinary income, even though the Fund will not receive cash payments for such discount until maturity or disposition of the obligation. A portion of the OID includible in income with respect to certain high-yield corporate debt securities may be treated as a dividend for federal income tax purposes. 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 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 1934 Act. 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. Foreign exchange gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain options and futures contracts relating to foreign currency, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount and timing of recognition of the Fund's income. Under future Treasury Regulations, any such transactions that are not directly related to a Fund's investments in stock or securities (or its options contracts or futures contracts with respect to stock or securities) may have to be limited in order to enable the Fund to satisfy the 90% income test described above. If the net foreign exchange loss for a year exceeds a Fund's investment company taxable income (computed without regard to such loss), the resulting ordinary loss for such year will not be deductible by the Fund or its shareholders in future years. Offsetting positions held by a Fund involving certain financial forward, futures or options contracts may be considered, for federal income 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 is 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, forward, or option contracts comprising a part of such straddles are 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 a 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. The amount of long-term capital gain a Fund 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 83 the Fund would have had if the Fund 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. If a Fund acquires any equity interest (under proposed Treasury Regulations, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies," or "PFICs"), the Fund could be subject to federal income tax and IRS interest charges on "excess distributions" received from such companies or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. A Fund cannot pass through to its shareholders any credit or deduction for such taxes and interest charges. Elections may be available that would ameliorate these adverse tax consequences, but such elections could require a Fund to recognize taxable income or gain without the concurrent receipt of cash. These investments could also result in the treatment of associated capital gains as ordinary income. The Funds may limit and/or manage their holdings in PFICs to limit their tax liability or maximize their returns from these investments. Because it is not always possible to identify a foreign corporation as a PFIC in advance of acquiring shares in the corporation, however, a Fund may incur the tax and interest charges described above in some instances. Rules governing the federal income tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while each Fund intends to account for such transactions in a manner it deems to be appropriate, the IRS might not accept such treatment. If it did not, the status of the Fund as a regulated investment company might be jeopardized. The Funds intend to monitor developments in this area. Certain requirements that must be met under the Code in order for each Fund to qualify as a regulated investment company may limit the extent to which a Fund will be able to engage in swap agreements. In addition to the investments described above, prospective shareholders should be aware that other investments made by the Funds may involve sophisticated tax rules that may result in income or gain recognition by the Funds without corresponding current cash receipts. Although the Funds seek to avoid significant noncash income, such noncash income could be recognized by the Funds, in which case the Funds may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. In this regard, the Funds could be required at times to liquidate investments prematurely in order to satisfy their minimum distribution requirements. Taxation of Distributions For federal income tax purposes, a Fund's earnings and profits described above, are determined at the end of the Fund's taxable year and are allocated pro rata over the entire year. Only amounts paid out of earnings and profits qualify as taxable distributions, subject to special rules applicable to the tax-exempt Funds discussed below. Accordingly, 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 Fund's distributions during the year 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 tax basis in his or her Fund shares and then capital gain. 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. Some states grant tax-free status to distributions to individual shareholders attributable to a Fund's interest earned on direct obligations of the U.S. Government, subject in some states to minimum investment or reporting requirements that must be met by the fund. Investments in Government National Mortgage Association or Federal National Mortgage Association securities, bankers' acceptances, commercial paper and repurchase agreements 84 collateralized by U.S. Government securities do not generally qualify for tax-free treatment. This exemption may not apply to corporate shareholders. Disposition of Fund Shares If a shareholder sells, pursuant to a cash or in-kind redemption or otherwise, or exchanges his or her Fund shares, he or she generally will realize a taxable capital gain or loss on the difference between the amount received for the shares (or deemed received in the case of an exchange) and his or her tax basis in the shares, and long-term capital gain or loss if he or she has held such Fund shares for greater than one year at the time of the sale or exchange. 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, he or she 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 in 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, if a shareholder realizes a loss on a disposition of Fund shares, the loss will be disallowed to the extent that he or she purchases substantially identical shares within the 61-day period beginning 30 days before and ending 30 days after the disposition. Any disallowed loss generally will be included in the tax basis of the purchased shares. 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 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. These loss disallowance rules do not apply to losses realized under a periodic redemption plan. As long as a Money Market Fund retains a net asset value of $1.00 per share, a shareholder of the Fund generally will not recognize any gain or loss on the sale or exchange of Fund shares. Foreign Taxes Amounts realized by a Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such 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 Fund may pass-through to its shareholders on a pro rata basis foreign income and similar taxes paid by the Fund, which may be claimed, subject to certain limitations, either as a tax credit or deduction by the shareholders. Only an International/Global Stock Fund could potentially qualify for and make the election. However, even if a Fund qualifies for the election, foreign income and similar taxes will only pass-through to a Fund shareholder where (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 such foreign taxes paid by the Fund, and (ii) with respect to dividends received by the Fund on foreign shares giving rise to such foreign taxes, 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. These holding periods increase for certain dividends on preferred stock. An individual with $300 or less of creditable foreign taxes attributable to passive income 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. Federal Income Tax Rates As of the printing of this SAI, the maximum individual federal income tax rate applicable to ordinary income is 38.6% (marginal tax rates may be higher for some individuals to reduce or eliminate the benefit of 85 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 special, lower maximum rate of 18% on net capital gain is available to individuals to the extent the gain is derived from investments held for more than five years. (An even lower rate applies to individuals in some lower federal income tax brackets.) However, the 18% rate only applies to assets acquired after December 31, 2000, unless an election is made to treat certain assets held on January 1, 2001, as having been sold and then reacquired on the same date. If the election is made, the asset will be deemed to be sold at its fair market value and any gain, but not loss, will be recognized. The 18% rate will apply to capital gain distributions by a Fund to the extent that the gain is derived from the disposition of a portfolio investment acquired by the Fund after December 31, 2000 and was held for more than five years at the time of disposition. Under the Economic Growth and Tax Relief Recovery Act, individual federal income tax rates are set to decrease over the next several 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 Subject to limitation and other rules, a corporate shareholder of a Fund may be eligible for the dividends-received deduction on Fund 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 be eligible for the 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 in an unleveraged position for at least 46 days (91 days in the case of certain dividends on preferred stock) during the 90 day (180 day) period beginning 45 days (90 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) or foreign corporation (each, a "foreign shareholder") generally 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 the 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 generally will apply. Special rules apply to foreign partnerships. 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 Trust may be required to withhold, subject to certain exemptions, at a rate of 30% ("backup withholding") on all distributions and redemption proceeds (including proceeds from exchanges and redemptions in-kind) paid or credited to a Fund shareholder, unless the shareholder generally certifies that the "taxpayer identification number" ("TIN"), generally the shareholder's social security or employer identification number, provided is correct and that the shareholder is not subject to backup withholding, or the IRS notifies the Trust that the shareholder's TIN is incorrect or that the shareholder is subject to backup withholding. This tax is not an additional federal income tax imposed on the shareholder, and the shareholder may claim the tax as a tax payment on his or her federal income tax return. An investor must provide a valid TIN upon opening or reopening an account. If a shareholder fails to furnish a valid TIN upon request, the shareholder can also be subject to IRS penalties. Under the Economic Growth and Tax Relief Recovery Act, the rate of backup withholding is set to decrease in future years. 86 Tax-Deferred Plans The shares of the Funds are available for a variety of tax-deferred retirement and other tax-advantaged plans and accounts, including IRAs, Simplified Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Coverdell Education Savings Accounts. Prospective investors should contact their tax advisors and financial planners regarding the tax consequences to them of holding Fund shares through a tax-advantaged plan or account. The Tax-Exempt Funds are not suitable investments for tax-deferred plans and tax-exempt investors. 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 exceed the excess of the amount of interest received by the Fund for such year on California Exempt Securities over 87 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 distributions 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 the Trust 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 asset value 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, then 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 Intermediate Bond Fund The portion of the Fund's 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. The Georgia intangibles tax was repealed by the Georgia General Assembly on March 21, 1996, further ratified by a Constitutional Amendment 88 approved in the November 1996 General Election (GA. L 1996, P.130 (S)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 Income Fund The Kansas Income 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 Intermediate Bond Fund The portion of the Maryland Intermediate Bond 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 the disposition 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 the Maryland Intermediate Bond Fund will be subject to Maryland income tax. Shareholders will be informed annually regarding the portion of the Maryland Intermediate Bond 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 the Maryland Intermediate Bond Fund attributable to interest on such private activity bonds may not be exempt from Maryland state and local individual income taxes. Shares of the Maryland Intermediate Bond Fund will not be subject to the Maryland personal property tax. Special Tax Considerations Pertaining to New York Tax-Exempt Reserves The portion of the Fund's exempt interest dividends paid from interest received by such Fund from tax exempt obligations of the State of New York or its political subdivisions will be exempt from New York State and City personal income taxes and from the New York City unincorporated business tax. Such dividends paid to corporate shareholders subject to New York State and/or City corporate franchise or income tax may be taxable for such purposes. Accordingly, potential corporate investors in New York Tax-Exempt Reserves, including, in particular, corporate investors that may be subject to New York State and/or City corporate franchise or income tax, should consult their own tax advisors with respect to the application of such taxes to the dividends. Special Tax Considerations Pertaining to the North Carolina Intermediate Bond Fund The portion of the 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 the North Carolina Intermediate Bond 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. 89 Special Tax Considerations Pertaining to the South Carolina Intermediate Bond Fund The portion of the Fund's exempt interest dividends paid from interest received by the 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 not 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. Although any net capital gain recognized with respect to the sale or exchange of shares of the 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 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 Intermediate Bond Fund 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 Intermediate Bond Fund Distributions will not be subject to Virginia income tax if the Virginia Intermediate Bond Fund pays 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. 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 Trust 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 Trust 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 the Board, including its Independent Trustees. The Distribution Agreement terminates automatically in the event of its assignment, and is terminable with respect to a Fund at any time without penalty by the Trust (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, 2002, March 31, 2001 and March 31, 2000, the Distributor received the following amount of underwriting commissions, respectively: $7,316,037, $7,542,547 and $6,119,331. Of these amounts, the Distributor retained $0, $0 and $0, respectively. 90 FUND PERFORMANCE Advertising Fund Performance Performance information for the Funds may be obtained by calling (800) 321-7854 or (800) 765-2668 (for institutional investors only) or by visiting www.nationsfunds.com. 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 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 91 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 net asset value 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, 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. 92 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, 2002, (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:
Tax Equivalent Tax Equivalent Current Yield Effective Yield Current Yield Effective Yield ------------- --------------- ------------- --------------- California Tax-Exempt Reserves Capital Class Shares 1.43% 1.44% 2.59% 2.61% Liquidity Class Shares 1.28% 1.29% 2.32% 2.34% Adviser Class Shares 1.18% 1.19% 2.14% 2.15% Market Class Shares 0.00% 0.00% 0.00% 0.00% Daily Class Shares 0.83% 0.84% 1.51% 1.51% Service Class Shares 0.00% 0.00% 0.00% 0.00% Investor Class Shares 1.08% 1.09% 1.96% 1.97% Trust Class Shares 1.33% 1.34% 2.41% 2.43% Institutional Class Shares 0.00% 0.00% 0.00% 0.00% Investor A Shares Investor B Shares 0.00% 0.00% 0.00% 0.00% Investor C Shares 0.00% 0.00% 0.00% 0.00% Cash Reserves Capital Class Shares 1.96% 1.98% 3.22% 3.25% Liquidity Class Shares 1.81% 1.83% 2.98% 3.00% Adviser Class Shares 1.71% 1.73% 2.81% 2.84% Market Class Shares 1.51% 1.52% 2.48% 2.50% Daily Class Shares 1.36% 1.37% 2.24% 2.25% Service Class Shares 0.96% 0.97% 1.58% 1.59% Investor Class Shares 1.61% 1.63% 2.65% 2.67% Trust Class Shares 1.86% 1.88% 3.06% 3.09% Institutional Class Shares 1.92% 1.94% 3.16% 3.19% Investor A Shares 1.55% 1.56% 2.54% 2.56% Marsico Shares 1.65% 1.66% 2.71% 2.73% Investor B Shares 0.86% 0.87% 1.42% 1.42% Investor C Shares 0.86% 0.87% 1.42% 1.42% Government Reserves Capital Class Shares 1.77% 1.79% 2.91% 2.94% Liquidity Class Shares 1.62% 1.64% 2.66% 2.68% Adviser Class Shares 1.52% 1.53% 2.50% 2.52%
93
Tax Equivalent Tax Equivalent Current Yield Effective Yield Current Yield Effective Yield ------------- --------------- ------------- --------------- Market Class Shares 1.32% 1.33% 2.17% 2.18% Daily Class Shares 1.17% 1.18% 1.92% 1.94% Service Class Shares 0.77% 0.77% 1.27% 1.27% Investor Class Shares 1.42% 1.43% 2.34% 2.35% Trust Class Shares 1.67% 1.69% 2.75% 2.77% Institutional Class Shares 1.73% 1.75% 2.84% 2.87% Investor A Shares 1.38% 1.39% 2.26% 2.28% Investor B Shares 0.67% 0.67% 1.10% 1.11% Investor C Shares 0.67% 0.67% 1.10% 1.11% Municipal Reserves Capital Class Shares 1.47% 1.48% 2.41% 2.43% Liquidity Class Shares 1.32% 1.33% 2.17% 2.18% Adviser Class Shares 1.22% 1.23% 2.00% 2.01% Market Class Shares 1.02% 1.02% 1.67% 1.68% Daily Class Shares 0.87% 0.87% 1.43% 1.43% Service Class Shares 0.72% 0.72% 1.18% 1.19% Investor Class Shares 1.12% 1.13% 1.84% 1.85% Trust Class Shares 1.37% 1.38% 2.25% 2.26% Institutional Class Shares 1.43% 1.44% 2.35% 2.36% Investor B Shares 0.62% 0.62% 1.01% 1.02% Investor C Shares n/a n/a n/a n/a New York Tax-Exempt Reserves Capital Class Shares 1.19% 1.20% 2.11% 2.12% Liquidity Class Shares n/a n/a n/a n/a Adviser Class Shares n/a n/a n/a n/a Market Class Shares n/a n/a n/a n/a Daily Class Shares n/a n/a n/a n/a Service Class Shares n/a n/a n/a n/a Investor Class Shares n/a n/a n/a n/a Trust Class Shares 1.09% 1.10% 1.93% 1.94% Institutional Class Shares 1.15% 1.16% 2.04% 2.05% Investor B Shares n/a n/a n/a n/a Investor C Shares n/a n/a n/a n/a Tax-Exempt Reserves Capital Class Shares n/a n/a n/a n/a Liquidity Class Shares n/a n/a n/a n/a Adviser Class Shares n/a n/a n/a n/a Market Class Shares n/a n/a n/a n/a Daily Class Shares 0.82% 0.82% 1.34% 1.35% Service Class Shares n/a n/a n/a n/a Investor Class Shares 1.07% 1.07% 1.75% 1.76% Trust Class Shares 1.32% 1.33% 2.16% 2.18% Institutional Class Shares n/a n/a n/a n/a Investor A Shares 0.97% 0.97% 1.59% 1.60% Investor B Shares n/a n/a n/a n/a Investor C Shares n/a n/a n/a n/a Treasury Reserves Capital Class Shares 1.90% 1.91% 3.11% 3.14% Liquidity Class Shares 1.75% 1.76% 2.87% 2.89% Adviser Class Shares 1.65% 1.66% 2.70% 2.72% Market Class Shares 1.45% 1.46% 2.37% 2.39% Daily Class Shares 1.30% 1.30% 2.13% 2.14% Service Class Shares 0.90% 0.90% 1.47% 1.48% Investor Class Shares 1.55% 1.56% 2.54% 2.56% Trust Class Shares 1.80% 1.81% 2.95% 2.98% Institutional Class Shares 1.86% 1.87% 3.05% 3.08% Investor A Shares 1.51% 1.52% 2.48% 2.50% Investor B Shares 0.80% 0.80% 1.31% 1.31% Investor C Shares 0.00% 0.00% 0.00% 0.00% Money Market Reserves Capital 1.81% 1.82% 2.97% 2.99% Liquidity 1.66% 1.67% 2.72% 2.74% Adviser 1.56% 1.57% 2.56% 2.58% Market 1.36% 1.37% 2.23% 2.24%
94
Tax Equivalent Tax Equivalent Current Yield Effective Yield Current Yield Effective Yield ------------- --------------- ------------- --------------- Investor 1.46% 1.47% 2.39% 2.41% Service 0.81% 0.81% 1.33% 1.33% Daily 1.21% 1.21% 1.98% 1.99% Trust 1.71% 1.72% 2.80% 2.83% Investor B 0.71% 0.71% 1.16% 1.17% Investor C 0.71% 0.71% 1.16% 1.17% Institutional Class 1.77% 1.78% 2.90% 2.93%
Tax Equivalent Yields @ 38.6% 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 95 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 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 38.6%. 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 38.6% Federal tax rate applied to taxable income in excess of $283,150. Based on the fiscal year ended March 31, 2002, the 30-day yield and tax-equivalent yield of the various shares of the Funds were as follows:
Fund 30-Day Yield Tax-Equivalent Yield - ---- ------------ -------------------- Short-Term Income Fund Primary A 3.91% 6.47% Primary B 0.00% 0.00% Investor A 3.66% 6.06% Investor B 2.90% 4.80% Investor C 2.87% 4.76% Short-Intermediate Government Fund Primary A 3.30% 5.46% Primary B 2.79% 4.63% Investor A 3.05% 5.05% Investor B 2.29% 3.79% Investor C 2.29% 3.79% Government Securities Fund Primary A 3.32% 5.49% Primary B 0.00% 0.00% Investor A 3.07% 5.08% Investor B 2.31% 3.82% Investor C 2.33% 3.85% Intermediate Bond Fund Primary A 2.97% 4.92% Investor A 2.71% 4.49% Investor B 2.07% 3.43% Investor C 1.76% 2.91% Bond Fund Primary A 4.38% 7.25% Primary B 0.00% 0.00% Investor A 4.13% 6.84% Investor B 3.37% 5.58% Investor C 3.35% 5.55% Strategic Income Fund
96
Fund 30-Day Yield Tax-Equivalent Yield - ---- ------------ -------------------- Primary A 5.71% 9.46% Primary B 0.00% 0.00% Investor A 5.47% 9.05% Investor B 4.71% 7.80% Investor C 4.71% 7.80% High Yield Bond Fund Primary A 6.87% 11.37% Investor A 6.77% 11.22% Investor B 6.08% 10.07% Investor C 6.10% 10.11% Short-Term Municipal Income Fund Primary A 2.74% 4.54% Investor A 2.49% 4.12% Investor B 1.74% 2.88% Investor C 1.70% 2.81% Intermediate Municipal Bond Fund Primary A 4.61% 7.64% Investor A 4.36% 7.22% Investor B 3.60% 5.96% Investor C 3.57% 5.92% Municipal Income Fund Primary A 5.05% 8.36% Investor A 4.80% 7.94% Investor B 4.03% 6.68% Investor C 4.04% 6.68% California Bond Fund Primary A 4.68% 8.47% Investor A 4.42% 8.00% Investor B 3.65% 6.61% Investor C 3.65% 6.60% California Intermediate Bond Fund Primary A n/a n/a Investor A n/a n/a Investor B n/a n/a Investor C n/a n/a Florida Intermediate Bond Fund Primary A 4.65% 7.63% Investor A 4.40% 7.22% Investor B 3.63% 5.97% Investor C 3.57% 5.86% Florida Bond Fund Primary A 4.80% 7.88% Investor A 4.55% 7.46% Investor B 3.79% 6.22% Investor C 3.79% 6.22% Georgia Intermediate Bond Fund Primary A 4.64% 8.11% Investor A 4.39% 7.68% Investor B 3.64% 6.36% Investor C 3.64% 6.35% Kansas Income Fund Primary A 4.29% 7.53% Investor A 4.04% 7.09% Investor B 3.29% 5.78% Investor C 0.00% 0.00% Maryland Intermediate Bond Fund Primary A 4.46% 7.69% Investor A 4.20% 7.25% Investor B 3.44% 5.94% Investor C 3.41% 5.87% North Carolina Intermediate Bond Fund Primary A 4.47% 8.01% Investor A 4.22% 7.55% Investor B 3.47% 6.20% Investor C 3.42% 6.13% South Carolina Intermediate Bond Fund Primary A 4.88% 8.61%
97
Fund 30-Day Yield Tax-Equivalent Yield Investor A 4.62% 8.16% Investor B 3.87% 6.83% Investor C 3.86% 6.82% Tennessee Intermediate Bond Fund Primary A 4.41% 7.70% Investor A 4.15% 7.25% Investor B 3.40% 5.94% Investor C 3.36% 5.87% Texas Intermediate Bond Fund Primary A 4.89% 8.03% Investor A 4.64% 7.62% Investor B 3.88% 6.38% Investor C 3.85% 6.33% Virginia Intermediate Bond Fund Primary A 4.95% 8.63% Investor A 4.71% 8.20% Investor B 3.95% 6.88% Investor C 3.95% 6.88%
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. 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 Return 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 98 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. After-Tax Return Calculations As and to the extent required by the SEC, the Fund's average annual total returns (after taxes on distributions and redemption) ("T") is computed by using the redeemable value at the end of a specified period, after deducting taxes on Fund distributions and redemption of Fund shares ("ATV\\DR\\"), of a hypothetical initial investment ("P") over a period of years ("n") according to the following formula: P(1+T)/n/=ATV\\DR\\. After tax returns for the Funds have been incorporated by reference from the Funds' prospectuses, and may be advertised by the Funds. 99 APPENDIX A--DESCRIPTION OF SECURITY 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, MacKay Shields and/ or Putnam, as the context may require Advisory Agreements ........................... The respective Investment Advisory Agreements and Investment Sub-Advisory Agreements for the Funds 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. BNY ........................................... The Bank of New York Board ......................................... The Trust's Board of Trustees Bond Fund ..................................... Nations Bond Fund Brandes ....................................... Brandes Investment Partners, L.P. California Bond Fund .......................... Nations California Municipal Bond Fund California Intermediate Bond Fund ............. Nations California Intermediate Municipal Bond Fund California Tax-Exempt Reserves ................ Nations California Tax-Exempt Reserves California Fund(s) ............................ One or more of California Bond Fund, California Intermediate Bond Fund and California Tax-Exempt Reserves Capital Growth Fund ........................... Nations Capital Growth Fund Cash Reserves ................................. Nations Cash Reserves CFTC .......................................... Commodity Futures Trading Commission Classic Value Fund ............................ Nations Classic Value Fund Co-Administrator(s) ........................... BA Advisors and Stephens Code .......................................... Internal Revenue Code of 1986, as amended Code(s) of Ethics ............................. The codes of ethics adopted by the Board pursuant to Rule 17j-1 under the 1940 Act CMOs .......................................... Collateralized mortgage obligations Companies ..................................... Two or more of NFT, NFI, NR or the Trust, as the context may require Company ....................................... Any one of NFT, NFI, NR or the Trust, as the context may require 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 the Board pursuant to Rule 12b-1 under the 1940 Act for the distribution of the Funds' shares Emerging Markets Fund ......................... Nations Emerging Markets Fund FDIC .......................................... Federal Deposit Insurance Corporation FHLMC ......................................... Federal Home Loan Mortgage Corporation Financial Services Fund ....................... Nations Financial Services Fund Florida Bond Fund ............................. Nations Florida Municipal Bond Fund Florida Fund(s) ............................... One or more of Florida Bond Fund and Florida Intermediate Bond Fund Florida Intermediate Bond Fund ................ Nations Florida Intermediate Municipal Bond Fund FNMA .......................................... Federal National Mortgage Association B-1 Fund .......................................... One of the open-end management investment companies (listed on the front cover of this SAI) that is a series of the Trust Funds ......................................... Two or more of the open-end management investment companies (listed on the front cover of this SAI) that is a series of the Trust Gartmore ...................................... Gartmore Global Partners Georgia Intermediate Bond Fund ................ Nations Georgia Intermediate Municipal Bond Fund Global Value Fund ............................. Nations Global Value Fund GNMA .......................................... Government National Mortgage Association Government & Corporate Bond Fund(s) ........... One or more of those Funds shown under the heading "Government & Corporate Bond Funds" on the front cover of the SAI Government Reserves ........................... Nations Government Reserves Government Securities Fund .................... Nations Government Securities Fund High Yield Bond Fund .......................... Nations High Yield Bond Fund Index Fund(s) ................................. One or more of 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 Fund(s) ............ 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 the Trust, on behalf of its Funds, and BA Advisors Investment Sub-Advisory Agreements............. The investment sub-advisory agreements with between the Trust, on behalf of each of its respective Funds, and BACAP, Brandes, Gartmore, INVESCO, MacKay Shields, Marsico Capital or Putnam, as the case may be IRS ........................................... United States Internal Revenue Service Kansas Income Fund ............................ Nations Kansas Municipal Income Fund LargeCap Index Fund ........................... Nations LargeCap Index Fund LargeCap Value Fund ........................... Nations LargeCap Value Fund LIBOR ......................................... London Interbank Offered Rate 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 21/st/ Century Fund ................... Nations Marsico 21/st/ Century Fund Marsico Capital ............................... Marsico Capital Management, LLC Marsico Focused Equities Fund ................. Nations Marsico Focused Equities Fund Marsico Growth Fund ........................... Nations Marsico Growth Fund Marsico International Opportunities Fund ...... Nations Marsico International Opportunities Fund Maryland Intermediate Bond Fund ............... Nations Maryland Intermediate Municipal Bond Fund MidCap Growth Fund ............................ Nations MidCap Growth Fund MidCap Index Fund ............................. Nations MidCap Index Fund MidCap Value Fund ............................. Nations MidCap Value 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 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 B-2 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. New York Tax-Exempt Reserves ................... Nations New York Tax-Exempt Reserves NFI ............................................ Nations Fund, Inc., a registered investment company in the Nations Funds Family. NFI currently has no assets or mutual funds. NFT ............................................ Nations Fund Trust, a registered investment company in the Nations Funds Family. NFT currently has no assets or mutual funds. NMIT ........................................... Nations Master Investment Trust, a registered investment company in the Nations Funds Family Non-Money Market Fund(s) ....................... One or more of the mutual funds of the Trust, other than the Money Market Funds North Carolina Intermediate Bond Fund .......... Nations North Carolina Intermediate Municipal Bond Fund NR ............................................. Nations Reserves (formerly known as The Capitol Mutual Funds), a registered investment company in the Nations Funds Family. NR currently has no assets or mutual funds. NYSE ........................................... New York Stock Exchange NRSRO .......................................... Nationally recognized statistical ratings organization (such as Moody's or S&P) PFPC ........................................... PFPC Inc. Putnam ......................................... Putnam Investment Management LLC Research Fund .................................. Nations Research Fund REIT ........................................... Real estate investment trust S&P ............................................ Standard & Poor's Corporation 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-Intermediate Government Fund ............. Nations Short-Intermediate Government Fund Short-Term Income Fund ......................... Nations Short-Term Income Fund 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 SmallCap Value Fund ............................ Nations SmallCap Value Fund SMBS ........................................... Stripped mortgage-backed securities South Carolina Intermediate Bond Fund .......... Nations South Carolina Intermediate Municipal Bond Fund State Municipal Bond Fund(s) ................... One or more of the California Bond Fund, California Intermediate Bond Fund, Florida Bond Fund, Florida Intermediate Bond Fund, Georgia Intermediate Bond Fund, Kansas Income 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 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 Strategic Income Fund .......................... Nations Strategic Income Fund Sub-Administrator .............................. BNY Sub-Transfer Agent ............................. Bank of America (for the Funds' Primary, Capital Class and Trust B-3 Class Shares) Tax-Exempt Reserves ........................ Nations Tax-Exempt Reserves Tax-Exempt Fund(s) ......................... One or more of Municipal Reserves, California Tax-Exempt Reserves, Tax-Exempt Reserves and the Municipal Bond Funds Tennessee Intermediate Bond Fund ........... Nations Tennessee Intermediate Municipal Bond Fund Texas Intermediate Bond Fund ............... Nations Texas Intermediate Municipal Bond Fund Transfer Agent ............................. PFPC Transfer Agency Agreement .................. The transfer agency agreement between the Trust, on behalf of its respective Funds, and PFPC Treasury Reserves .......................... Nations Treasury Reserves The Trust .................................. Nations Funds Trust, the registered investment company in the Nations Funds Family to which this SAI relates 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 B-4 APPENDIX C--DESCRIPTION OF STATE CONDITIONS California The following information relates specifically to California Tax-Exempt Reserves and the California 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. California's economy, however, experienced an overall decline in fiscal year 2001-02. A decline in revenues from the personal income tax on capital gains and stock options, brought on by the weak performance of the stock market through 2001 and exacerbated by the tragic events of September 11 have directly impacted the State's economy. The impact has been particularly felt in the high technology sector centered in the Bay Area/Silicon Valley, in the construction sector, in exports and in tourism and related industries. Fuel and other energy prices have also risen sharply, affecting state and local government economies. California's July 1, 2001 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, 2000 census, just under 97 percent of the State's population resided in the 23 Metropolitan Statistical Areas in the State. As of July 1, 2001, the five-county Los Angeles area accounted for 47 percent of the State's population with over 16.0 million residents and the 10 county San Francisco Bay Area represented just over 20 percent of the State's population with a population of over 7.0 million. The economy grew strongly during the second half of the 1990's, 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, $8.2 billion in 1999-2000 and $4.1 billion in 2000-01) than were initially planned when the budgets were enacted. These additional funds were largely directed to school spending as mandated by Proposition 98 (described below), and to make up shortfalls from reduced federal health and welfare aid in 1995-96 and 1996-97. In 1998-99 through 2000-01, new spending programs were also enacted, particularly for education, new capital outlay projects were funded from current receipts, and significant tax reductions were enacted. Since mid-2000, however, the State has experienced a downturn in its overall fiscal health. The slowdown in the State's economy, combined with weakness in the stock market, has resulted in a dramatic decline in General Fund revenues compared to the estimates made in fiscal year 2001-02. California's fiscal year begins on July 1 and ends on June 30 of each year. On January 10, 2002, the Governor released his proposed budget for 2002-03 (the "2002 Governor's Budget"), which outlined a plan for bridging a gap between revenues and expenditures of $12.5 billion. That difference was subsequently increased to $23.6 billion in the Governor's May Revision to the 2002-03 Budget (the "2002 May Revision"), released on May 15, 2002. The change in the State's fiscal condition reflects a $9.5 billion drop in revenues and a $1.6 billion in additional expenditures. The Department of Finance has indicated that the State's budget reserve (the SFEU) which totaled $8.7 billion at June 30, 2000 totaled $6.3 billion as of June 30, 2001. The $6.3 billion figure, however, included as an asset the $6.1 billion loan to the California Department of Water Resources ("CDWR") for power purchases, of which only $116 million has been repaid to date (see "Recent Developments Regarding Energy" below). Thus, the General Fund's available cash as of June 30, 2001 may have been considerably less than the $6.3 billion figure indicated by the Department of Finance. C-1 The downturn in the State's economy, compounded by the financial burden imposed by recent developments in the energy sector, has left the finances of the State in flux. At the present time, no assurances can be made as to actual amounts available to the State of California from the General Fund or other sources. Fiscal Year 2001-02 Budget Background. The 2001-02 Governor's Budget (the "2001 Governor's Budget") released on January 10, 2001, estimated 2001-02 General Fund revenues and transfers to be approximately $79.4 billion and proposed $82.9 billion in expenditures, utilizing a portion of the surplus expected from 2000-01. The Governor proposed budget reserves in 2001-02 of $2.4 billion, including $500 million for unplanned litigation costs. The May Revision to the 2001 Governor's Budget (the "2001 May Revision") disclosed a reversal of the recent General Fund financial trend, as a result of the slowdown in economic growth in the State starting in the first quarter of 2001 and, most particularly, the steep drop in stock market levels since early 2000. The 2001 Budget Act projected General Fund revenues in 2001-02 would be approximately $75.1 billion, a drop of $2.9 billion or almost 4 percent from revised 2000-01 estimates. Most of the drop was attributed to a drop in personal income tax, which reflected both slower job and wage growth and a severe decline in capital gains and stock option income. 2001 Budget Act. The Governor signed the 2001 Budget Act on July 26, 2001. The Governor vetoed almost $500 million in General Fund expenditures from the Budget passed by the Legislature. The spending plan for 2001-02 included General Fund expenditures of $78.8 billion, a reduction of $1.3 billion from the prior year. This was accomplished without serious program cuts because a large part of the 2000 Budget Act comprised one-time expenditures. The spending plan utilized more than half of the $6.3 billion budget reserve as of June 30, 2001, but left a projected balance in the SFEU at June 30, 2002, of $2.6 billion. However, the decrease in State revenues combined with the energy-related expenses incurred by the State may have reduced the actual balance in the SFEU at June 30, 2002, to considerably less than the figure originally projected in the 2001 Budget Act (see Proposed Fiscal Year 2002-03 Budget below). Further, the 2001 Budget Act assumed that, during the course of the fiscal year, the $6.1 billion advanced by the General Fund to the CDWR for power purchases would be repaid with interest (see "Recent Developments Regarding Energy" below). However, as of April 30, 2002, only $116 million has been repaid. Thus, the General Fund's available cash as of June 30, 2001 may also have been considerably less than the stated $6.3 billion. Some of the major features of the 2001 Budget Act were the following: 1. Proposition 98 per pupil spending was increased by 4.9 percent. Total General Fund spending of $32.4 billion for K-12 education fully funds enrollment and cost of living increases and also provides additional funding for a number of programs, such as teacher and principal training programs, instructional and student achievement improvement programs, energy cost assistance, and high-tech high schools. 2. Funding for higher education was increased to allow for enrollment increases both at the University of California and the California State University system with no fee increases. Additional funding was also provided for 3 percent student growth at community colleges. 3. Health and human services generally were fully funded for anticipated caseload growth. The 2001 Budget Act adopted an Administration proposal to utilize $402 million of tobacco litigation settlement payments to fund various health programs. 4. In addition to $4.3 billion of continuing tax relief, the 2001 Budget Act contained about $125 million in new General Fund tax relief, primarily for senior citizens property tax assistance and some new tax credits aimed at rural areas and agricultural equipment. The Legislature modified the law permitting a 0.25 percent cut in the state sales tax rate if the General Fund reserve exceeds three percent of revenues in the current fiscal year. 5. The 2001 Budget Act altered the six-year transportation funding plan started in the 2000-01 fiscal year. The Legislature postponed for two years the transfer of sales taxes on gasoline to support transportation programs, and this transfer will take place during the 2003-04 to 2007-08 fiscal years. As a C-2 result, $2.5 billion of these sales tax revenues will remain in the General Fund over the 2001-02 and 2002-03 fiscal years. To allow all current projects to remain on schedule through 2002-03, the legislation authorized some internal loans from other transportation accounts. Part of the Budget Act compromise was an agreement to place on the March 2002 statewide ballot a constitutional amendment which would make permanent, after 2007-08, the dedication of sales taxes on gasoline to transportation purposes. This measure was approved by the voters. 6. The 2001 Budget Act provided significant assistance to local governments including $232.6 million for the Citizens' Option for Public Safety (COPS) program and county juvenile justice crime prevention programs, $209 million for mental health and social services, $154 million for street and road maintenance, $124 million for various public safety programs and $34 million for environmental protection. Subsequent Developments. A series of reports after the start of the 2001-02 fiscal year have indicated that both the national and the State economies have been in a recession starting in 2001. While the Administration has reported that the California economy continued to outperform the nation as a whole, the 2002 Governor's Budget estimate of revenues for 2000-01 and 2001-02 is projected at $4.5 billion, or 11 percent below the 2001 Budget Act forecast. The State sold a record $5.7 billion in revenue anticipation notes ("RANs") for the 2001-02 fiscal year, to offset cash flow shortfalls during the fiscal year, as part of the State's normal, annual cash management program. The State's cash position has been adversely affected by the $6.1 billion advances made by the General Fund to pay for electricity purchases in the first half of 2001 (see "Recent Developments Regarding Energy" below). In late April, 2002, the State Controller pronounced that cash flow projections for the balance of the fiscal year, in light of weak revenues, indicated the need for the State to borrow additional moneys in the short-term note markets in order to pay the RANs when they mature on June 28, 2002. The Controller also indicated that additional cash would be needed in order to fulfill other State obligations in June, July and August 2002, given the fact that the CDWR revenue bonds will not be sold in time to replenish the General Fund by the end of June. The Controller proposed the issuance of up to $7.5 billion of "revenue anticipation warrants" in June, 2002. Revenue anticipation warrants are short-term notes that allow the State to borrow in one fiscal year and repay in a subsequent one when surplus cash becomes available. The need for any additional cash flow borrowing will likely depend on how quickly the CDWR revenue bonds are sold (see "Recent Developments Regarding Energy" below). In January 2002, the State Treasurer announced a plan to, among other things, have amortization of the State's long-term debt more closely approximate level annual debt service costs as compared to level annual principal, the current practice. Another element of the Treasurer's plan is the proposed issuance of refunding debt to pay selected maturities of general obligation bonds coming due in the period from February 2002 to June 2004. The first sale of refunding bonds took place in March, 2002, to refund maturities up to June, 2003, with additional sales potentially to occur in 2003. Refunding of the selected maturities would not involve any early redemptions or extend the final maturity of the refunding bonds beyond the final maturity of the series of bonds of which the selected maturities were a part. Such refunding bonds would enable the State to move toward level annual debt service in future years and, if fully implemented as described in the plan, would provide General Fund expenditure reductions of up to $1.9 billion over the period from February 2002 to June 2004. Under the California Constitution, debt service on outstanding general obligation bonds is the second charge to the General Fund after support of the public school system and public institutions of higher education. As of January 1, 2002, the State had outstanding approximately $23.9 billion of long-term general obligation bonds, plus $724 million of general obligation commercial paper and $6.2 billion of lease-purchase debt supported by the State General Fund. The State also had about $13.2 billion of authorized and unissued long-term general obligation bonds and lease-purchase debt. In February and April of 2002, the State sold an aggregate $1.8 billion of general obligation bonds to repay outstanding commercial paper notes. In February, 2002 the State sold $187,705,000 of new lease purchase bonds and in March, 2002, sold $1.05 billion in general obligation refund bonds. In fiscal year 2000-01, debt service on general obligation bonds and lease purchase debt was approximately 3.8% of General Fund revenues. State voters approved $2.8 billion of new general bond authorizations on the ballot in March, 2002. At least $15 billion in new bond authorizations are expected to be on the ballot in November, 2002. C-3 Proposed Fiscal Year 2002-03 Budget The 2002 Governor's Budget projected a fall-off in General Fund revenues due to the national economic recession combined with the stock market decline, which began in mid-2000. Personal income tax receipts, which include stock option and capital gains realizations, are particularly impacted by the slowing economy and stock market decline. As a result, the Administration projected a combined budget gap for 2001-02 and 2002-03 of approximately $12.5 billion. The State Controller has reported that General Fund cash receipts for the period July 1, 2001 through March 31, 2002 were about $1.4 billion below the forecast of cash receipts for such period contained in the 2002 Governor's Budget. The Governor released the 2002 May Revision on Tuesday, May 14. The 2002 May Revision reflects a budget gap of $23.6 billion between revenues and expenditures in the 2001-02 and 2002-03 fiscal years, the largest projected deficit in the State's history. The $23.6 billion figure represents 30 percent of the General Fund and an $11.1 billion increase from the $12.5 billion figure presented in the 2002 Governor's Budget. The increase is attributable to a $9.5 billion drop in revenues and $1.6 billion in additional costs. General Fund revenues are expected to be below the 2002 Governor's Budget by approximately $3.3 billion in 2001-02 and $0.7 billion in 2002-03. The Governor proposes to bridge the additional gap with program reductions totaling approximately $2.4 billion, securitizing up to $2.1 billion of the State's tobacco settlement payments, loans of $478 million, deferring up to $1.1 billion in payments to schools, restructuring $1.1 billion in State debt payments, implementing tax conformity and compliance initiatives of up to $760 million, accelerations, transfers and shifts of up to $233 million, tax increases including deferral of net operating loss carryforwards totaling $1.2 billion, a $0.50 per pack increase in cigarette taxes totaling up to $475 million and a temporary increase in Vehicle License Fees totaling up to $1.276 billion. All of the Governor's proposals, however, are subject to approval by the State legislature and there is no assurance that the legislature will implement any or all of the proposed cost-cutting or revenue-generating measures. On June 17, 2002, the Governor requested that California State lawmakers boost the State's budget reserve to $1 billion in order to ensure the State's ability to repay an additional $7.5 billion from the sale of revenue anticipation warrants scheduled to occur in June, 2002. California lawmakers have already worked passed the Constitutional deadline of June 15 to approve a State budget. 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 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. Article XIII B of the State Constitution limits annual appropriations of state and local entities. 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 include tax revenues and 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." "Proceeds of taxes," however, exclude most state subventions to local governments, tax refunds and some benefit payments such as unemployment C-4 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. Various types of appropriations are excluded from the appropriations limit. For example, debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, appropriations for tax refunds, appropriations of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels, and appropriation of some special taxes imposed by initiative (e.g., cigarette and tobacco taxes) are all 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 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 Tax-Exempt Reserves and the California 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. It is unknown whether additional revenue redistribution legislation will be enacted in the future and whether, if enacted, such legislation will provide sufficient revenue for such California issuers to pay their obligations. Proposition 62. On November 4, 1986, California voters approved an initiative statute known as Proposition 62 which requires, among other things, the approval by a majority of the electorate before a general tax may be imposed by a local government or district and the approval by two-thirds of the electorate before a special tax may be imposed. 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 Court of Appeal decision in City of Woodlake v. Logan, 230 Cal. App.3d 1058, 282 Cal. Rptr. 27 (1991), to the extent that it held that Proposition 62's popular vote requirement for future local taxes provided for unconstitutional referenda. The Supreme Court has, however, declined to review either City of Woodlake or City of Westminster v. County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (1988), in which the Court of Appeal 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 the effective date of Proposition 62, to be subject to approval by a majority of voters. We cannot predict the impact of the Supreme Court's decision in Guardino on charter cities or on taxes imposed in reliance on City of Westminster or City of Woodlake. C-5 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 added Articles XIII C and XIII D to the California Constitution and contains a number of provisions affecting the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 is generally viewed as restricting the fiscal flexibility of local governments, and for this reason, some ratings of California cities and counties have been, and others may be, reduced. Proposition 218 could substantially restrict some 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. It remains to be seen, as such, what impact these Articles will have on existing and future California security obligations. 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. The initiative power granted under Article XIII C, 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 prohibits revenues derived from "property related fees and charges" from exceeding funds required to provide the property related service and imposes procedural requirements (including notice and a public protest hearing) prior to the imposition of new or increased property related fees or charges. If, at a hearing, a majority of the owners of the affected property protest the proposed imposition or increase of the fee or charge, the fee or charge may not be imposed or increased, as the case may be. Article XIII D also makes it 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. 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 Developments Regarding Energy. In 1997, the State implemented an energy deregulation program which attempted to create a competitive wholesale market for electric energy in California. Among other changes made at the retail level, the deregulation plan froze retail rates for electricity at a level and for a period considered at the time to allow the three investor-owned utilities ("IOUs") an opportunity to recover costs of deregulation. Beginning in mid-2000, due to a variety of factors, the IOUs' power purchase costs exceeded the frozen retail rates. After several months of contracting power supplies at short-term and spot market prices, the two major IOUs exhausted their cash reserves and could no longer purchase electricity in the spot market. On January 17, 2001, Governor Davis determined that the electricity available from the State's utilities was insufficient to prevent widespread and prolonged disruption of electric service in California, proclaimed a state of emergency to exist under the California Emergency Services Act, and directed the CDWR to enter into contracts and arrangements for the purchase and sale of electric power as necessary to assist in mitigating the effects of the emergency (the "Power Supply Program"). The CDWR began 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, and also started to enter into long-term power supply contracts to reduce reliance on short-term and spot markets. In May, 2001, the California Public Utilities Commission ("CPUC") approved a $5.7 billion energy rate increase that has impacted approximately nine million residential, industrial and agricultural customers. On June 18, 2001 the Federal Energy Regulatory Commission ("FERC") announced that it was imposing round-the-clock price limits on electricity in eleven western states, including California. The current cap on retail rates imposed by FERC is set to expire on September 30, 2002. C-6 In mid-2001, in order to avoid paying short-term and spot-market prices in excess of $300 per megawatt hour (MWh), the State entered into 57 long-term contracts with approximately 22 energy providers estimated to be worth an aggregate $43 billion. The State agreed to a number of contracts with terms of up to 20 years and negotiated power prices at significantly less than the then prevailing spot market prices. However, power prices have subsequently generally fallen to less than half the contracted amount and the State has been in negotiations with various power suppliers seeking a reduction in the contract prices agreed upon last year. The State recently announced that it had renegotiated 8 deals signed with 5 power companies with savings totaling approximately $3.5 billion. The State is continuing to negotiate with the remaining power providers to reach agreement on a lesser rate. The Power Supply Program is expected to supply the shortfall between the amount of electricity required by customers and the amount of electricity furnished to customers by the IOUs until December 31, 2002. The Administration and the CPUC are developing plans for the provision of the shortfall after fiscal year 2002, including plans to enable the IOUs to be able to furnish the portion of the shortfall not provided by the CDWR's long-term contracts. Alternatively, it is possible that the authorization of the CDWR to provide power to retail customers will be extended by legislation or that another State agency will be authorized to develop a successor program. CDWR's power purchases were initially funded primarily by unsecured, interest-bearing loans from the State's General Fund ("State Loans"). CDWR is also receiving repayment from a portion of retail end use customers' payments, remitted through the IOUs, but these amounts will cover only a small portion of the power purchase costs. Effective June 26, 2001, the CDWR entered into an Interim Loan Agreement with several banks totaling $4.1 billion ("Interim Loans"), which moneys are being used since that date to fund power purchases. The Interim Loans are repayable only from end use customer payments or other debt sales, and are not an obligation of the State General Fund. As of January 31, 2002, CDWR had committed approximately $12.6 billion for power purchases, funded from $6.1 billion in net State Loans, $3.7 billion in customer payments and a net $2.7 billion from the Interim Loans ($1.4 billion of Interim Loan proceeds remain available to fund future power purchases). The State Loans, the Interim Loans and the balance of energy purchase costs, are intended to be funded from the issuance of up to $13.4 billion of CDWR revenue bonds authorized by legislation. Issuance of the bonds depends on adoption and final legal review of several orders by the California Public Utilities Commission ("CPUC"). In February, 2002 the CPUC adopted an order implementing CDWR's "revenue requirement" to be collected from customer rates; the procedure used by CDWR to calculate its revenue requirement was, however, challenged in a court proceeding. The CPUC also approved a "rate agreement" with the CDWR governing the imposition of consumer rates necessary to repay the bond issue and CDWR's other power purchase costs. While the CPUC had raised customer rates significantly in 2001 (average of 40%), final calculation of the CDWR's revenue requirement to repay bonds and meet its other obligations may require additional rate actions. On March 25, 2002, CPUC also approved an order retroactively effective as of September 20, 2001, eliminating the right of retail customers to contract directly with Energy Service Providers to meet energy demands. A final schedule for issuance of the revenue bonds will depend on review of any legal challenges to these CPUC orders. The CDWR revenue bonds will be repaid from a dedicated revenue stream derived from customer payments; they will not be backed in any way by the faith and credit or taxing power of the State. Pending issuance of the CDWR revenue bonds, CDWR projects it will have enough funds available from existing resources and customer revenues to continue its power purchases and repay its obligations. As of May 14, 2002, there was no proposed schedule of the sale. If such bonds are not prepaid, the principal of these advances will be payable in eleven quarterly installments, commencing April 30, 2002. The first of these principal payments, in the amount of $116 million, was made as scheduled on April 30, 2002. On April 9 and June 18, 2001, Governor Davis announced the execution of Memoranda of Understanding between the State and each of Southern California Edison ("SCE") and San Diego Gas & Electric ("SDG&E"). Pursuant to the Memoranda, the State agreed to purchase SCE's and SDG&E's electric transmission assets for approximately $2.76 billion and $1 billion, respectively, subject to certain C-7 conditions. For a variety of reasons, definitive agreements were never reached with either party and the purchase of transmission assets is not expected to occur. On April 6, 2001, the largest IOU, Pacific Gas & Electric Company, filed for voluntary protection under the federal Bankruptcy Code. Its bankruptcy proceeding remains unresolved. SCE also defaulted on various obligations in early 2001. In October, 2001, SCE announced the settlement of a lawsuit with the CPUC over the rates which SCE could charge its customers. Although the settlement is subject to court challenge, CPUC implemented the settlement by allowing SCE to collect rates from its customers at current levels for up to three years in order to repay its prior debts. Based on this agreement, SCE used accumulated cash receipts and proceeds of a new credit agreement to repay substantially all of its prior defaulted debts in March, 2002. A number of lawsuits have also been filed concerning various aspects of the energy situation. These include disputes over responsibility for electricity and natural gas purchases made by the IOUs and the California Independent System Operator, continuing contractual obligations of some small independent power generators, and antitrust and fraud claims against various parties. These actions do not seek a judgment against the State's General Fund, and in some cases, neither the State nor the CDWR is even a party to theses actions. However, adverse rulings in some of these matters may affect power costs borne by the CDWR Power Supply Program. Further, in June, 2001, the State alleged that out-of-state power generators had unlawfully over-charged California for electricity during the period May, 2000 through June, 2001, and demanded that FERC order the generators to refund $8.9 billion in over-charges to the State. The matter is still pending before FERC. Since the rolling blackouts experienced in 2001, the State has implemented various 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 are expected to come on line in 2002-03. In addition, 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 are not regulated and therefore may fluctuate. 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. The energy situation continues to be fluid and subject to many uncertainties. 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 C-8 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 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, 2002, California general obligation bonds were assigned ratings of "A+" from Standard & Poor's, "A1" from Moody's and "AA" from Fitch. Standard & Poor's lowered its rating of the State's general obligation bonds from AA to A+ in April, 2001, citing the mounting and uncertain cost of the current electrical crisis, as well as its likely long-term detrimental effect on the State's economy. During that same month Fitch Ratings placed the State's general obligation bonds on a negative rating watch. Moody's lowered its rating of the State's general obligation bonds from Aa2 to Aa3 in May 2001 because of the financial risks associated with the energy crisis and trends in the broader U.S. and California economies, and to A1 in November 2001, citing the expectation that the State's General Fund budget and liquidity position will weaken substantially over the next eighteen months, in light of weakness in the technology sector of the State's economy, greatly reduced State revenue projections and the likelihood that the State will have great difficulty reaching consensus on the necessary fiscal adjustments during its upcoming budget session. On June 28, 2001, Standard & Poor's removed California's debt ratings from credit watch and affirmed the State's general obligation bond ratings. It should be noted that the creditworthiness of obligations issued by local California issuers may be unrelated to the creditworthiness of obligations issued by the State, and there is no obligation on the part of the State to make payment on such local obligations in the event of default. 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 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 Tax- C-9 Exempt Reserves and the California 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 2001 population of 16,331,739. By the year 2005, population will likely exceed 17.3 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. Despite a mild national recession, Florida reached record annual population growth, during year 2001. Since 1990, population has grown in Florida, by 26%. Local growth is supported by strength in other regions of the country 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 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 2001, real property values exceeded $992 billion, a 7.87% increase over 2000. 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 $6.7 billion in 2001, ranking fourth among states in dollar volume awards. 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, Florida's per capita state debt of $1,180 remains well below the national average of $1,876, as of 1999. 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. It is anticipated that within the next year to two years, concurrency requirements will be updated. The update C-10 will likely include provisions for capital funding of new public schools, needed as a result of new growth and development. 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 efforts recently have been undertaken in northern Palm Beach County. However, the high capital cost of major infrastructure improvements remain an impediment to development in far western Palm Beach County. Recent property sales from the MacArthur Foundation land holdings in northern Palm Beach County will 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. Sharp but temporary declines in tourism, travel and hotel occupancy were noted in the Orlando market in the period immediately following the attacks of September 11. Through the first half of 2002 however a recovery was made erasing much of the year over year losses. Still, the reduction of business travel and shrinkage in the airline fleet will translate to tourism and travel declines of at least five percent (5%) during 2002. Depending on the strength of the national recovery from recession, Orlando's travel market should see a return to earlier higher levels of tourism by year 2003 or 2004. 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 among the fastest absorbing C-11 residential community in Central Florida. Projected 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 investors, foreign retirees or foreign vacation homeowners. Common places of origin include England, Germany, South America, and Puerto Rico. International retirement markets are also growing in southwest and Southeast Florida. There were an estimated 40 million visitors to the Orlando market in 2001. The hotel market has been strong with 8,033 new hotel rooms added in the Orlando market area during 2001. 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 to a number of factors including, anticipated long term climate change, more restrictive environmental rules and population growth pressure. The high volume of growth and associated growth pressures are moving into North Florida markets traditionally known as second or third tier markets. These include Ocala, Gainesville and St. Johns County, south of Jacksonville. 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. Gulf County was Florida's fastest growing county during 2001. Georgia Located in the southeastern section of the United States, the State of Georgia ("Georgia") has experienced significant growth over the last several decades. Since 1960, the population of Georgia has more than doubled, making Georgia the country's tenth largest (and, according to the 2000 Census, the fourth fastest growing) state. Georgia's economy is well diversified, with private sector employment almost equally spread between manufacturing, services, and wholesale and retail sales. This diversity allowed Georgia to experience almost continuous economic growth over the last several decades. Furthermore, this diversity has helped to limit the impact of the recent slowing of the national economy, allowing an actual net increase in statewide employment during the first five months of 2002. In spite of recent increases, Georgia continues to experience unemployment rates significantly below the national average. As of April 2002, Georgia's employment rate remained at only 4.2%, which is the lowest in the Southeast. 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, serving over 75,000,000 passengers in 2001. The airport also has over 2,000,000 square feet of cargo dock handling space, which allowed the airport to handle more than 739,000 metric tons of cargo in 2001. Finally, with respect to water transport, Georgia has three significant ocean ports (Savannah, Brunswick and Bainbridge), which handled 12.7 million tons of cargo in 2001, a 5% increase over 2000. These factors have all contributed to Georgia's significant link to the international economy, which is recognized by the 13 international banks with offices in the state as well as the 44 countries that have consular, trade, or chamber of commerce offices in Atlanta. C-12 While much of this economic largesse is centered around the capital city of Atlanta, the state government has taken several steps to ensure that the other areas of Georgia share in this growth. Of particular note is the OneGeorgia Authority (the "Authority"). Established in 2000 and funded with a portion of the state's recovery in the nationwide tobacco litigation settlement, the Authority was created to provide financial assistance to development projects targeted to assist Georgia's economically distressed areas. It is anticipated that the Authority will spend over $1.6 billion over the term of the tobacco settlement. 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 that 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 Constitution prevents state departments and agencies from circumventing these debt limitation provisions by prohibiting them from executing contracts that 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, 2001 the reserve had a balance of $734,449,390, which represented a 33% increase over the prior year balance. C-13 Net tax revenue collections for the fiscal year ending on June 30, 2001 were $13,951,007,965, which represented a 6.5% increase over fiscal year 2000 collections. Primary sources of these funds included: Source Amount ------ ------ Personal Income Tax $ 6,926,034,617 Sales and Use Tax $ 5,126,417,280 Corporate Income Tax $ 724,773,085 Motor Vehicle Fees and Fuel Taxes $ 683,173,482 Liquor and Tobacco Taxes $ 223,972.085 Estate Taxes $ 127,052,284 Property $ 50,954,338 Miscellaneous $ 88,631,090 In addition, Georgia received $691,672,000 in revenue from the Georgia Lottery Corporation in fiscal year 2001; all lottery revenues are earmarked for educational expenditures. As reported by the Attorney General's Office (in a March 23, 2002 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: 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 were $55 million, with construction management services on the project are being provided by Bovis Construction as the program manager. Several subcontractors filed lawsuits against Beers and the surety. Beers 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 lawsuit, by Atlanta Coast Mechanical (HVAC), is for $7 million, with an additional Beers claim of $5 million. As of October 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. The State has settled with Cleveland Construction for $625,000. With three of the four cases now settled, the remaining litigation involves only Atlanta Coast Mechanical and R. W. Allen-Beers (the initial case). R. W. Allen-Beers has voluntarily dismissed the State's program manager, Bovis, and is entering into settlement discussion with the Board of Regents. For the disputes with R. W. Allen-Beers, the State has filed a fourth party complaint against the architect, Stanley Beaman & Sears, who has brought the engineer, Nottingham, Brooks & Pennington, into the suit. Mediation among Beers and the third party defendants is scheduled for February 27-28, 2002. Barnhill v. State of Georgia and Tim Burgess as Commissioner of the Department of Motor Vehicle Safety, Fulton Superior Court Civil Action No., 2001CV39892. On July 3, 2001, this civil action was filed, challenging the constitutionality of the organ donor provisions of the driver's license statute, O.C.G.A. section 40-5-25(d)(2). Plaintiff is seeking a declaratory judgment and permanent injunction, class status, and a monetary refund to Plaintiff and each member of the class to the extent that any class member's driver's license fee exceeded the sum of $8.00 for the period from July 1, 1995, to the present. As adverse decision to the State could result in refunds in excess of $20 million. The parties have filed cross motions for summary judgment, and a hearing is scheduled for March, 2002. The State believes it has good and valid defenses, including that of sovereign immunity. C-14 DeKalb County School District and William Bradley Bryant and other individual members of the DeKalb County Board of Education v. Schrenko, as Superintendent of Schools, McCullough, as Director of Student Transportation, State Board of Education, Otis Brumby and other individual members of the State Board of Education, the Department of Education, the State of Georgia, Governor Roy E. Barnes, John Oxendine, as Comptroller General, and Daniel Ebersole, as Director of the Office of Treasury and Fiscal Services, Fulton Superior Court Civil Action No. 2001CV35345. This is an action for mandamus to compel the Defendants to change the calculation and distribution of school transportation funding to the DeKalb County School District. The Plaintiffs allege that the State Board of Education's attendance zone/routing survey system of calculating State financial aid is contrary to the applicable statute and violates a State Board of Education policy directing supplemental flat grants for children attending schools other than that of their geographic assignment pursuant to M-to-M or magnet school programs. Plaintiffs seek an entitlement of $63 million. Previous similar federal litigation was resolved in favor of the State. See DeKalb School District v. Schrenko, 109 F.3d 680 (11/th/ Cir. 1997). Oral argument on the mandamus action was held on June 4, 2001. Briefs and proposed findings of fact and conclusions of law have been submitted by both sides. The State believes it has adequate defenses to the action and will continue to defend the case. Ellis-Don Construction, Inc. v. GFSFIC, Fulton Superior Court Civil Action No. 2000CV18524. The UGA Biocontainment Research Center in Athens (now called the Animal Health Research Center) has generated an $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 has hired a building commissioning agent and a litigation consultant to monitor the compliance work. GSFIC and the Board of Regents of the University System of Georgia have significant counterclaims against Ellis-Don ($6-8million). The parties are now completing the discovery phase, after being unable to reach settlement through 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. In the meanwhile, GSFIC has disqualified Ellis-Don as low bidder on a $30 million project for the Board of Regents and has had its decision upheld in the Superior Court of Fulton County, Georgia. GSFIC has claims against Ellis-Don on two additional projects, for which GSFIC has requested that the Attorney General initiate lawsuits. The mechanical subcontractor, Kirlin, has been added by Ellis-Don. GSFIC is preparing to issue formal default and add the sureties. The discovery schedule anticipates trial in the fall of 2003. Meanwhile, efforts are ongoing to obtain interim funding to complete the project. Estimated construction time is approximately one year from the notice to proceed. General Motors Acceptance Corp. v. Jackson, Fulton Superior Court Civil Action No. 1999CV06252 ("GMAC"); Bank of America, N.A., as successor by merger to NationsBank, N.A. v. Jackson, Fulton Superior Court Civil Action No. 1999CV10366; Chrysler Financial Co. LLC v. Jackson, Fulton Superior Court Civil Action No. 1999CV10369; SunTrust Bank, Atlanta, et al. v Jackson, Fulton Superior court Civil Action No. 1999CV10385; First Union Nat'l Bank v. Jackson, Fulton Superior Court Civil Action No. 1999CV12508. These five suits by financial institutions sought 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 principal amount of these and all similar, pending administrative claims for refund (for the years 1991-2001) is approximately $53,000,000. The four cases filed after GMAC were stayed pending the outcome of the GMAC case. 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, and the Georgia Supreme Court denied certiorari. The plaintiffs in three of the stayed cases have now voluntarily dismissed their suits. GETCo v. Jackson and Reheis, Fulton Superior court Civil Action No. 2001CV42207. This case involves a challenge by Georgia Emission Testing Company ("GETCo") to a rule promulgated by the Department of Natural Resources ("DNR") under the Georgia Motor Vehicle Emission Inspection and Maintenance Act ("I/M Act") authorizing the assessment of a $5.45 administrative fee per paid emissions inspections to be paid to the management contractor for the Enhanced Inspection and Maintenance Program C-15 ("Enhanced I/M Program") for "program management services." GETCo alleges that this rule is unauthorized and unenforceable because fees for "program management services" are not authorized by statute. In a related case (GETCo v. DNR, Fulton Superior Court Civil Action No. 1999CV03636), it was determined that $1.46 of the administrative fee is not authorized, which determination was affirmed on appeal. GETCo, on its behalf and allegedly on behalf of 114 other emission inspection stations, filed this action against the Commissioner of Revenue and the Director of the DNR Environmental Protection Division for a refund of $1.46 of each administrative fee paid by GETCo and 114 other emission inspection stations. GETCo alleges that such refunds are due pursuant to the refund statute found at O.C.G.A. section 48-2-35 for "any and all taxes of fees [paid to the Commissioner] which are determined to have been erroneously or illegally assessed and collected from such taxpayer" The commissioner's motion to dismiss, on grounds that he has not authority to consider claims for refund of a fee or to issue refunds of the fee pursuant to Code section 48-2-35 because such fees have not been paid to the Commissioner, was granted by the trial court, and the Plaintiffs have appealed. The Director's motion to dismiss, on the ground that the court lacks jurisdiction over the subject matter of the complaint because the issue on which the Plaintiff's claims are based is still on appeal to the Georgia Supreme Court, was denied. In the event of a decision adverse to the State, if all emission inspection stations that paid the unauthorized portion of the administrative fee were to file for and be awarded refunds, those refunds could total approximately $9 million without interest. The State is asserting several defenses, among which is the doctrine of sovereign immunity, and intends to continue defending the case vigorously. 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. Recently, an amended complaint was filed that seeks to name the governors of the respective states as co-defendants. As of October 1, 2001, 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 on punitive damages against each named defendant. The amended complaint seeks an additional $500 million in damages from each 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. The University of Kansas, Policy Research Institute summarized its forecast for the Kansas economy through the year 2002 in "The Kansas Economy" in the Kansas Economic Outlook, Vol. 6, No. 1 (www.ku.edu/pri/ksdata/keo/keo.htm) as follows (references to tables of data have been deleted): The Kansas Economy/1/ _______________ /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 C-16 The trajectory of jobs in Kansas anticipated the national recession by a year. After strong growth in 1996-1999, negative growth in 2000 was followed by a modest recovery in 201. Jobs are expected to decline again in 2002, while the unemployment rate will continue to rise. Key assumptions driving this forecast include: very slow U.S. national recovery from the recession, as predicted by Indiana University's econometric model, and employment cutbacks by Kansas state and local government during 2002Q3 through 2003Q2. (Some 2001 data were not available for this report, so some 2001 totals are technically forecasts.) Some highlights of the 2002-2002 forecast ...are: .. The unemployment rate will be 3.8 percent in 2001 and 5.5 percent in 2002, up from the business-cycle low of 3.1 percent in 1999. .. Job growth (persons employed) will hit 2.2 percent in 2001 but fall to -1.7 percent in 2002, as Kansas experiences a sluggish recovery. .. Nominal personal income will grow 4.5 percent in 2001 and 3.6 percent in 2002. These rates are down somewhat from the 4.7 percent increase in personal income during 2000, but are still in a range that will mean real personal income increases for Kansas. Some prominent features of the quarterly sectoral job forecasts ... are: .. The mining sector continued to add jobs throughout 2001, but employment is expected to falter in 2002. The construction sector, which had fewer jobs during the last half of 2000 than during the same period in 1999, will continue to recover during 2002. .. Durable goods manufacturing lost jobs during the second half of 1999 and 2000, then held steady through the first half of 2001. This sector is expected to exhibit job losses throughout 2002. Jobs in non-durable goods manufacturing have declined persistently since late 1999 and this pattern is expected to continue. .. Job growth in the transportation, public utilities and communications sector moderated in 2001 and is expected to remain modest in 2002. .. The wholesale trade sector experienced renewed growth during 2000 and 2001. Jobs in the sector are expected to flatten out during 2002. Jobs in retail trade, which have remained nearly level during the last 2 years, are expected to continue to show slow growth throughout the forecast period. .. The finance, insurance, and real estate sector is expected to show moderate job growth through 2002. .. Service sector jobs have been growing at around 2 percent per year but slowed in 2001. This sector is expected to accelerate during 2002. .. State and local government jobs will decline somewhat during 2002. Federal government jobs in Kansas will be flat. ...The main components of the job declines in durable goods manufacturing during the last three years were a 4.6 percent decline in the manufacturing of machinery (including electrical) in 1999 and a 4.9 percent decline in the transportation equipment sector in 2000. In 2002, significant jobs losses of 4.9 and 3.5 percent, respectively, are expected in the two major component sectors. Jobs in non-durable goods manufacturing declined 1.8 percent in 2000 and another 1.1 percent in 2001, driven mainly by back-to-back 2.6 percent declines in printing and publishing. For 2002, printing and publishing is expected to flatten out. However, employment in non-durables as a whole will continue on a slow decline (0.6 percent), as a result of job losses in several small sectors. The transportation and utilities sector grew robustly at 10 percent in 2000 and 3 percent in 2001... The growth rate is expected to slow to 1.7 percent in 2002. This pattern mainly reflects two important ________________________________________________________________________________ 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," Vol.6, No.1, February, 2002 or at www.ku.edu/pri/ksdata/keo/keo.htm. C-17 component industries. Jobs in the trucking and warehousing sector rose at 6.4 percent and 3.3 percent in the last two years, but are expected to slow down to 2.3 percent in 2002. The "other" category, which includes communications, is expected to increase 2.6 percent in 2002, a fall-off from increases of 15.4 and 4.2 in the last two years. The retail trade sector added jobs at rates under one percent in each of the last three years, and this pattern is expected to continue in 2002.... Jobs in finance, insurance and real estate ...have grown fairly steadily for four years at rates between 1 and 3 percent per year. This is expected to continue, with a 2.1 percent increase in 2002. ...The service sector, growing rapidly before 1999, slowed to roughly 2 percent per year for the last three years Growth will continue at 6.2 percent in 2002. ...Nominal personal income is predicted to grow at an annual rate of 4.5 percent in 2001, about the same as it grew in 2000, and at a slower 3.6 percent rate in 2002. However, the rate of inflation is expected to decline as well. Consequently, real personal income (adjusted for inflation) is expected to grow 2.6 and 2.4 percent per year in 2001 and 2002, compared with 2.0 percent in 2000. The Kansas Budget As is the case in many states, Kansas has come face to face with a budget crisis. State revenues for fiscal year 2002 fell, leading to a need to make major cuts in spending and raise taxes in fiscal year 2003. After much debate, by the end of a record long legislative session, the Kansas legislature passed and the governor signed a trimmed down $4.4 billion budget and a $252 million tax increase to fund the budget. Even with the increase in taxes, however, the budget may not be fully funded making further spending cuts necessary to achieve a balanced budget. The tax package passed to fund the budget includes an increase in state sales tax, cigarette taxes, and various other taxes. The state sales tax will increase from 4.9% to 5.3%, but will decline to 5% by June 2005. Taxes on cigarettes will increase from twenty-four cents a pack to seventy cents a pack on July 1, 2002, and increase another nine cents a pack on January 1, 2003. A fifteen percent inheritance tax will be instituted against property inherited by distant relatives, such as nieces and nephews. The tax package also repealed the sales tax exemption for custom software and doubled the franchise fees paid by corporations and nonprofit organizations to do business in Kansas. The package also increased vehicle registration fees and the tax paid on gasoline by two cents per gallon. The fiscal year 2003 budget, which is almost 3.5 percent lower than this year's spending, provides for cuts in government agency spending, but spares education and social services. The major source of contention in the budget debate was the possibility of cuts in education spending. The legislature authorized a $20 per student increase in base state aid to come from tobacco settlement money set aside for children's programs and hopefully spared any cuts in education spending by passing the tax package. If the Governor determines at a later date that the budget will not be fully funded, however, he will either order across-the-board cuts or submit targeted spending cuts for approval by the legislature. Maryland The following is a brief summary of some of the factors affecting the economy of the State of Maryland. Other factors will affect State and local government issuers, and borrowers under conduit loan bond arrangements. The summary is based primarily upon statistics and other information provided by Maryland agencies, official statements of the State of Maryland, independent sources, and public information available as of the date hereof. The State of Maryland and its local governments issue demographic and fiscal data infrequently, and such data will not necessarily reflect recent events and trends. The information has not been updated, nor will it be updated during the year. We have not independently verified the information. Estimates and projections are based upon assumptions which could be affected by many factors and there can be no assurance that such estimates and projections will prove, or continue, to be accurate. The State and Its Economy. According to the 2000 Census, Maryland's population in that year was 5,296,486, an increase of 9.4% from the 1990 Census. The population was estimated at 5,375,156 in C-18 2001. Maryland's population is concentrated in urban areas: Baltimore City and the eleven counties located in the Baltimore-Washington region contain 50.1% of the State's land area and 87.2% of its population. Per capita income in 2001 was $34,950 in Maryland, compared to the national average of $30,271 in that year. Personal income in Maryland grew at an average annual rate of 3.7% from 1992 to 2001, which was equal to the national average over the same period. Services, retail and wholesale 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 leading areas of employment in Maryland. Maryland's economy is more reliant on the service and government sectors, but less dependant on manufacturing, than the United States as a whole. Maryland's economy is particularly sensitive to changes in federal employment and spending. The percentage of personal income earned from federal employment in 2000 was 8.5% for Maryland residents, compared to 2.9% nationwide. Federal military facilities and defense spending play critical roles in Maryland's economy. Between April 2001 and April 2002 Maryland experienced a job loss rate of 0.3%, while the nation as a whole experienced a job loss rate of 1.1%. In 2001, the unemployment rate in Maryland was 4.1%, compared to a national rate of 4.8%. According to the United States Bureau of Labor Statistics, seasonally-adjusted unemployment was 5.4% in Maryland and 6% nationally in April 2002, and 4.7% in Maryland and 5.8% nationally in May 2002. Continuing uncertainty in the national and local economy could cause unemployment in Maryland to increase in the coming months. During the fiscal year ended June 30, 2001 the State posted taxable retail sales of $65.2 billion, which was an increase of over $27.7 billion, or 73.8%, from 1992. However, a continuing decline in the national and local economy could contribute to future declines in taxable retail sales. State Fiscal Information. 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 2001 with a $538.4 million general fund balance on a budgetary basis, of which $347.3 million was designated to fund fiscal year 2002 operations, and with $888.1 million in the Revenue Stabilization Fund of the State Reserve Fund. The Revenue Stabilization Fund provides financial support for future needs and to reduce the need for future tax increases. However, the State can move some of those funds to cover other areas of its budget, so the actual balances may be lower in the future. The State estimates that the general fund balance on a budgetary basis was approximately $427 million at June 30, 2002, with $548.2 million in the Revenue Stabilization Fund. The projected general fund balance at June 30, 2003 is $13.5 million, with an estimated $500.5 million in the Revenue Stabilization Fund. However, based on current data, the State anticipates that general fund revenues for fiscal year 2002 will be approximately $150 million below projections; any such shortfall will decrease the general fund balance by a corresponding amount. There can be no assurance that these amounts, if accurate, will be sufficient to maintain current spending levels during periods of economic difficulty. In order to achieve balanced budgets, the State might need to cut spending, decrease employment, increase taxes and other fees, and/or consume reserve funds. Several analysts have suggested that Maryland could face a gap between revenues and spending of over $900 million by fiscal year 2004, and up to $2 billion by fiscal year 2007. For the fiscal year ended June 30, 2001, the principal sources of State revenue were income taxes (approximately 32.6% of total revenues), federal disbursements (approximately 25.2% of total revenues), and sales and use taxes (approximately 15% of total revenues). In 1997 the General Assembly enacted legislation to phase in a 10% decrease in the State individual income tax by 2002. In preparing its fiscal 2003 budget, the State had to accommodate an estimated $177 million reduction of revenues due to the implementation of the final 2% decrease in income tax. Federal disbursements include highway and transit reimbursements; reimbursements and grants for health care programs; categorical and matching aid for public assistance, social services, and employment security; and aid for public education. Maryland imposes a 5% sales and use tax on the retail sale or use of tangible personal property in the State or of taxable services, subject to certain exceptions such as sales to nonprofit organizations. For the fiscal year ended June 30, 2001, the primary State expenditures were health and mental hygiene (approximately 27.2% of total expenditures), education (approximately 23.6% of total expenditures) and public safety (approximately 9.3% of total expenditures). Public education consumed the C-19 most State revenues in fiscal year 2002, and the "Bridge to Excellence in Public Schools Act," enacted in the 2002 session of the General Assembly, provides for phased-in education expenditures which are expected to reach an aggregate of $1.3 billion by fiscal year 2008. Approximately $80 million budgeted for fiscal year 2003 under the Act is expected to be available through the increased cigarette tax described below; in 2004 the General Assembly must determine whether the remaining funding is within the State's fiscal resources. If the resources are not available to fund the full amount required under the Act, the State must still provide a portion of the budgeted funds. The largest expenditure under health and mental hygiene is for the Medicaid program, under which Maryland makes payments to health service vendors for treatment of low income individuals and families. In fiscal year 2001, $2.58 billion was spent on this program. 2002 Budget. On April 3, 2001, the General Assembly, which is the legislative branch of the State government, approved the budget for the fiscal year ended June 30, 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. Early in fiscal year 2002 it appeared that general fund revenues would be less than projected when the fiscal year 2002 budget was originally enacted. As a result, the Governor proposed cost-containment measures for fiscal year 2002. On November 14, 2001 the Board of Public Works, which is composed of the Governor, the Comptroller and the Treasurer, approved reductions to the fiscal year 2002 budget of $57.5 million, reflecting a 1.5% reduction to agencies' budgets and the implementation of a hiring freeze. In addition, $342.5 million in general fund appropriations will be reverted, primarily $322.5 million appropriated in prior fiscal years for pay-as-you-go capital projects, of which $40 million are proposed to be canceled and $201.3 million are proposed to be funded with general obligation bonds. In December of 2001 the Board of Revenue Estimates, which is composed of the Comptroller, the Treasurer and the Secretary of Budget and Management, reduced its estimate of general fund revenue for fiscal year 2002 by $156.8 million from the March 2001 estimates upon which the fiscal year 2002 budget was based. The reduction was the net effect of reductions totaling $276.3 million offset by an adjustment to prior years' revenue of $119.5 million. The reductions reflected decreases in the estimates of personal income taxes of $114.4 million, corporate income taxes of $96.1 million, and sales taxes of $128 million; these decreases were offset by a net increase of $63.4 million in other revenues, taxes and fees. In March 2002, the Board of Revenue Estimates again lowered its estimate for personal income tax revenues for fiscal year 2002, this time by $124.4 million, and for fiscal year 2003 by $124.7 million, based upon declines in realized capital gains. The State currently anticipates that general fund revenues for fiscal year 2002 will be approximately $150 million below projections. As part of the fiscal year 2003 budget plan, the General Assembly enacted the Budget Reconciliation and Financing Act, which authorizes transfers and funding changes resulting in increased general fund revenues and decreased general fund appropriations. The budget plan provides for the transfer in fiscal year 2002 of $281 million, including $134.7 million from prior years' pay-as-you-go capital projects. 2003 Budget. On April 4, 2002, the General Assembly approved the budget for the 2003 fiscal year. The budget includes, among other things: (i) 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; (ii) $49.6 million for capital projects; (iii) $3.6 billion in aid to local governments from general funds; (iv) $181 million to the Revenue Stabilization Fund; and (v) net general fund deficiency appropriations of $171.7 million for fiscal year 2002, including $140.9 million for the Department of Health and Mental Hygiene, primarily for Medicaid, $30 million to the Revenue Stabilization Fund, a reduction of $9.6 million to the Dedicated Purpose Fund of the State Reserve Fund, and a reduction of $9.5 million in aid to local governments. The budget does not provide funding for an employee cost-of-living allowance, it decreases C-20 the State subsidy for the employee prescription drug plan, and it limits funding for merit increases for State employees to a lump sum of $28.8 million, which is restricted pending approval by the Board of Public Works after the results of fiscal year 2002 operations are final. As described above, the Budget Reconciliation and Financing Act adopted in 2002 provides for transfers of various fund balances in fiscal year 2002 of $281 million. In addition, the Act provides for transfers of various fund balances of $85.2 million in fiscal year 2003, revenue increases and adjustments, and reductions to required fiscal year 2003 expenditures. The Act uncouples the State income tax from future federal income tax changes with an impact greater than $5 million. The Act also uncouples State income tax from the special "bonus" depreciation deduction and the extended period for net operating loss carryback, both recent changes for purposes of federal income taxes. Changes made by the Act resulted in reduced levels of required funding in certain areas, including the adoption of the "corridor" method of funding the State's contribution to the pension and retirement system whereby the rate remains fixed as long as the funding level of the systems remains within the corridor of 90%-110% of full funding; and reducing the funding levels and formulae for community colleges, non-public colleges, and tourism. As a result of this new funding method, the State's contributions to the pension and retirement system might be lower than required by prior budgets, and may be insufficient to provide full funding. Separate legislation enacted by the 2002 General Assembly increased the tobacco tax from $0.66 per pack to $1.00 per pack effective June 1, 2002. For fiscal year 2003 only, $80.5 million in revenues from that increase is dedicated to the fiscal year 2003 cost of the "Bridge to Excellence in Public Schools Act"; additional revenues generated by the tobacco tax increase, estimated at $19.9 million through June 30, 2003, will go to the General Fund. This rate increase is expected to increase cigarette tax revenues by approximately $101.4 million in fiscal 2003, $71 million in fiscal 2004, $70.3 million in fiscal 2005, $69.5 million in fiscal 2006, and $68.7 million in fiscal 2007. State-Level Municipal Obligations. Neither the Constitution nor general laws of Maryland impose any 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. These restrictions do not necessarily apply to other issuers within the State. The General Assembly, by separate enabling act, typically 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 Act, 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. The Board of Public Works authorizes State general obligation bond issues and supervises the expenditure of funds received therefrom, as well as all funds appropriated for capital improvements other than roads, bridges and highways. Maryland had $4.5 billion of State tax-supported debt outstanding and $1.05 billion of authorized but unissued debt at March 31, 2002. The public indebtedness of the State of Maryland and its agencies can be generally divided into the following categories: .. The State and various counties, agencies and municipalities of the State issue general obligation bonds, payable from ad valorem taxes, for capital improvements and for various projects including local-government initiatives and grants to private, nonprofit, cultural and educational institutions. The State's real property tax is pledged exclusively to the repayment of its bonds. The Board of Public Works is required to fix the property tax rate by each May 1 in an amount sufficient to pay all debt service on the State's general obligation bonds for the coming fiscal year. At least since the end of the Civil War, Maryland has paid the principal of and interest on its general obligation bonds when due. As of March 6, 2002, the State's general obligation bonds were rated AAA by Fitch, Aaa by Moody's Investors Service, Inc., and AAA by Standard & Poor's. We cannot assure you that such ratings will be maintained in the future. C-21 .. 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. .. The Maryland Stadium Authority issues limited special-obligation bonds and notes to finance stadiums and conference centers payable primarily from lease rentals, sports lottery and other revenues. .. Certain other State units, such as Maryland's university systems, the Maryland Transportation Authority and the Maryland Water Quality Financing Administration, as well as several local governments, 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 the borrowers, including loan obligations from nonprofit organizations, corporations and other private entities. The issuers of these obligations are subject to various economic risks and uncertainties, and the credit quality of the securities issued by them may vary considerably from the quality of obligations backed by the full faith and credit of the State of Maryland. For example, the Maryland Transportation Authority issues bonds which are payable solely from collections from airline travel; any significant decline in air traffic for the Baltimore-Washington International airport could impede repayment on such bonds. .. The State, its agencies and departments, and the various localities also enter into a variety of municipal leases, installment purchase, conditional purchase, sale-leaseback and similar transactions to finance the construction and acquisition of facilities and equipment. Such arrangements are not general obligations to which the issuing government's taxing power is pledged but are ordinarily backed by the issuer's covenant to budget for, appropriate and make the payments due. Such arrangements generally contain "non-appropriation" clauses which provide that the issuing government has no obligation to make payments in future years unless money is appropriate for such purpose on a yearly basis. In the event that appropriations are not made, the issuing government can not be held contractually liable for the payments. Although the State has the authority to make short-term borrowings up to a maximum of $100 million in anticipation of taxes and other receipts, in the past 20 years the State 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. Other Issuers of Municipal Bonds. Maryland can be divided into 24 subdivisions, comprised of 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, income 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 some of these localities have received ratings of AAA from Standard & Poor's, these ratings are often achieved through insurance, and other issuers within Maryland have received lower ratings. 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, 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, including the risks faced by the Maryland economy generally, and the credit quality of the securities issued by them varies with the financial strengths of the respective borrowers. Local governments in Maryland receive substantial aid from the State for a variety of programs, including public school C-22 construction and discretionary grants. The budget for fiscal year 2003 includes a decrease of $9.5 million in aid to local governments, at a time when many localities have already been forced to limit spending in recent months in order to achieve balanced budgets. Future events might require further reductions in or the discontinuation of some or all aid payments to local governments. Any such cutback in State aid will adversely affect local economies. Risks and Uncertainties. 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 entities which lack taxing power to repay their obligations, such as industrial development authorities and housing authorities. 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 impede repayment. In addition, the Nations Maryland Intermediate Municipal Bond Fund or Nations Maryland Municipal Bond Fund 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. The uncertainty of the national economy has hurt and could continue to adversely affect Maryland and its localities and other borrowers. Maryland's economy is unusually dependent on the federal government and the service sector because a large percentage of Maryland residents are employed in those fields. In addition, a significant proportion of Maryland's revenues comes from the federal government, both in direct aid and through federal payment for goods and services provided by Maryland businesses and local governments. Slowdown in the service sector, or reduction in federal jobs or funds available to Maryland, could create budget difficulties at the State and local level. Maryland's almost 142,000 small business, which make up the core of Maryland's economy, are particularly vulnerable to the effects of a faltering national economy. Economic decline could also decrease income tax and capital gains revenues, which are important components of the State's budgeted revenues. Unanticipated declines in realized capital gains in the 2001 tax year caused estimates for revenues in 2002 and 2003 to be decreased by an aggregate of over $250 million. In addition, falling interest rates have decreased the State's investment portfolio by about $317 million since December 31, 2001. This downward trend could continue, forcing Maryland to decrease spending, cut employment or take other measures to balance its budget. These and other factors will also affect the county and local economies in Maryland, and to the extent they stress the State's budget, will diminish the amount of State aid available to local jurisdictions. Finally, recent national and international developments could have a materially adverse effect on the economy in Maryland. State and local funds have been used, and will continue to be needed, to prevent and respond to threats and acts of terrorism and to restore public confidence. Governments and businesses could incur costs in replacing employees who are called to serve in the armed forces. Declines in the tourism and transportation industries have already hurt State and local economies. For example, the closing of BWI Airport in the days following September 11 drained an estimated $20 million from the State's economy. Layoffs and cutbacks in the transportation and tourism industries could increase unemployment in Maryland, and the decline in related industries could hamper Maryland's economy. Baltimore and other municipalities, many of which were already experiencing fiscal pressures due to the slowing economy and other factors, now need additional funds to cover some of their anti-terrorism costs. The State recently received $2.74 million in federal assistance for anti-terrorism programs, which it will distribute among its local governments. However, we cannot assure you that such funds will be sufficient, or that additional funds will be available when needed. If such funds are unavailable, these jurisdictions could face economic difficulties in the future. Economic factors affecting the State will also affect the counties and the City of Baltimore, as well as agencies and private borrowers. In particular, local governments depend on State aid, and any cutbacks in such aid required to balance the State budget could adversely affect local budgets. If negative trends continue, Maryland's State and local governments might need to take more drastic measures, such as increasing taxes, to balance their budgets. C-23 New York The following information relates specifically to New York Tax-Exempt Reserves. The information about New York State and its municipalities, including, in particular, New York City, constitutes only a brief summary of a number of complex factors that may affect issuers of New York municipal bonds and does not purport to be a complete or exhaustive description of all adverse conditions to which issuers of New York municipal bonds may be subject. This information is derived from official statements utilized in connection with the issuance of municipal bonds by New York State, New York City and other municipalities as well as from other publicly available documents. Such information has not been independently verified by us and we assume no responsibility for the completeness or accuracy of such information. The summary below does not include all of the information pertaining to the budget, receipts and disbursements of the State of New York or New York City that would ordinarily be included in various public documents issued thereby, such as an Official Statement prepared in connection with the issuance of general obligations bonds of the State of New York. Such an Official Statement, together with any updates or supplements thereto, may generally be obtained upon request to the budget office of the State of New York. The New York State Economy New York is the third most populous state in the nation and has a relatively high level of personal wealth. The State's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment, and a very small share of the nation's farming and mining activity. Travel and tourism constitute an important part of the State's economy. As in most states, New York has a declining proportion of its workforce engaged in manufacturing, and an increasing proportion engaged in service industries. To the extent that a particular industry sector represents a larger portion of the State's total economy, the greater impact that a downturn in such sector is likely to have on the State's economy. The service sector, which includes entertainment, personal services, such as health care and auto repairs, and business-related services, such as information processing, law and accounting, is the State's leading economic sector. The services sector accounts for more than three of every ten nonagricultural jobs in New York and has a noticeably higher proportion of total jobs than does the rest of the nation. Manufacturing employment continues to decline in importance in New York, as in most other states, and New York's economy is less reliant on this sector than in the past. However, it remains an important sector of the state economy, particularly for the upstate economy, as high concentrations of manufacturing industries for transportation equipment, optics and imaging, materials processing, and refrigeration, heating and electrical equipment products are located in the upstate region. Wholesale and retail trade is the second largest sector in terms of nonagricultural jobs in New York but is considerably smaller when measured by income share. Trade consists of wholesale businesses and retail businesses, such as department stores and eating and drinking establishments. New York City is the nation's leading center of banking and finance and, as a result, this is a far more important sector in the State than in the nation as a whole. Although the sector accounts for under one-tenth of all nonagricultural jobs in the State, it contributes about one-fifth of total wages. Farming is an important part of the economy in rural areas, although it constitutes a very minor part of total state output. Principal agricultural products of the State include milk and dairy products, greenhouse and nursery products, apples and other fruits, and fresh vegetables. New York ranks among the nation's leaders in the production of these commodities. Federal, state and local government together are the third largest sector in terms of nonagricultural jobs, with the bulk of the employment accounted for by local governments. Public education is the source of nearly one-half of total state and local government employment. As expected, the World Trade Center terrorist attacks had an even more devastating impact on the State economy than on the national economy as a whole. As a result, the State economy could remain in recession even after the initiation of a recovery for the nation overall. Employment is expected to decline by 0.8 percent in 2002, following a 0.5 percent decline in 2001. Wages and salaries are expected to show C-24 an increase of 2.4 percent for 2001, followed by a decline of 1.5 percent for 2002 due to weakness in securities industry profits in the first quarter of 2002. The risks to the New York forecast are substantial. Weaker than expected growth for both the national and international economies could delay the onset of the State's recovery. This would result in even slower employment and income growth than projected. In contrast, stronger national and international growth could result in an earlier recovery than projected. At the State level, the cleanup of the World Trade Center site has been completed and redevelopment is expected to commence shortly. As a result, employment growth could be stronger than projected. Financial sector activity remains the largest risk to the New York forecast. Wall Street compensation fell precipitously in early 2002. Continued weakness in this sector would have a deleterious impact on the State's prospects for economic recovery, while a sharp improvement in profits for the financial industry would likely have a significant beneficial impact on the State's economy. New York State Budgetary Outlook Overview. New York State's current fiscal year began on April 1, 2002 and ends on March 31, 2003. The State Legislature enacted appropriations for all State-supported, contingent contractual, and certain other debt service obligations for the entire 2002-03 fiscal year on March 26, 2002, and the remaining appropriations and accompanying legislation constituting the budget for the 2002-03 fiscal year on May 16, 2002. The Governor did not veto any legislative additions to the budget. In January 2002, the Governor presented a balanced 2002-03 Financial Plan (the "Executive Plan") with proposals that closed a combined 2001-02 and 2002-03 General Fund budget gap of $6.8 billion, according to the Division of the Budget (the "DOB"). The Executive Plan reflected legislative and administrative actions taken during 2001-02 following the World Trade Center terrorist attacks that produced savings of $2.4 billion; the use of reserves set aside for economic uncertainties ($1.11 billion) and through the Temporary Assistance for Needy Families (TANF) program ($885 million); and revenue and spending actions totaling $2.4 billion (of which approximately $560 million were non-recurring). As a result, the 2001-02 and 2002-03 Financial Plans were projected to be in balance on a cash basis at that time. In April 2002, DOB projected a shortfall of approximately $1.4 billion from the Executive Plan resulting primarily from lower than projected receipts associated with the final settlement of 2001 tax liability. DOB expects that the majority of this shortfall will be non-recurring, with a significant portion attributable to income losses associated with the World Trade Center terrorist attacks. On May 22, 2002, DOB issued a revised 2002-03 Financial Plan following final action on the budget by the State Legislature (the "Enacted Plan") to reflect enactment of a series of non-recurring actions to offset the projected revenue losses and produce a balanced 2002-03 Financial Plan. The actions include a tax amnesty program, increased receipts from the sale of abandoned property, a change in the payment date for various business taxes, and utilization of available cash reserves and other fund balances. As compared to the Executive Plan, the Enacted Plan also supports spending restorations of approximately $600 million related to education, health, economic development, and human services. These costs are fully financed through actions to reduce spending or increase revenues on a recurring basis, including education building aid reform, workforce savings through attrition and an early retirement program, and tobacco tax increases and enforcement actions, as well as the use of resources from other funds. General Fund receipts and transfers from other funds are projected to total $39.90 billion in 2002-03, a decrease of $1.25 billion or 3.0 percent from the 2001-02 fiscal year. General Fund disbursements, including transfers to other funds, are projected to total $40.22 billion for 2002-03, an annual decrease of $1.01 billion or 2.4 percent from the 2001-02 fiscal year. The General Fund closing balance is projected to total $716 million, a decline of $316 million from 2001-02. The $716 million consists of $710 million in the Tax Stabilization Reserve Fund (the State's "rainy day" fund) and $6 million in the Contingency Reserve Fund (the State's litigation reserve). Projected General Fund disbursements in the Enacted Plan are essentially unchanged from the levels projected in the Executive Plan. The annual decrease in spending results from efforts to limit the C-25 growth of State operations, capital and debt service costs, and by the reduction of General Fund spending through the use of alternate financing sources, including TANF reserves and health care resources created under the Health Care Reform Act (HCRA). These reductions are partially offset by increases for school aid, collective bargaining, pensions and other fringe benefits, and underlying programmatic growth in health programs. All Governmental Funds spending for 2002-03 is projected to be $89.56 billion, consisting of $59.35 billion in State-supported spending and $30.21 billion in federal aid. This represents an increase of $5.08 billion or 6.0 percent for 2001-02 (after excluding federal World Trade Center "pass-through" disaster assistance funds to The City of New York and other localities). The 2002-03 General Fund balance excludes amounts on deposit in the refund reserve account. The State had a balance of $1.68 billion on deposit in the refund reserve account at the end of the 2001-02 fiscal year and projects to have a balance of $427 million on deposit at the end of 2002-03 (a decline of $1.25 billion from 2001-02). A portion of these reserves ($1.1 billion) are expected to be used to help balance the Enacted Plan by replacing revenues lost in the aftermath of the World Trade Center terrorist attacks. The refund reserve account is used to pay for tax refunds across fiscal years and to help accomplish other Financial Plan objectives, including the movement of resources from one fiscal year to the next. Changes to the refund reserve impact the level of reported personal income tax receipts. Many complex political, social and economic forces influence the State's economy and finances, which may in turn affect the State Financial Plan. These forces may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions, and organizations that are not subject to the State's control. The 2002-03 Enacted Plan is also necessarily based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. The World Trade Center attacks magnified the uncertainties inherent in the State's forecasts, and increase the likelihood that current projections will differ materially and adversely from DOB projections. General Fund. The General Fund is the principal operating fund of the State and is used to account for all financial transactions except those required to be accounted for in another fund. It is the State's largest fund and receives almost all State taxes and other resources not dedicated to particular purposes. In the State's 2002-03 fiscal year, the General Fund is expected to account for approximately 42 percent of All Governmental Funds disbursements. To close the significant 2002-03 budget gap caused largely by the events of September 11th, the Enacted Plan contains numerous revenue actions. These actions include: lowering the threshold for sales and withholding tax electronic funds transfer ($58 million); increasing alcoholic beverage control license fees ($8 million); adopting a new price index for the prepayment of sales tax on cigarettes ($6 million); increasing the tax rate on tobacco products to 37 percent of wholesale price ($15 million); enhancing cigarette enforcement measures ($5 million); changing the mandatory first installment payment of estimated taxes for certain businesses from 25 percent to 30 percent ($100 million); authorizing a tax amnesty program (net benefit of $175 million primarily in personal income and business taxes); selling securities held as abandoned property ($300 million); increasing miscellaneous receipts from bond issuance charges ($115 million); changing the surcharge on wireless services ($38 million); transferring Power Authority resources to fund the Power for Jobs program ($42 million); and providing new technology investments at the Department of Taxation and Finance to increase audit collections ($130 million). Total General Fund receipts, including transfers from other funds are projected to total $39.90 billion in fiscal year 2002-03, a decrease of $1.25 billion from 2001-02. This total includes $35.08 billion in tax receipts, $2.15 billion in miscellaneous receipts, and $2.67 billion in transfers from other funds. The transfer of $1.68 billion in resources through the tax refund reserve account from fiscal year 2001-02 to fiscal year 2002-03 has the effect of exaggerating the change in State receipts from year to year by depressing 2001-02 figures and inflating 2002-03 projections. The personal income tax is imposed on individuals, estates, and trusts, and is based, with certain modifications, on federal definitions of income and deductions. Net General Fund personal income tax collections are projected to reach $23.34 billion in fiscal year 2002-03. Collections in this category, which C-26 account for over half of General Fund receipts, are expected to fall below 2001-02 results by $2.51 billion. After excluding the impact of the tax refund reserve transaction and the diversion of certain income tax receipts to the STAR fund, the underlying decline in projected receipts is approximately $900 million or 3 percent. The year-to-year decline in receipts is caused primarily by the economic dislocation caused by the terrorist attacks of September 11th, the national recession, the decline in equity markets, and the drop in compensation paid to financial service workers. Personal income tax payments associated with the 2001 tax year are significantly below 2000 levels, with associated impacts on final payments and refunds. User taxes and fees are comprised of the State's sales and use tax; and cigarette, tobacco, alcoholic beverage, and auto rental taxes. They also include receipts from motor vehicle fees and alcoholic beverage license fees. Dedicated transportation funds outside the General Fund receive all the revenues of the motor fuel tax and motor vehicle registration fees, and all highway use taxes and fees. Receipts from user taxes and fees are projected to total $7.11 billion in fiscal year 2002-03, an increase of $7 million from 2001-02, attributable to the projected growth in the sales tax base (after adjusting for tax law changes and other factors) of 3.0 percent yielding a projected cash growth of 3.8 percent, as well as an increase in alcoholic beverage tax receipts and legislation enacted for 2002-03 increasing the tax on tobacco products and increasing most alcoholic beverage control license fees. Decreases in the motor vehicle fees, cigarette tax, and auto rental tax components offset most of the gains. The decline in General Fund cigarette tax receipts is the result of the increased dedication of these receipts to the Tobacco Control and Insurance Initiatives Pool. The decline in motor vehicle fees and auto rental taxes in the General Fund largely reflect the increased dedication of these sources to the Dedicated Highway and Bridge Trust Fund. Business taxes include franchise taxes based generally on the net income of business, banking, and insurance corporations, taxes based on the gross receipts of utilities, and gallonage-based petroleum business taxes. Total business tax collections are projected to total $3.84 billion in fiscal year 2002-03, an increase of $226 million from 2001-02. The increase is concentrated in the corporation franchise tax and utility taxes, and is due largely to changes in the schedule by which certain businesses make estimated tax payments and to the new tax amnesty program. Other taxes include the estate and gift tax, the real property gains tax, and pari-mutuel taxes. Other taxes are projected to total $787 million in fiscal year 2002-03, a decrease of $16 million from 2001-02. The primary factors accounting for this decline include tax reductions in pari-mutuel taxes, real property gains taxes, and estate and gift taxes enacted in prior fiscal years. Miscellaneous receipts include investment income, abandoned property receipts, medical provider assessments, minor federal grants, receipts from public authorities, and certain license and fee revenues. Receipts in this category are projected to total $2.15 billion in fiscal year 2002-03, an increase of $523 million from 2001-02. The growth includes the sale of abandoned property assets, fees from bond issuance charges, resources from other funds, and revenues from the surcharge on wireless communication services. Transfers from other funds to the General Fund consist primarily of tax revenues in excess of debt service requirements, including the one percent sales tax used to support payments to the Local Government Assistance Corporation (LGAC). Transfers from other funds are projected to total $2.67 billion in fiscal year 2002-03, an increase of $526 million from 2001-02 (primarily from the receipt of available fund balances, including amounts from the Environmental Protection Fund). General Fund disbursements and transfers to other funds are estimated to total $40.21 billion for 2002-03, a decrease of $1.01 billion or 2.4 percent from 2001-02. Spending for most ongoing programs is consistent with 2001-02 funding levels. The annual decline in spending results primarily from the use of Temporary Assistance For Needy Families (TANF) reserves ($955 million) and other non-General Fund sources to maintain program commitments at a reduced General Fund cost ($1.5 billion). Annual increases for pensions and other fringe benefit costs ($197 million), school aid ($186 million on a fiscal year basis), and health care partially offset the savings produced by these actions. C-27 Total projected spending in the Enacted Plan is essentially unchanged from the level recommended in the Executive Plan. Legislative additions of approximately $600 million for education ($360 million), the Tuition Assistance Program ($149 million), and various health and human services programs ($91 million) were offset through savings from the use of alternate financing sources for health care and other programs ($268 million), spending reductions ($200 million), and building aid reform ($88 million). Grants to local governments is the largest category of General Fund disbursements and includes financial aid to local governments and non-profit organizations, as well as entitlement payments for individuals. The largest areas of spending in local assistance are for aid to public schools (46 percent) and for the State's share of Medicaid payments to medical providers (22 percent). Spending for higher education programs (5 percent), mental hygiene programs (6 percent), welfare assistance (4 percent), and children and families services (4 percent) represent the next largest areas of local aid. Spending in local assistance is estimated at $26.85 billion in 2002-03, a decrease of $987 million (3.5 percent) from the 2001-02 fiscal year. Although overall spending declines, funding for some programs is increasing, including education, higher education, and underlying spending growth in Medicaid and other health programs. These increases are more than offset by maximizing the use of non-General Fund revenue sources to finance program costs, including the use of nursing home assessments ($266 million), alternate funding sources for various Medicaid and health programs ($872 million), and the use of federal TANF reserves for higher education and welfare assistance programs ($955 million). School aid of $14.6 billion on a school year basis reflects a school year increase of $410 million. On a fiscal year basis, General Fund spending for school aid is projected at $12.36 billion in 2002-03, an increase of $186 million over 2001-02. This reflects increases for most major aid components, implementation of building aid reforms, and the latest estimate of available lottery funds. Medicaid spending is estimated at $5.85 billion in 2002-03, a decrease of $359 million (5.8 percent) from 2001-02. Expected underlying spending growth of roughly 7 percent is offset by approximately $800 million from various proposed revenue actions and program restructuring initiatives. Proposed actions that will lower General Fund costs include implementation of a nursing home assessment ($266 million), increased Intergovernmental Transfers and Upper Payment Limit payments ($74 million), and increased health care spending supported by HCRA ($475 million). General Fund spending for health programs is projected at $496 million, a net decrease of $174 million (26 percent) from 2001-02. Higher costs for a projected increase in participation in the Early Intervention program and other programmatic growth is more than offset by utilizing dedicated funding sources of $323 million for various health programs. These dedicated funding sources will support the cost of the Elderly Pharmaceutical Insurance Coverage (EPIC) program ($194 million), State support for the Roswell Park Cancer Institute ($60 million), the Public Health Campaign program, Indian Health programs, and Immunization and Water Supply Protection ($69 million). Spending on welfare is projected at $496 million, a decrease of $564 million (53.2 percent) from 2001-02. This decrease is largely attributable to the additional use of federal TANF funds ($514 million) to support program costs. Higher Education Service Corporation (HESC) spending is projected at $284 million, a decrease of $406 million (58.9 percent) from 2001-02. This reduction primarily reflects the use of federal TANF funds to finance spending on the Tuition Assistance Program ($380 million). Spending for all other local assistance programs will total $7.36 billion in 2002-03, a net increase of $330 million (4.7 percent) from 2001-02. This increase primarily includes increased support for the pre-school special education program ($96 million), funding for the Yonkers settlement agreement ($92 million), and additional funding for the Community Projects Fund ($58 million). State operations pays for the costs of operating the Executive, Legislative, and Judicial branches of government. State operations spending increases $358 million for the annualized costs of labor agreements and related costs with State employee unions. These costs are more than offset by proposed spending restraint and revenue maximization efforts totaling $382 million. The imposition of a strict hiring freeze, offering a retirement incentive to State employees, and various actions to restrain spending in all agencies C-28 are anticipated to save $96 million. In addition, a total of $286 million in additional savings are projected to be available in 2002-03 from various revenue maximization efforts to finance State operations spending. These efforts include $141 million in additional Patient Income Account revenues to offset spending on mental hygiene programs, and $79 million in additional federal and other funding sources to finance spending on higher education and health programs. The State's overall workforce is projected to be 191,100 persons by the end of 2002-03, down approximately 5,000 from November 2001 when the Governor announced a series of cost savings actions following the World Trade Center terrorist attacks. This reduction will occur through attrition and early retirement. General State charges (GSCs) account for the costs of providing fringe benefits to State employees and retirees of the Executive branch, Legislature, and Judiciary. These payments, many of which are mandated by statute and collective bargaining agreements, include employer contributions for pensions, social security, health insurance, workers' compensation, and unemployment insurance. GSCs also cover State payments-in-lieu-of-taxes to local governments for certain State-owned lands, and the costs of defending lawsuits against the State and its public officers. Disbursements for GSCs are estimated at $2.85 billion in fiscal year 2002-03, an increase of $197 million from the prior year. The projected growth is primarily attributable to rising health insurance costs and additional contributions to the State and Local Employee Retirement System (ERS). The Enacted Plan projects $55 million in additional State contributions to the ERS for fiscal year 2002-03 based on an anticipated decline in the value of pension fund assets. The pension estimate assumes an ERS contribution rate of 1.5 percent of salary for the 2002-03 fiscal year, an increase from 0.7 percent in 2001-02. Significant growth is also expected in costs for health insurance premiums, which are projected to increase 11 percent in calendar year 2002. Transfers to other funds from the General Fund are made primarily to finance certain portions of State capital projects spending and debt service on long-term bonds where these costs are not funded from other sources. Transfers for debt service total $1.85 billion in 2002-03, a reduction of $235 million. The decrease is primarily attributable to continued savings resulting from the use of $1 billion from the Debt Reduction Reserve Fund over the last several fiscal years to reduce high cost debt, the use of the new lower-cost State Personal Income Tax Revenue Bonds to finance capital projects, and the benefits of legislation that will enhance the State's ability to manage its bond portfolio and reduce borrowing costs. Transfers for capital projects pay for projects that are not financed by bond proceeds, dedicated taxes, Federal grants or other revenues. Transfers for capital projects in 2002-03 are projected to decrease by $115 million and reflect the one-time conversion of certain capital projects from pay-as-you-go financing to bonding. The State's cost of transfers to the State University increased by $17 million over 2001-02 primarily due to financing the State's share of an outstanding SUNY loan. All other transfers, which include all remaining transfers from the General Fund to other funds, are estimated to total $593 million in 2002-03, an increase of $139 million. The growth is attributable to increases in Medicaid payments to SUNY hospitals ($89 million) and the State's subsidy to the Court Facilities Incentive Aid Fund to support Judiciary capital projects ($52 million). The non-recurring actions incorporated in the 2002-03 Enacted Plan, are primarily intended to finance the extraordinary revenue losses associated with the 2001 tax year that DOB expects will not recur. The vast majority of the non-recurring resources utilize existing available fund balances, including the Abandoned Property Fund ($300 million), the Environmental Protection Fund and the Superfund ($264 million), the State of New York Mortgage Agency ($150 million), the New York State Housing Finance Agency ($50 million), the Power Authority of the State of New York ($42 million), various health and Medicaid Special Revenue Funds ($341 million), the Higher Education Services Corporation ($39 million), the Dormitory Authority of the State of New York ($12 million), and various routine fund transfers ($75 million). C-29 In addition, a variety of measures were enacted to preserve revenues, including a tax amnesty program ($175 million), a change in the payment date on various business taxes ($100 million), recoveries of school aid and welfare overpayments ($39 million), and changes in tax collection procedures ($64 million). The 2002-03 Financial Plan projects a closing balance in the General Fund of $716 million. The closing balance is comprised of $710 million in the Tax Stabilization Reserve Fund and $6 million in the Contingency Reserve Fund. The closing balance declined by $316 million from 2001-02, reflecting the use of balances in the Community Projects Fund, the Contingency Reserve Fund, and the Universal Pre-K Fund. The closing fund balance excludes $427 million expected to be on deposit in the refund reserve account at the close of 2002-03. Outyear Projections of Receipts and Disbursements. The Executive Plan projected General Fund budget gaps of $2.8 billion for 2003-04 and $3.3 billion for 2004-05. DOB will formally update its projections of receipts and disbursements for future years in early 2003, as part of the Governor's 2003-04 Executive Budget. Preliminary analysis by DOB indicates that the State will have a 2003-04 budget gap that is larger than projected at the time of the Executive Plan, but significantly below the shortfall that was closed as a part of actions on the 2002-03 Enacted Plan. The Governor will submit a balanced budget and Financial Plan for 2003-04 in early 2003, as required by law. In recent years, the State has closed projected budget gaps, which DOB estimated at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), less than $1.0 billion (in each of the fiscal years 1998-99 through 2000-01) and $6.8 billion in 2002-03. Other Governmental Funds. In addition to the General Fund, the 2002-03 Enacted Plan includes Special Revenue Funds, Capital Projects Funds, and Debt Service Funds. Over the next several years, a substantial amount of federal aid is projected to flow through the State to localities for disaster response and reconstruction activities related to the World Trade Center attacks. The Enacted Plan estimated that federal "flow-through" disaster aid totaled $569 million in 2001-02 and is projected to total $2.76 billion in 2002-03 as recovery and rebuilding efforts reach full capacity. Nearly all of the federal disaster aid is expected to flow from the Federal Emergency Management Agency through the State Emergency Management Office (SEMO) to New York City and other localities affected by the terrorist attacks. The All Governmental Funds Financial Plan does include State spending for World Trade Center costs of $330 million in 2002-03. Unlike the flow-through aid, these projected disbursements in the Financial Plan finance State government activities. Most of this spending is supported by Federal funds ($306 million), which will finance, among other things, payments to the victims of the attack, State Police and Division of Military and Naval Affairs staffing costs directly related to the terrorist attacks, expanded counseling and trauma services, and infrastructure repairs. All Governmental Funds spending is estimated at $89.56 billion in 2002-03, an annual increase of $5.08 billion or 6 percent. Of this amount, growth in Federal grants amounts to $2.70 billion. Federal aid increases are primarily for Medicaid, including payments to State-operated mental health and retardation facilities and SUNY hospitals ($1.55 billion), the share of the college tuition assistance program financed by TANF ($380 million), social welfare initiatives authorized under TANF ($319 million), services for children and families ($223 million) and the Federal share of Child Health Plus ($126 million). All other Federal support grows by $103 million, or less than one percent. Special Revenue Funds. Total disbursements for programs supported by Special Revenue Funds are projected at $43.20 billion, an increase of $5.51 billion or 14.6 percent over 2001-02 (excluding federal "flow-through" aid). Special Revenue Funds, which include Federal grants and State Special Revenue Funds, comprise 50 percent of the All Governmental Funds Financial Plan. Federal grants account for 66 percent of all special revenue spending in 2002-03, comparable to prior years. Disbursements from Federal funds, excluding aid for capital programs, are estimated at $28.63 billion, an increase of $2.51 billion or 9.6 percent. Medicaid is the largest program within Federal funds, accounting for over half of total spending in this category. In 2002-03, Federal support for Medicaid C-30 spending is projected at $15.61 billion, an increase of $1.10 billion over 2001-02. Other increases include Medicaid payments to State-operated mental health and retardation facilities and SUNY hospitals ($446 million), the share of the college tuition assistance program financed by TANF ($380 million), enhanced social welfare initiatives authorized under TANF ($319 million), services for children and families ($223 million) and the Federal share of Child Health Plus ($126 million). State special revenue spending is projected to be $14.57 billion, an increase of $3.0 billion or 25.9 percent from 2001-02. Spending from State special revenue funds for Medicaid is projected to total $2.50 billion in 2002-03, an increase of $1.35 billion from 2001-02. Roughly $730 million of this Medicaid increase is financed by HCRA resources, and the balance is supported by a new 6 percent nursing home assessment ($441 million) and revenues received from various bad debt and charity care pools ($175 million). Other components of the State Funds spending increase include program growth in the EPIC prescription drug program and Child Health Plus ($288 million), State aid for education financed by the lottery ($282 million), aid to local social service providers through the community service provider assistance program ($188 million), aid to transit systems ($193 million), increased costs for employee fringe benefits ($134 million), and growth in the STAR local tax relief program ($120 million). State special revenue spending increased $491 million over the 2002-03 Executive Plan, which primarily reflects additional Medicaid spending financed through HCRA. Capital Projects Funds. Spending from Capital Projects Funds in 2002-03 is projected at $5.29 billion, an increase of $977 million or 22.7 percent from last year. The increase will primarily support capital investments to promote economic development ($340 million), transportation ($291 million), and education ($210 million). Debt Service Funds. Spending from Debt Service Funds is estimated at $3.56 billion in 2002-03, a decrease of $592 million or 14.3 percent from 2001-02. The decrease is primarily attributable to the use of $500 million in Debt Reduction Reserve Fund (DRRF) monies during 2001-02 (which technically is shown as an increase in debt service spending in that year), savings in 2002-03 generated from the use of DRRF to reduce debt and debt service costs, the use of lower-cost State Personal Income Tax Revenue Bonds, and the impact of legislation that will enhance the State's ability to manage its bond portfolio and reduce borrowing costs. Special Considerations. The September 11, 2001 terrorist attacks in New York City and the lingering effects of the national recession are expected to have continued adverse consequences for the State. Another uncertainty is the assumed performance of the financial sector. The securities industry is more important to the New York economy than to the national economy as a whole, amplifying the impact of continued volatility in the financial markets. A further reduction in financial sector jobs coupled with a large negative change in stock market performance during the forecast horizon would result in wage and unemployment levels that are significantly different from those embodied in the current forecast. Aside from the recent terrorist attacks in New York City, many complex political, social and economic forces influence the State's economy and finances, which may in turn affect the State's Financial Plan. These forces may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions, and events that are not subject to the State's control. The Financial Plan is also necessarily based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. Two variables that stand out as being particularly vulnerable to financial market volatility, and that are closely associated with the recent strength of State personal income tax receipts, are finance sector bonus income and capital gains realizations. Historically, financial sector bonus income has been closely tied to security firm profits. DOB is forecasting a significant decline in financial sector profits for 2002. DOB also expects that the decline in equity values observed since early 2000, combined with the recent decline in the average holding period for equities, will produce a decline in capital gains realizations for this C-31 year. However, both bonus income and capital gains realizations have historically been subject to a large degree of variation and could fall substantially below expectations. An ongoing risk to the Enacted Plan arises from the potential impact of certain litigation and federal disallowances now pending against the State, which could produce adverse effects on the State's projections of receipts and disbursements. The General Purpose Financial Statements for the 2000-01 fiscal year reported probable awarded and anticipated unfavorable judgments of $730 million, of which $242 million were expected to be paid during the 2001-02 fiscal year. The General Purpose Financial Statement for the 2001-02 fiscal year will update these estimates in July 2002. Adverse developments in existing proceedings, other proceedings for which there are unanticipated, unfavorable and material judgments, or the initiation of new proceedings could affect the ability of the State to maintain a balanced 2002-03 Financial Plan. The State believes that the proposed 2002-03 Financial Plan includes sufficient reserves to offset the costs associated with the payment of judgments that may be required during the 2002-03 fiscal year. The Enacted Plan assumes no significant federal disallowances or other federal actions that could adversely affect State finances. The projections also assume no further changes in federal tax law, which could substantially alter the current receipts forecast. In the past, the State has taken management actions to address potential financial plan shortfalls, and DOB believes it could take similar actions should adverse variances occur in its projections for the current fiscal year. To help guard against such risks, the State is maintaining a total of $716 million in General Fund reserves. New York City New York City, with a population of approximately 8 million, is an international center of business and culture. Its non-manufacturing economy is broadly based, with the banking and securities, life insurance, communications, publishing, fashion design, retailing and construction industries accounting for a significant portion of the city's total employment earnings. Additionally, the city is the nation's leading tourist destination. Manufacturing activity in the city is conducted primarily in apparel and printing. The fiscal health of New York State may also be affected by the fiscal health of New York City, which continues to receive significant financial assistance from the State. State aid contributes to New York City's ability to balance its budget and meet its cash requirements. The State may also be affected by the ability of New York City and certain entities issuing debt for the benefit of New York City to market their securities successfully in the public credit markets. New York City has achieved balanced operating results for each of its fiscal years since 1981 as measured by the GAAP standards in force at that time. New York City prepares a four-year financial plan annually and updates it periodically, and prepares a comprehensive annual financial report each October describing its most recent fiscal year. On September 11, 2001, two hijacked passenger jetliners flew into the World Trade Center, resulting in a substantial loss of life, destruction of the World Trade Center, and damage to other buildings in the vicinity. Trading on the major New York stock exchanges was suspended until September 17, 2001, and business in the financial district was interrupted. Recovery efforts were completed on May 30, 2002. Recovery, cleanup, and repair efforts will result in substantial expenditures. The U.S. Congress passed emergency legislation that authorized $40 billion for disaster assistance, increased security costs, the rebuilding of infrastructure systems and other public facilities, and disaster recovery and related activities. Congress and the President have already appropriated over $10 billion of this amount for disaster assistance in New York, Pennsylvania, and Virginia. The President has submitted a bill to Congress that would bring the total commitment of federal disaster assistance for New York to $21.4 billion. In addition, the State legislature increased the financing capacity of the New York City Transitional Finance Authority (TFA) by $2.5 billion to fund recovery costs, and has authorized the TFA to issue debt without limit as to principal amount that is payable solely from State or federal aid received on account of the disaster. On March 9, 2002, the President signed nationwide stimulus legislation that includes $5.5 billion toward the $21.4 billion commitment, in the form of temporary tax provisions aimed at creating redevelopment incentives for businesses located in the Liberty Zone, the area surrounding the World Trade C-32 Center site. The Liberty Zone provisions expand the work opportunity tax credit, provide a bonus 30 percent depreciation deduction, authorize the issuance of $8 billion in tax-exempt private activity bonds, allow for advance refunding of certain bonds for facilities in New York City, and increase the small business expensing limit. The City is seeking to be reimbursed by the federal government for all of its direct costs for response and remediation of the World Trade Center site. These costs are now expected to be substantially below previous estimates. The City also expects to receive federal funds for costs of economic revitalization and other needs, not directly payable through the City budget, relating to the September 11th attack. In response to New York City's fiscal crisis in 1975, New York State took action to assist New York City in returning to fiscal stability. Among those actions, the state established the Municipal Assistance Corporation for the City of New York to provide financing assistance to New York City; the New York State Financial Control Board (the "Control Board") to oversee New York City's financial affairs; and the Office of the State Deputy Comptroller for the City of New York to assist the Control Board in exercising its powers and responsibilities. A "control period" existed from 1975 to 1986, during which the city was subject to certain statutorily-prescribed fiscal controls. The Control Board terminated the control period in 1986 when certain statutory conditions were met. New York State law requires the Control Board to reimpose a control period upon the occurrence, or "substantial likelihood and imminence" of the occurrence, of certain events, including (but not limited to) New York City operating budget deficit of more than $100 million or impaired access to the public credit markets. To successfully implement its financial plan, New York City and certain entities issuing debt for the benefit of New York City must market their securities successfully. This debt is issued to finance the rehabilitation of New York City's infrastructure and other capital needs and to refinance existing debt, as well as to finance seasonal needs. In New York City's fiscal years 1997-98, 1998-99 and 1999-2000, the state constitutional debt limit would have prevented New York City from entering into new capital contracts. To prevent disruptions in the capital program, two actions were taken to increase New York City's capital financing capacity: (i) the State Legislature created the New York City Transitional Finance Authority in 1997, and (ii) in 1999, New York City created TSASC, Inc., a not-for-profit corporation empowered to issue tax-exempt debt backed by tobacco settlement revenues. General. The events of September 11th had a significant impact upon the City economy. The City expects, based on actions and statements of the U.S. Congress and the President and measures taken by the State, that it will be fully reimbursed for the cost to recover from, clean up and repair the consequences of the World Trade Center attack. However, prior to September 11th, the City's economy had been weakening primarily as the result of the downturn in the securities and financial services industries. The loss of over seventy thousand jobs in the City due to September 11th, which are not expected to be recovered until 2005, will produce additional adverse budgetary pressures including increases to later year budget gaps and reductions to State surpluses that decrease the ability of the State to provide financial support to the City. The City of New York Executive Budget Fiscal Year 2003 released by the Mayor of the City on April 17, 2002 (the "Executive Budget"), projects total revenue to be lost to the City as a result of September 11th during those fiscal years will be $3.9 billion and that expenses over the same period have increased by $6.1 billion from projections made prior to September 11th. More than any other New York municipality, the fiscal health of the City depends upon the fiscal health of the State, which has projected slower growth and warned of the risk of a downturn. As a result of September 11th, the Executive Budget assumes reduced economic activity in the second half of calendar year 2001, job and income losses through the first half of 2002 and a moderate recovery thereafter. The Executive Budget also projects declines in revenues from forecasts made prior to September 11th for fiscal years 2002 through 2006 as a result of reduced economic activity. For each of the 1981 through 2001 fiscal years, the City had an operating surplus, before discretionary transfers, and achieved balanced operating results as reported in accordance with generally accepted accounting principles ("GAAP") after discretionary transfers. Historically, the City has been required to close substantial gaps between forecast revenues and forecast expenditures in order to maintain C-33 balanced operating results. Particularly given the uncertain impact of September 11th and the expected reduction in economic activity in the City, there can be no assurance that the City will continue to maintain balanced operating results as required by State law without reductions in City services or entitlement programs to tax or other revenue increases that could adversely affect the City's economic base. For fiscal year 2001 the City had an operating surplus of $3.0 billion. The Executive Budget is $41.9 billion and incorporates a number of steps to close a projected $5.0 billion budget gap, including City agency cuts ranging up to 36%, staffing changes requiring union consent, stretching out some elements of the City's four year construction plan to five years, debt restructuring and asset sales and proposed State and federal initiatives to generate $2.2 billion of gap closing actions in fiscal year 2003 and an aggregate of $5.5 billion in fiscal years 2004 through 2006. The Mayor has also proposed that the City issue $1.5 billion of its general obligation bonds in fiscal year 2003 to help close the budget gap. While the Executive Budget does not project any need for deficit financing in later fiscal years, the inability of the City to close significant outyear budget gaps could require such financing, which might affect the rating of the City's general obligation bonds. On June 19, 2002, New York City Mayor Blumberg and New York City Council Speaker Miller announced an agreement on the 2003 New York City budget of $42.3 billion, which included $450 million from New York State in school aid to avoid cuts to New York City classrooms and to provide additional moneys for the teacher contracts. New York State is expected to authorize the following legislation: (i) an increase in the cigarette tax that will yield New York City $150 million per year; (ii) an increase in fees for parking violations that is expected to contribute at least $62 million in revenue to New York City each year; (iii) an additional tax on cell phones and land lines that is expected to net New York City a total of $41 million; (iv) authorization of a debt reform package expected to be worth approximately $112 million in savings to New York City; (v) other state budget actions that will include tax amnesty and tax audit enhancements, which is expected to provide New York City with approximately $75 million; (vi) an early retirement bill that will provide approximately $20 million in budget relief; and (vii) the coupling of the Federal Accelerated Depreciation provision, which is expected to provide $108 million in savings to New York City. In addition, the Federal government provided New York City with $200 million in budget relief by authorizing the refinancing of its debt, providing greater flexibility in the use of Federal aid. The final budget for New York City has not yet been adopted as of June 27, 2002. City's Financing Program. Implementation of the Executive Budget is in part dependent upon the City's ability to market its securities successfully in the public credit markets. The City's financing program for fiscal years 2002 through 2006 contemplates the issuance of $13.7 billion of general obligation bonds, $5.9 billion of bonds and Recovery Bonds described below to be issued by the New York City Transitional Finance Authority (the "Transitional Finance Authority"), $2.0 billion of bonds to be issued by TSASC, Inc., a not-for-profit corporation empowered to issue tax-exempt debt backed by tobacco settlement revenues, and $10.0 billion of bonds and notes to be issued by New York City Municipal Water Finance Authority (the "Water Authority"). In 1997, the State created the Transitional Finance Authority, to assist the City in keeping the City's indebtedness within the forecast level of the constitutional restrictions on the amount of debt the City is authorized to incur. The City had faced limitations on its borrowing capacity after 1998 under the State's constitution that would have prevented it from borrowing additional funds, as a result of the decrease in real estate values within the City. The Transitional Finance Authority is authorized to issue up to $11.5 billion of bonds. In addition, the City issues revenue notes and tax anticipation notes to finance seasonal working capital requirements. The success of projected public sales of these bonds and notes will be subject to prevailing market conditions. The City's planned capital and operating expenditures are dependent upon the sale of its general obligation bonds and notes, and the Water Authority and Transitional Finance Authority bonds. In September 2001, the state legislature granted the City an additional $2.5 billion in debt-incurring capacity to pay costs related to September 11th through bonds issued by the Transitional Finance Authority ("Recovery Bonds"), $1.0 billion of which were issued on October 4, 2001 and the balance of which will be issued in fiscal year 2002-2003. 2001 Fiscal Year. For the 2001 fiscal year (July 1, 2000 - June 30, 2001) the City had an operating surplus of $3.0 billion, before discretionary and other transfers, and achieved balanced operating results, after discretionary and other transfers, in accordance with GAAP. The 2001 fiscal year was the C-34 twenty-first year that the City achieved an operating surplus, before discretionary and other transfers, and balanced operating results, after discretionary and other transfers. 2003-2006 Financial Plan. Pursuant to the laws of the State, the Mayor is responsible for preparing the City's financial plan, including the City's current financial plan for the 2003 through 2006 fiscal years, which is included in the Executive Budget (the "City Financial Plan"). The projections set forth in the City Financial Plan are based on various assumptions and contingencies that are uncertain and may not materialize. Changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet annual cash flow and financing requirements. The City Financial Plan reflects certain extraordinary actions necessitated by September 11th and projects a budget surplus of $322 million for the 2002 fiscal year and budget gaps of $5.2 billion, $5.6 billion and $6.0 billion, respectively, for the 2004, 2005 and 2006 fiscal years prior to any gap closing actions. The forecasts of the amounts of budget gaps in outyears continues to change. Some of the gap closing measures proposed in the City Financial Plan for fiscal year 2003 have recurring effects and are projected to reduce the fiscal year 2004, 2005 and 2006 budget gaps to $2.7 billion, $3.1 billion and $3.6 billion, respectively. The Mayor proposes to close these outyear gaps through unspecified additional City agency cuts, federal and State initiatives and other actions. It should be noted that the City Council must approve any Budget and that it may not adopt certain of the Mayor's gap closing proposals in outyears. If any gap closing measures are not replaced by equivalent alternatives, budget gaps for subsequent years will be increased. The City Financial Plan includes a proposed discretionary transfer in the 2002 fiscal year of $322 million to pay debt service due in the fiscal year 2003. Assumptions. The City Financial Plan is based on numerous assumptions, including the impact of September 11th on the City's economy, the general condition of the City's and the region's economies and the receipt of economically sensitive tax revenues in the amounts projected and reimbursement by the federal government and State of expenditures necessitated by September 11th. The City Financial Plan is subject to various other uncertainties and contingencies relating to, among other factors: (i) the extent, if any, to which wage increases for City employees exceed the annual wage costs assumed for the 2002 through 2006 fiscal years; (ii) interest earnings and wage projections underlying projections of the City's required pension fund contributions; (iii) the willingness and ability of the State and Federal governments to provide the aid and enact the revenue enhancing or expenditure relief initiatives contemplated by the City Financial Plan and to take various other actions to assist the City in its gap closing actions; (iv) the ability of Health and Hospitals Corporation, the Board of Education and other agencies to maintain balanced budgets; (v) the impact on City revenues and expenditures of Federal and State welfare reform and any future legislation affecting Medicare or other entitlement programs; (vi) the ability of the City to control expenditures and implement cost reduction and gap closing initiatives identified in the City Financial Plan for the 2003 fiscal year and proposed but unspecified for later years; (vii) the City's ability to market its securities successfully in the public credit markets; (viii) the impact of conditions in the real estate market on real estate tax revenues; (ix) the sale of OTB in fiscal year 2004, which requires State legislative approval; and (x) unanticipated expenditures that may be incurred as a result of the need to maintain the City's infrastructure or future terrorist acts. The City Financial Plan reflects the sudden economic downturn as the result of September 11th in the last half of 2001 and assumes job and income losses in the first half of 2002 but moderate growth in the second half of 2002 resulting in a flat City economy for calendar year 2002. The City Financial Plan forecasts a steady recovery thereafter. The City does not expect to recover all of the jobs lost as a result of September 11th until 2005. Given the uncertain impact of September 11th on the City's economy, including the loss of jobs and business, impact on tourism in the City and the slowdown in the securities industry, there can be no assurance that the economic projections included in the City Financial Plan are accurate or that the tax revenues projected in the Financial Plan to be received will be received in the amounts anticipated. Municipal Unions. The Mayor's gap closing proposals in fiscal year 2003 include a slight reduction of the City's workforce through attrition, severance and early retirement, including a reduction of 1,000 in uniformed police officers that will be offset by hiring of civilians by the Police Department. C-35 These police department and other staff reduction proposals may require union consents. While the City has established a Reserve for Collective Bargaining, the terms of wage settlements could be determined through the impasse procedure in the New York City Collective Bargaining Law, which can impose a binding settlement that substantially increases reserves established by the City. Intergovernmental Aid. The City depends on the State for aid both to enable the City to balance its budget and to meet its cash requirements. There can be no assurance that State aid to the City will be maintained at amounts currently projected or interim appropriations enacted; or that the State will not reduce or delay aid any of which could have adverse effects on the City's cash flow or expenditures. In addition, the Federal budget negotiation process could result in reductions or delays in the receipt of Federal grants which would have additional adverse effects on the City's cash flow or revenues. The City is particularly dependent upon the federal government and the State to reimburse it for expenditures relating to September 11th. While both the federal government and the State have publicly supported the City and promised to make funds available to fund recovery, clean-up and repairs relating to September 11th, there can be no assurance that budget constraints or the other priorities, including future terrorist attacks will not interfere or prevent delivery of such aid. Outstanding Indebtedness. As of December 31, 2001, the City and the Municipal Assistance Corporation for the City of New York had respectively approximately $27.3 and $2.2 billion of net outstanding long-term debt. Litigation. The City is currently a defendant in a significant number of lawsuits. While the ultimate outcome and fiscal impact, if any, on the proceedings and claims are not currently predictable, adverse determination in certain of them might have a material adverse effect upon the City's ability to carry out the City Financial Plan. As of June 30, 2001 claims were pending against the City, for which the City has estimated it may potentially incur liability of $4.2 billion. The City currently is a defendant in a proceeding relating to the New York City Teachers' Retirement System in which damages in excess of $250 million are sought. In fiscal year 2000-2001 the City paid $594.8 million with respect to judgments and claims and projects such payments will total $409.6 million and $418.7 million in fiscal years 2001-2002 and 2002-2003, respectively. Other New York Risk Factors When compared with the average ratings among other states of full faith and credit state debt obligations, the credit risk associated with obligations of the State of New York and its agencies and authorities, including general obligation and revenue bonds, "moral obligation" bonds, lease debt, appropriation debt and notes is somewhat higher than average. Moreover, the credit quality of such obligations may be more volatile insofar as the State's credit rating has historically been upgraded and downgraded much more frequently than most other states. The combined state and local taxes of residents of the State of New York, and particularly of residents of New York City, are among the highest in the country, which may limit the ability of New York State and its localities to raise additional revenue. In addition, combined state and local debt per capita in New York State is significantly above the national average and debt service expenditures have represented an increasing claim on state and local budgets. The creditworthiness of obligations issued by local New York issuers may be unrelated to the creditworthiness of obligations issued by the State of New York, and there is no responsibility on the part of the State of New York to make payments on such local obligations. There may be specific factors that are applicable in connection with investment in the obligations of particular issuers located within New York, and it is possible the Fund will invest in obligations of particular issuers as to which such specific factors are applicable. Certain localities outside New York City have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. The potential impact on New York State of any future requests by localities for additional oversight or financial assistance is not included in the projections of the State's receipts and disbursements for the State's 2001-02 fiscal year or thereafter. The State has provided extraordinary financial assistance to certain municipalities, primarily cities, since the 1996-97 fiscal year. Funding has essentially been continued or increased in each subsequent fiscal year and is projected at $486 million in 2002-2003. However, the information set forth C-36 above is intended only as a general summary and not a discussion of any specific factors that may affect any particular issuer of New York municipal bonds. Additionally, many factors, including national, economic, social and environmental policies and conditions, which are not within the control of such issuers, could have an adverse impact on the financial conditions of such issuers. We cannot predict whether or to what extent such factors or other factors may affect the issuers of New York municipal bonds, the market value or marketability of such securities or the ability of the respective issuers of such securities acquired by the Fund to pay interest on or principal of such securities. 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 did so in 1999 and 2000. In 2001, it took the legislature until September 26, 2002 to adopt a budget for the fiscal year beginning July 1, 2001 and ending June 30, 2002. 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 2002 was 6.8% (May 2001 was 5.4%). In recent years, the State has moved from an agricultural economy to a service and goods producing economy. In 2000, the State led the nation in the production of textile mill and tobacco products, was second in the nation in furniture and fixtures production, and was among the nation's 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 and authorized reserve expenditures for the 2000-2001 fiscal year were $13.585 billion. The ending fund balance for the State's General Fund at June 30, 2001 was $817.4 million. The budget adopted by the North Carolina General Assembly for the fiscal year ending June 30, 2002 projects an ending General Fund balance of approximately $525.5 million, on $15.610 billion in appropriations and reserves. 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 all of these bonds are issued, these bonds would more than double the amount of the State's bonds outstanding. The State has projected an overall shortfall in the enacted General Fund budget for fiscal year 2001-2002 approaching $1.5 billion. The shortfall is primarily a result of an under-realization of budgeted revenues and an increase in Medicaid expenditures exceeding budgeted appropriations. Both the under-realization of revenues and the increased Medicaid expenditures can be attributed to the on-going national and North Carolina economic recession, the severity of which was deepened by the impact of the September 11, 2001 terrorist attacks. In response to the projected budgetary shortfall, on February 5, 2002 the Governor invoked his constitutional authority to insure that the State would meet its constitutional requirement of a balanced budget by issuing Executive Order No. 19 ("Executive Order No. 19"). Executive Order No. 19 identifies $1,320.8 million of resources available if needed to balance the budget. The following table sets forth the resources identified in Executive Order No. 19 to address the shortfall.
Description Targeted Amount - ----------- (in millions) ------------ Reduction and restrictions of Agency expenditures (Agency Reversions) $356.0 Suspension of transfer to Repair and Renovation Reserve 112.0
C-37 Suspension of HIPPA Implementation 13.5 Diversion of Balances of Special Revenue Funds 25.0 Utilization of Contingency and Emergency Reserve 4.0 Utilization of Budget Stabilization (Savings) Reserve (Rainy Day Fund) 313.0 Suspension of Local Government Reimbursement 95.0 Suspension of Clean Water Management Trust Fund 20.8 Appropriations Additional Highway Trust Fund Transfer 80.0 Suspension of Local Revenue Sharing-Franchise, Natural Gas, 114.0 Alcohol, Homestead Property Tax Exemption Reimbursement Suspension of transfer to Mental Health Reform Reserve 37.5 Diversion of Disaster Relief Reserve 150.0 Total $1,320.8 ======== In developing these budgetary options, the State placed priorities on the continued funding of governmental services that maintain the public health and safety and on meeting entitlement obligations. Cost savings measures taken to insure agency reversions of $356 million included placing a freeze on hiring and limiting non-essential purchasing and travel. Budgeted General Fund appropriations of $112 million for the Repair and Renovation Reserve were frozen, as have the following appropriations: HIPPA, $13.5 million; Contingency and Emergency, $4 million; Clean Water Management Trust Fund, $20.8 million; Mental Health Reform, $37.5 million. In the event these unexpended appropriations are not required to meet the shortfall, this freeze could be lifted and the funds used for their appropriated purposes. The Office of State Budget Management (OSBM) has reviewed all State Trust Funds, Special Revenue Funds and Internal Service Funds to determine whether excesses above the respective required funding levels of those funds exist in order to use these as additional funds. $80 million was identified as being available for transfer from the Highway Trust Fund to the General Fund. The State also suspended certain distributions to local government units of taxes related to the inventory tax, franchise utilities tax, piped natural gas tax, alcohol beverage tax and the homestead exemption. The State maintains the Savings Reserve for the Rainy Day Fund for emergency situations. The beginning balance of this reserve at July 1, 2001 was $157 million. The 2001 Session of the General Assembly directed the North Carolina State Controller to credit $181 million from the General Fund to the Savings Reserve. The State currently anticipates that, after other authorized reductions, approximately $313 million of the Savings Reserve could be available to balance the budget. In addition, on April 11, 2002, the State Budget Officer, on behalf of Governor Easley, directed the State Controller to escrow one-half of the April 15, 2002 payment to be received under the National Tobacco settlement. These funds (in the amount of $60,766,180) were otherwise designated for deposit to the trust funds created for tobacco farmers and allotment holders and for health programs under the plan enacted by the General Assembly for disbursement of settlement payments. The remaining half of the tobacco settlement payment was made to Golden Leaf Foundation (the foundation responsible for using a portion of the settlement payments to help communities in North Carolina injured by the decline of tobacco). The State is currently projecting a substantial shortfall, approaching $2.0 billion, in the enacted General Fund budget for the 2002-2003 fiscal year. Based on current economic forecasts, the State anticipates that it will continue to experience an under-realization of budgeted revenues and that Medicaid expenditures will continue to exceed budgeted appropriations. The State believes that in the event of such a shortfall, actions are available to the legislature and to the Governor that will assure that the State meets its constitutional mandate that the budget for each fiscal period be balanced. At the date hereof, the General Assembly had not adopted a revised budget for the 2002-2003 fiscal year to reduce expenditures, and it is C-38 uncertain when a revised budget would be adopted. Also, under consideration are a delay in certain tax reduction and sunset provisions and 1/2 cent local option sales tax increase. 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 adverse decision in any of these cases would not materially adversely affect the State's ability to meet its financial obligations. 1. Hoke County et al. v. State of North Carolina, (formerly, Leandro et al. v. State of North Carolina and State Board of Education) - Funding of Public Education. On May 25, 1994, the plaintiffs in Leandro et al. v. State of North Carolina and State Board of Education filed suit in North Carolina Superior Court requesting a declaration that the public education system of the State, including its system of funding, violates the State Constitution by failing to provide adequate or substantially equal educational opportunities and denying due process of law and violates various statutes relating to public education. Five other school boards and students in those jurisdictions intervened, alleging claims for relief on the basis of the high proportion of at-risk and high-cost students in their counties' systems. The suit is similar to a number of suits in other states, some of which resulted in holdings that the respective systems of public education funding were unconstitutional under the applicable state law. The State filed a motion to dismiss, which was denied. On appeal, the North Carolina Supreme Court upheld the present funding system against the claim that it unlawfully discriminated against low wealth counties, but remanded the case for trial on the claim for relief based on the Court's conclusion that the State Constitution guarantees every child the opportunity to obtain a sound basic education. On remand, the case, now known as Hoke Co. et al. v. State, focused on the education system in one county that was deemed to exemplify the conditions in low wealth school districts. The trial of the case was held in the fall of 1999. 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 and the "sound basic education" mandated by the Supreme Court. On March 26, 2001, the Court issued Section Three of the three-part ruling, in which the judge ordered all parties to investigate certain school systems to determine why they are succeeding without additional funding. The State filed a Notice of Appeal to the Court of Appeals, which resulted in the Court's decision to re-open the trial and call additional witnesses. That proceeding took place in the fall of 2001. On April 4, 2002, the trial court entered Section Four of its judgment. In Section Four, the trial court held that there are at-risk students who are not being provided with the equal opportunity to obtain a sound basic education and that the State, as opposed to the local boards of education, is responsible for correcting that deficiency in the State's system of education. The Court directed the State to take whatever action was necessary to assure that every class was taught by a competent teacher, that every school was led by a competent principal and that every school has the resources to support an effective instructional program so that every child will have the opportunity to obtain a sound basic education. The Court did not order any more specific relief or direct the State to expend additional resources on the schools. However, the court held that if additional resources were necessary to provide students with effective teachers, principals and programs, then the State was obligated to find those resources. In May 2002, the State filed an expedited appeal of Section Four of the judgment to the Supreme Court of North Carolina but did not request a stay of Section Four. 2. N. C. School Boards Association, et al. v. Richard H. Moore, 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. The court ruled in favor of the plaintiffs on December 14, 2001. In the order, the trial court concluded that specifically identified monetary payments assessed and collected by state agencies are civil fines or penalties whose disposition is controlled by Article IX, Section 7 of the North Carolina Constitution. The trial court also concluded the statutes under which these funds are distributed are "unconstitutional and void" to the extent they provide that the money is to "go to agencies or for purposes other than the public schools." Based upon these conclusions of law, the court directed that the "clear proceeds" of the affected civil fines and penalties be remitted to the public schools. C-39 The trial court also declared "unconstitutional and void" the portions of the State Civil Penalty and Forfeiture Fund and the State School Technology Fund which operate to collect in a central fund and equitably distribute civil fines and penalties to the State's school systems for the purpose of supporting local school technology plans. The order requires state agencies to remit civil fines and penalties directly to the local boards of education in the county in which the violation leading to the payment occurs for use in the boards' discretion. Finally, the court determined a three-year statute of limitations applies, allowing the order to be enforced retroactively from the date the civil action was filed to include all affected civil fines and penalties collected by state agencies since December 1995. However, the court stayed the operation and enforcement of the order pending appeal. 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 State has appealed. The North Carolina Attorney General's Office believes that sound legal arguments support the State's position on this matter. 3. 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. The Compact subsequently asked the United States Supreme Court to accept its Complaint against North Carolina demanding the repayment, with interest, of $80 million of Compact payments expended on the permitting of the site, plus $10 million of future lost income, interest and attorney fees. The Supreme Court denied this motion in August, 2001. The State expects the Compact to continue this litigation in another forum. The North Carolina Attorney General's office believes that sound legal arguments support the State's position on this matter. The Adviser believes that the information summarized above described 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 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, composed of the Governor, the State Treasurer, the State Comptroller General, the Chairman of the Senate Finance Committee, and the Chairman of the House Ways and Means Committee, 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 the 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 rate 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 of State government. The State Constitution also requires a Capital Reserve Fund equal to two percent of general fund revenue for the latest completed fiscal year. C-40 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 appropriations. 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 lapse and be credited 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, 2001 expenditures exceeded revenues by $87.4 million and, as required by the above constitutional provisions, such amount was withdrawn from the General Reserve Fund to cover such shortfall. Accordingly, such withdrawal at year end left the General Reserve Fund balance at $60.5 million. In accordance with the provisions of the State Constitution, the General Reserve Fund must be restored within three years to its full funding amount of three percent (3%) of the State's Budgetary General Fund revenues for the latest completed fiscal year. The South Carolina General Assembly passed the Fiscal Year 2001-2002 Appropriations Act that enacted a balanced budget in the amount of $5,551.9 million with most of the new revenue being allocated to education. On October 18, 2001, the State Board of Economic Advisors reduced its Fiscal Year 2001-2002 General Fund revenue estimate from $5,918.9 million to $5,608.9 million, a revenue reduction of $310 million. In response to the report of the State Board of Economic Advisors, the State Budget and Control Board at its October 30, 2001 meeting took action to avoid year-end deficits in accordance with the State law requirement previously described. This action included sequestration of $110,134,739 from the State's Capital Reserve Fund; approval of an across-the-board reduction of General Fund appropriations of four percent (4%) for all agencies except where prohibited by proviso; and approval of a reduction of the local Government Fund to the level of Fiscal Year 2000-2001 allocations. On March 21, 2002, the State Board of Economic Advisors further reduced its Fiscal Year 2001-2002 General Fund revenue estimate by approximately $92 million and, in response to this revision, the State Budget and Control Board at its March 26, 2002 meeting took additional steps to avoid year-end deficits by imposing an additional across-the-board reduction of General Fund appropriations of 2.52% for all agencies except where prohibited by proviso. Additionally, the Board of Economic Advisors revised the estimate for a revenue transfer to the State's Tax Relief Trust Fund from $448.0 million to $458.7 million, which resulted in an additional $10.7 million reduction in anticipated revenue to the General Fund. Also, the Fiscal Year 2001-2002 Appropriations Act contained approximately $16.5 million of appropriations for open-ended obligations which were required to be paid regardless of the revenue shortfall. The South Carolina General Assembly passed the Fiscal Year 2002-2003 Appropriations Act in the amount of $5,438.1 million which enacted a balanced budget for such fiscal year. Positive economic growth in South Carolina has been driven, in part, by gains in tourism, business services and international trade. In 2001, the State announced $5.278 billion in new and expanded economic development projects which added approximately 21,900 new jobs. In 2000, employment increased two and five-tenths percent (2.5%), 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%). A lawsuit, Ward v. State of South Carolina was filed as a class action suit arising from State action taken as result of the decisions in Davis v. Michigan Dep't of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). C-41 In Davis, the United States Supreme Court held a state could not tax federal and state retirement income differently. The Court held a state could either extend tax exemption available to retired state employees to retired federal employees or eliminate the exemption for retired state employees. Following Davis, the General Assembly of South Carolina passed Act No. 189 of 1989 which repealed the tax exemption for State retirees held unconstitutional in Davis and substituted a $3,000 exemption available to all other retired persons. A separate section of Act No. 189 increased retirement benefits for persons receiving benefits from the State Retirement System. In 1998, the plaintiff in Ward brought suit against the State, alleging that the provision of additional benefits to State retirees by Act No. 189 of 1989 is unconstitutional under Davis. The plaintiffs in Ward are also seeking an injunction against future taxation of federal retirement benefits and damages in the form of repayment of taxes paid in prior years. In November, 2000, the South Carolina Supreme Court overturned a trial court ruling that the Ward plaintiffs were required to pursue administrative remedies prior to bringing suit. As a result of that ruling, Ward has been remanded to the trial court for further proceedings and as of the date hereof no decision has been rendered. Cross motions for summary judgment have been heard in the case and a ruling is pending. The State is pursuing its defense in Ward vigorously. The probability of a decision in Ward adverse to the State is not presently known. The State's latest estimated potential exposure in the event of an adverse decision in Ward is $100 million in refunds of previously paid taxes and $25 million annually in lost tax revenue in the future. Evans v. State of South Carolina. This action for breach of contract was brought by a retired State employee to contest the validity of Act No. 189 of 1989, adopted in response to Davis. The plaintiff in Evans asserts that the tax exemption of State retirement income, which existed prior to the adoption of Act No. 189 of 1989, was contractual in nature and not subject to repeal by statute. The trial court dismissed this action. The South Carolina Supreme Court heard an appeal of the dismissal and reversed the trial court and remanded the case with instructions to dismiss the plaintiff's complaint without prejudice. In light of the State Supreme Court's dismissal, the plaintiff elected to pursue an administrative remedy before the South Carolina Department of Revenue. The plaintiff's refund claim was denied and is now on appeal before an administrative law judge. The probability of a decision in Evans adverse to the State is not presently known. The State's estimated potential exposure in the event of an adverse decision in Evans is $300 million in refunds of previously paid taxes and $25 million annually in lost tax revenue in the future. Wehle, et al. v. State of South Carolina. Two employees and an employer claiming that the South Carolina Retirement System wrongfully denied benefits to members of the South Carolina Retirement System and the Police Officer Retirement System filed this action in September, 2001. The plaintiffs allege that both Systems are over funded and have excess collections. The plaintiffs seek a declaratory judgment that a benefit was wrongfully denied and/or that excess contributions were collected and request that contributions be reduced in the future. The plaintiffs further seek a refund of over $2 billion to members and employers. The State believes that the Systems are providing retirement benefits and collecting contributions from employers and members in accordance with current State law. The State plans to vigorously defend its position. Abbeville County School District, et. al. v. The State of South Carolina. This action was originally brought seeking declaratory and injunctive relief on behalf of certain school districts, taxpayers, and individuals alleging that the State's method of funding primary and secondary public education violated several provisions of State and federal law. The lower court dismissed the complaint on all counts. The South Carolina Supreme Court affirmed the lower court's dismissal of all but one of the counts, but reversed the lower court's dismissal of a claim arising under the education clause of the State Constitution, holding that the State Constitution requires the State to provide the opportunity for each child within the State to receive a minimally adequate education. Finding that the complaint stated a claim under this provision, the South Carolina Supreme Court remanded the case for further proceedings. Following the remand, the plaintiffs have requested leave to amend their complaint in this action to add a claim for damages for past actions or omissions of the State. The court accepted the amended complaint. The State has filed a motion to dismiss the complaint. The suit also contains requests for declaratory and injunctive C-42 relief that could result in the State's providing additional monies for public education and, possibly, for other purposes. The State is pursuing its defense in Abbeville County School District vigorously. The probability of a decision in Abbeville County School District adverse to the State is not presently known. The State does not yet have an estimate of potential exposure in the event of an adverse decision in Abbeville County School District. The case is tentatively set for trial in May of 2003. In November, 2000, the State's electorate approved an amendment to the South Carolina Constitution to permit the implementation of a lottery. The amendment was ratified by the South Carolina General Assembly during its 2001 legislative session, and the lottery became operational in January, 2002. As ratified, revised Article XVII, Section 7 of the South Carolina Constitution permits lotteries and requires lottery revenues to be applied first to pay operating expenses and prizes, with the remainder to be credited to a separate Education Lottery Account in the State Treasury. All account proceeds, including earnings from the investments thereof, must be allocated by the General Assembly for educational purposes and educational programs. The lottery was initially projected to generate $150 million per year, net of operating expenses, for deposit into the Education Lottery Account. Through May 15, 2002, after approximately four months of operation, a total of $63 million, net of operating expenses, has been transferred to the Education Lottery Account, on gross sales of $257.8 million. Monies in the Education Lottery Account must be used to supplement and not supplant existing funds for education including pre-school, elementary, high school, technical and higher learning programs, scholarships, tuition assistance, libraries, endowed chairs at various institutions of higher learning, and acquisition of school buses. 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, 2001, the State of Tennessee's annual legal debt service limit of $534.7 million was well above the debt service required of $131.6 million, with a legal debt service margin of $403.1 million. Debt per capita equaled $189.78, and the ratio of net general long-term bonded debt to assessed property valuation was 1.39 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 2001-02. For the past four years, Tennessee has used one-time revenues to balance its budget. Its reliance on non-recurring revenues to fund on-going budget expenses and its reliance on a narrow revenue stream have contributed to its budgetary problems. The C-43 Governor has proposed a number of measures to address the State's current budgetary problems. At least three state's income tax proposals have been discussed while others have proposed expanding and increasing the State's sales tax and assessing a statewide property tax. Others have proposed radically reducing the size of state government. The debate on how best to address the budgetary problems has been heated, and only recently has the State passed legislation which attempts to address its budgetary problems. Currently, the Assembly has authorized utilizing a variety of reserve funds, some of which were already dedicated for other purposes. As a result of these issues and the lack of any long-term solution, the three rating agencies have downgraded the State's credit rating to AA. Against this backdrop, the State has not introduced any significant new initiatives but has attempted to produce improvements in the State's education program and its own internal operations. Improving efficiencies in state government has been a goal, and through improvement in technologies, the State has been recognized as being an emerging leader in e-government capabilities. 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 three years. This growth created 14,670 new jobs in Tennessee for the year ended June 2001. As of June 2001, the State's unemployment rate was 4.5% under the national average of 4.7%. Based on current projections, the State's overall growth is expected to exceed the national average over the next several years according to the Comprehensive Annual Financial Report for the State of Tennessee for the year ended June 2001. On July 4, 2002, Governor Don Sundquist signed into law a revenue bill raising an estimated $923,235,000 in new revenue during fiscal year 2002-2003. As provided by the Controller of the Treasury of the State of Tennessee, the revenue sources and estimated new revenue to be generated in FY 2002-2003 and FY 2003-2004 are:
- --------------------------------------------------------------------------------------------------------------------- TAX CHANGE FY 2002-2003 FY 2003-2004 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Decouple state excise tax from federal regulations $50,000,000 $50,000,000 - --------------------------------------------------------------------------------------------------------------------- Increase excise tax from 6% to 6.5%*,** 77,400,000 51,600,000 - --------------------------------------------------------------------------------------------------------------------- Increase wholesale tax on cigarettes by 7-cents a pack* 32,818,000 34,245,000 - --------------------------------------------------------------------------------------------------------------------- Increase the wholesale tax on other tobacco products by 10%* 678,500 708,000 - --------------------------------------------------------------------------------------------------------------------- Increase the wholesale tax on beer by 10%* 1,487,333 1,552,000 - --------------------------------------------------------------------------------------------------------------------- Increase the wholesale tax on wine by 10%* 596,083 622,000 - --------------------------------------------------------------------------------------------------------------------- Increase the wholesale tax on spirits by 10%* 2,172,542 2,267,000 - --------------------------------------------------------------------------------------------------------------------- Increase sales tax as a result of including tax in retail price* 2,643,000 2,750,000 - --------------------------------------------------------------------------------------------------------------------- Coin operated amusement tax effective 9/01/02 3,375,000 4,050,000 - --------------------------------------------------------------------------------------------------------------------- Impose sales tax on vending machine sales* 16,675,000 17,400,000 - --------------------------------------------------------------------------------------------------------------------- Increase local business taxes by 50% with the state retaining the 63,333,000 63,333,000 increase - --------------------------------------------------------------------------------------------------------------------- Increase single article cap from $1,600 to $3,200. Increase taxed @ 38,613,167 40,292,000 2.75%* - --------------------------------------------------------------------------------------------------------------------- Commercial vehicle registration fee changes effective 10/01/02 8,101,000 10,814,000 - --------------------------------------------------------------------------------------------------------------------- Increase professional privilege tax to $400 excluding state 24,946,200 24,946,200 - ---------------------------------------------------------------------------------------------------------------------
C-44 - ---------------------------------------------------------------------------------------------------------------------- employees from tax - ---------------------------------------------------------------------------------------------------------------------- Increase in state sales tax rate from 6% to 7% (1% increase excludes 600,395,833 626,500,000 food)* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Total estimated increase in state revenues $923,234,658 $931,079,000 - ----------------------------------------------------------------------------------------------------------------------
* Effective date of implementation is July 15, 2002. ** Corporations whose business year is the calendar year will pay the increased excise tax beginning on September 2002 for the previous quarter creating additional revenue to the State in calendar year 2002, fiscal year 2002-2003. There is an increase in recurring state expenditures of $1,258,000 and an increase in one-time expenditures of $704,000 to implement the provisions of the bill. With the passage of the operating budget, 22,000 furloughed state employees are returning to work. The new revenue is appropriated as follows: . $755 million will be used to fund services at last year's level; . $40 million will be spent for pay raises beginning January 1, 2003; . $20 million will be deposited into the State's Rainy Day Fund; . $42.2 million will be used to restore certain grants; . $28 million will be spent on capital maintenance; . $2.5 million for boll weevil eradication grants; . An unspecified amount to compensate state employees who took vacation time while on furlough during the partial shutdown of State government; . $1.258 million to implement the new tax legislation, plus $704,000 in one-time expenditures; . $400,000 to fund a 15-member tax-study commission whose work is to be completed by July 1, 2004. The General Assembly of the State of Tennessee also passed legislation authorizing the issuance of $127,265,000 in General Obligation debt. The authorization includes: . $47,165,000 for general purpose capital improvements and capital maintenance; . $3,100,000 for improvements to state office buildings through the Facilities Revolving Fund and; . $77,000,000 to the Department of Transportation for various highway and other transportation funds. It should be noted that no bonds have been issued for transportation purposes in the past fifteen years. However, one cannot assume that this practice will continue in the future. Because of the recent enactment of the revenue bill, it is not clear what effect it will have on Tennessee business. It is also not clear whether the legislative enactments will provide long-term solutions to the State's budgetary issues. 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 C-45 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 that are payable from funds expected to be available during the current budget period do not constitute "debt" within the meaning of the constitutional prohibition. From time to time, Texas voters by constitutional amendment have authorized the issuance of general obligation indebtedness for which the full faith, credit and taxing power of the State are pledged. In some cases, the authorized indebtedness may not be issued without the approval of the Legislature, but in other cases, the constitutional amendments are self operating and the debt may be issued without specific legislative action. 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 2001, the State's debt service ratio was 1.90 percent compared to 2.03 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 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 service producing industries and high technology manufacturing. Oil and gas related industries currently account for only 9.9 percent of the State's economy, while high technology industries comprise nearly as large a segment with 9.2 percent of the Texas gross state product. 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 82 percent of total nonfarm employment and 88 percent of employment growth over the past five years. Texas' location and transportation 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 2001 exceeded $108 billion, down slightly from $112 billion in 2001. Still Texas export trade 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 C-46 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 seaport trade, manufacturing and agriculture. The economy of the central corridor is grounded in the public and private service sector, high-technology manufacturing and communications and recreation/tourism. 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 (1.9 million), accounting for more than 12 percent of the nation's total job growth. As of February 2002, Texas employment growth year-to-year was averaging 2.1 percent, compared to 1.6 percent nationwide. Until 2001, the State's unemployment rate fell every year since 1992. In December 2000, the moving average unemployment rate had fallen to its lowest point since 1974, at 3.7 percent. The unemployment rate has since risen, and the Texas Workforce Commission estimates that the annual unemployment rate for 2001 was 4.9 percent and that the unemployment rate in 2002 will be 5.5 percent. Recent turmoil in the energy and telecommunications industries could cause the actual unemployment rate to exceed this percentage. Most new jobs created in the year ending February 2002 were in the goods producing sectors, including construction, manufacturing and mining. Over most of the past three years construction has been the State's fastest growing source of jobs among major Texas industries. It has gradually slowed, and although still maintaining a fairly rapid rate of growth, has given way to mining over the past year. Manufacturing, a significant component of job growth in previous years, has been affected by weak domestic and international markets and has suffered a net loss of jobs from February 2001 through January 2002. The loss in electronics employment alone accounted for 32 percent of the State's lost manufacturing jobs over the past year. For the twelve years prior to February 2002, 44 percent of the net new jobs added to Texas employment rolls were in the service-oriented sectors. Despite the recent increase in the rate of unemployment, it is believed that 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 long-term growth, such as knowledge-based manufacturing and services. The State's general revenue fund provides an indication of the State's financial condition. In the fiscal year 2000, 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 2001. Sales tax, accounting for over 54 percent of total tax revenue, was second. Licenses, fees, fines and penalties are now the third largest source of revenue to the State, with motor vehicle sales/rentals and motor fuels 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. 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, 1997, 1998, 1999, 2000 and 2001, the general revenue fund contained a cash surplus of approximately $2.685 billion, $3.330 billion, $4.337 billion, $3.843 billion and $4.963 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). C-47 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. As of June 30, 2002, local government in the Commonwealth was 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. 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. C-48 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. Historically, balances in the General Fund have decreased in some years, such as fiscal years 1995 and 2001 and have increased at varying rates in other years, such as fiscal years 1996, 1997, 1998, 1999 and 2000. The General Fund balance fell by $661.2 million in fiscal year 2001, a decrease of 35.6 percent over fiscal year 2000. Tax revenues grew at a rate of 2.6 percent from fiscal 2000 to fiscal year 2001. Individual income and fiduciary tax revenue grew by 5.8 percent. Certain tax revenues experienced growth while others declined. Growth occurred in the form of a 3.2 percent increase in sales and use tax, and a 6.8 percent increase in premiums of insurance companies' tax. Declines occurred in Corporation Income Tax and Public Service Corporations Taxes by 35.7 percent and 10.3 percent, respectively. Overall revenue grew by 3.0 percent mainly in individual income tax revenues, and non-tax revenues grew by 13.7 percent. Overall expenditures grew at a rate of 9.4 percent in fiscal year 2001, compared to 9.8 percent in fiscal 2000. Individual and family service expenditures grew by $143.8 million, or 6.1 percent, while education expenditures grew by $266.8 million, or 6.8 percent. In addition, general government expenditures increased by $259.9 million or 32.1 percent. Of the June 30, 2001 balance, $715.6 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. The fiscal year 2002 contribution of $187.1 million to the Revenue Stabilization Fund is also reserved, while the appropriated amount is $163.1 million. In addition, $201.0 million was designated for reappropriation in fiscal year 2002. Thus, in total, $902.7 million was reserved or designated within the June 30, 2001 General Fund balance for the Revenue Stabilization Fund. In 2000, the Commonwealth ranked 12/th/ 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 2000 per capita income for the Commonwealth was $31,162. According to the U.S. Department of Labor, Bureau of Labor Statistics, the unemployment rate of 2.2% in 2000 compared to 4.0% 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. 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; significantly curb their advertising; and disband industry trade groups. 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. Such payments will be paid annually into perpetuity and will be adjusted annually based on inflation and volume adjustments as determined by future sales of cigarettes. Approximately $8.6 billion of the Settlement will be deposited into a strategic contribution fund and allocated based on the states' contribution toward resolving the Settlement. The "strategic contribution payments" will be made in equal installments over a 10-year period beginning in 2008. 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 C-49 "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 remaining 40% unallocated Settlement payments were deposited to the General Fund in fiscal years 2000 and 2001. 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. On December 19, 2001, Governor Gilmore presented the 2002 Budget Bill (House Bill 30/Senate Bill 30) for the 2002-2004 biennium. The 2002 Budget Bill included for the biennium $24,173.7 million from the general fund in base spending, and total general fund resources of $24,257.0 million. Recommendations for new spending totaled $2,063.9 million, and the 2002 Budget Bill recommended $978.1 million in budget reductions and $1,007.5 in alternative funding strategies. New spending items included a two-percent salary increase for state employees, faculty, teachers, and state-supported local employees; funding to cover the increased cost of health insurance and other fringe benefits for state employees; full funding for the Standards of Quality and funding for other K-12 education programs; funding to enhance programs at Norfolk State and Virginia State Universities, to increase student financial assistance, to support operation of new academic facilities, and other funding for Virginia's public institutions of higher education; and significant funding for health and human resources programs, including Medicaid utilization and inflation, the Comprehensive Services Act, increased foster care and adoption payments, indigent care at academic health centers, and mental health facilities. Budget reductions and savings actions in the 2002 Budget Bill included a six percent across-the-board reductions for state agencies, and additional targeted reductions. Alternative funding strategies in the 2002 Budget bill included utilizing bonds for road construction, using Literary Fund monies to support teacher retirement and for school construction, and increasing certain permit fees. On January 22, 2002, Governor Warner submitted executive amendments to the 2002 Budget Bill presented by his predecessor. Spending actions in Governor Warner's executive amendments for the 2002-2004 biennium include partial restoration of school construction grants, increased funding for response to terrorism, elimination of nongeneral fund across-the-board cuts, reduction in across-the-board cuts for judicial agencies, mitigation of higher education reductions, and increased funding for state employee health insurance benefits. Savings actions include deferral of the proposed raises for state employees, faculty, teachers, and state-supported local employees; deferring the final phase of the Personal Property Tax relief program until FY 2005, and increasing the across-the-board cuts to seven percent in FY 2003 and eight percent in FY 2004. Governor Warner also proposed an increase in motor vehicle registration fees and district court fees, and a new recordation fee. These additional resources would be used primarily to fund the courts and to increase funding for anti-terrorism activities. The 2002 Session of the Virginia General Assembly ended on March 9, 2002. The 2002 Budget Bill was amended by the General Assembly and submitted to the Governor for approval. On April 8, 2002, the Governor submitted to the General Assembly 83 amendments to the Bill. At its reconvened session on April 17, 2002, the 2002 General Assembly accepted all but 14 of the Governor's proposed amendments to the 2002 Budget Bill. On May 17, 2002 Governor Warner signed the bill and vetoed six items. The bill will become effective on July 1, 2002 as Chapter 899, 2002 Acts of Assembly ("2002 Appropriation Act"). While the information regarding the Commonwealth is presented as of the latest dates for which official information was available, the consequences of the general economic downturn that began in the spring of 2001 and the acceleration thereof that occurred as a result of the events of September 11, 2001 to employment in and the economy of the Commonwealth are not fully reflected in the data or discussion presented herein and such consequences are of indeterminate duration. 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. C-50 APPENDIX D--CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS As of July 5, 2002, the name, address and percentage of ownership of each person who may be deemed to be a principal holder (i.e., owns of record ("R") or is known by the Trust to own beneficially ("B") 5% or more of any class of a Fund's outstanding shares) are shown below.
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- Asset Allocation Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B SEAFIRST BANK 7,214,561.30 67.31% 38.41% FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 10,047.26 6.89% 0.05% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 70,342.56 48.30% 0.37% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ------------------------------------------------------------------------------------------------------------------------- Investor C B STUART K COLONNA TTEE 9,168.90 6.29% 0.05% BAYSHORE CONCRETE PRODUCTS CORP RETIREMENT SAVINGS PLAN 1 BAYSHORE RD P O BOX 230 CAPE CHARLES VA 23310 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 1,919,400.68 93.51% 10.22% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.73 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Nations Bond Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B COBATCO C/O SYNOVUS TRUST CO 273,384.92 7.10% 0.12% OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 39,885.12 16.61% 0.02% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - -------------------------------------------------------------------------------------------------------------------------
D-1
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- Asset Allocation Fund - ------------------------------------------------------------------------------------------------------------------------- Investor C B SUMMERVILLE PEDIATRICS PA 22,443.77 9.34% 0.01% PROFIT SHARING PLAN 312 MIDLAND PARKWAY SUMMERVILLE SC 29485-8114 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 12,376,491.74 5.40% 5.26% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 205,831,734.70 89.82% 87.55% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.05 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- California Bond Fund - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 57,476.42 11.74% 0.19% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W73-045080 27,522.74 5.62% 0.09% STEG MFG CO 2448 A HAMPTON DR VALENCIA CA 91355 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W75-610682 33,923.05 6.93% 0.11% DENNIS REN YEON WONG 1262 TAINAN PL SAN JOSE CA 95131 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W78-051900 70,792.35 14.46% 0.24% FLORA R FERGUSON, L ROSS TTEE TR A (THE FERGUSON SURVIVOR TRUST), U/A 4/24/79 6975 VERDES RIDGE RANCHO PALOS VERDES CA 90275 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W79-059218 33,732.75 6.89% 0.11% DORMAN TRUST JOHN C DORMAN U/A 04/21/1998 328 20TH STREET SANTA MONICA CA 90402 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-075507 28,614.79 5.84% 0.10% JOSE L MAZON NORMA MAZON 1293 GAYWOOD ST SAN DIEGO CA 92154 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-168971 35,745.66 7.30% 0.12% DUKEE KWON HEE CHOUL KWON - -------------------------------------------------------------------------------------------------------------------------
D-2
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- 22545 SKYLINE DR YORBA LINDA CA 92887 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 8,287,869.25 99.99% 27.60% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Reserves - ------------------------------------------------------------------------------------------------------------------------- Advisor B BANC OF AMERICA SECURITIES LLC 63,120,306.83 16.08% 2.75% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------- Advisor B NATIONAL FINANCIAL FOR THE 315,930,577.87 80.49% 13.76% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA SECURITIES LLC 98,304,898.23 30.92% 4.28% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------- Capital B BANK OF AMERICA NA 85,000,000.00 26.73% 3.70% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Capital R CHARLES H & LINDA F BRANDES TTEES 19,715,017.91 6.20% 0.86% BRANDES FAMILY TRUST DATED 10/1/98 P.O. BOX 535 RANCHO SANTA FE CA 92067 - ------------------------------------------------------------------------------------------------------------------------- Capital B SJC CAPITAL LLC 67,859,161.17 21.34% 2.96% P O BOX 3131 RANCHO SANTA FE CA 92067 - ------------------------------------------------------------------------------------------------------------------------- Daily B NATIONAL FINANCIAL FOR THE 810,408,352.10 99.94% 35.30% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA SECURITIES LLC 4,852,090.94 99.99% 0.21% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------- Investor B BANC OF AMERICA SECURITIES LLC 119,310,028.08 32.79% 5.20% - -------------------------------------------------------------------------------------------------------------------------
D-3
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------- Investor B NATIONAL FINANCIAL FOR THE 240,588,454.28 66.13% 10.48% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W80-004251 1.21 10.79% 0.00% DUKEE KWON 22545 SKYLINE DR. YORBA LINDA CA 92887 - ------------------------------------------------------------------------------------------------------------------------- Investor B R STEPHENS INC 10.00 89.20% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Investor C R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Liquidity B BANC OF AMERICA SECURITIES LLC 2,358,550.04 99.99% 0.10% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------- Market R STEPHENS INC 25.08 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Service R STEPHENS INC 25.08 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 360,333,022.61 89.26% 15.69% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Capital Growth Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B MERCANTILE SAFE DEP & TRUST CO 279,139.81 5.24% 0.56% TTEE CASE COMMUNICATIONS DEFINED BENEFIT PLAN A/C# 3400306 U/A DTD 05/28/1984 766 OLD HAMMONDS FERRY RD LINTHICUM MD 21090 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # AK3-975494 39,574.45 5.67% 0.08% WILLIAM ASHER 15490 VENTURA BLVD # 210 - -------------------------------------------------------------------------------------------------------------------------
D-4
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- SHERMAN OAKS CA 91403 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-106100 36,222.32 5.19% 0.07% BRUCE CROUCH TTEE BRUCE CROUCH TRUST U/A 12/6/89 PO BOX 1390 SUNSET BEACH CA 90742 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 36,971,053.35 97.96% 73.67% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.66 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Cash Reserves - ----------------------------------------------------------------------------------------------------------------------- Advisor B BANC OF AMERICA SECURITIES LLC 2,010,829,897.18 24.63% 2.52% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------------- Advisor B BANK OF AMERICA 781,240,000.00 9.57% 0.98% ATTN ROSEMARY ZUMBO CA4-704-05-21 2000 CLAYTON RD 5TH FL CONCORD CA 94520-3275 - ----------------------------------------------------------------------------------------------------------------------- Advisor B HARE & CO, BANK OF NEW YORK 495,884,824.02 6.07% 0.62% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------------- Advisor B NATIONAL FINANCIAL FOR THE 753,258,248.28 9.22% 0.94% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------------- Advisor B BANK OF AMERICA NA AGENT FBO 2,815,664,860.75 34.49% 3.53% GLOBAL FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202 - ----------------------------------------------------------------------------------------------------------------------- Advisor B BANK OF AMERICA SWP DISBURSEMENT NC 452,000,000.00 5.53% 0.57% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA LLC 5,595,887,345.84 15.05% 7.01% - -----------------------------------------------------------------------------------------------------------------------
D-5
- ---------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ---------------------------------------------------------------------------------------------------------------------- ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 - ---------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA LLC 6,096,657,607.03 16.40% 7.64% ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 - ---------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA SECURITIES LLC 4,749,337,028.50 12.77% 5.95% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ---------------------------------------------------------------------------------------------------------------------- Capital B BANK OF AMERICA NA 3,951,201,487.34 10.63% 4.95% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ---------------------------------------------------------------------------------------------------------------------- Capital B THE BANK OF NEW YORK 2,749,500,000.00 7.39% 3.45% AS AGENT FOR ITS SECURITIES LENDING CUSTOMERS 32 OLD SLIP 15TH FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------------- Daily B NATIONAL FINANCIAL FOR THE 5,084,438,315.03 38.13% 6.37% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------------- Daily B NATIONAL FINANCIAL SERVICES CORP 6,076,942,825.17 45.57% 7.62% FBO OF OUR EXCULSIVE CUSTOMERS ATTN MUTUAL FUND DEPT-5 TH FLR ONE WORLD FINANCIAL CENTER 200 LIBERTY ST FL FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------------- Daily B BANK OF AMERICA NA AGENT FBO 1,027,000,000.00 7.70% 1.29% GLOBAL FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202 - ----------------------------------------------------------------------------------------------------------------------- Institiutional B BANK OF AMERICA NA 870,140,333.35 22.11% 1.09% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA SECURITIES LLC 2,074,075,666.49 52.70% 2.60% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------------- Institutional B HARE & CO, BANK OF NEW YORK 225,579,656.99 5.73% 0.28% ATTN STIF/MASTER NOTE - -----------------------------------------------------------------------------------------------------------------------
D-6
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- ONE WALL STREET 2ND FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------------- Institutional B SILICON VALLEY BANK 665,871,821.97 16.92% 0.83% ATTN: BRIAN ARAKI 3003 TASMAN DRIVE MSHG 110 SANTA CLARA CA 95054 - ----------------------------------------------------------------------------------------------------------------------- Investor B BANC OF AMERICA SECURITIES LLC 671,144,206.26 14.00% 0.84% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------------- Investor B HARE & CO, BANK OF NEW YORK 289,231,848.98 6.03% 0.36% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------------- Investor B NATIONAL FINANCIAL FOR THE 847,070,536.55 17.67% 1.06% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------------- Investor B SILICON VALLEY BANK 2,412,919,503.72 50.35% 3.02% ATTN: BRIAN ARAKI 3003 TASMAN DRIVE MSHG 110 SANTA CLARA CA 95054 - ----------------------------------------------------------------------------------------------------------------------- Investor A B NATIONAL FINANCIAL FOR THE 373,883,212.19 86.97% 0.47% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------------- Investor C B BANC OF AMERICA SECURITIES LLC 965,505.23 32.60% 0.00% 209-06330-13 NC1-004-03-06 200 NORTH COLLEGE ST 3rd FL CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W26-086770 164,094.01 5.54% 0.00% COMBONI SISTERS US MISSIONARY SECRETARIAT 1307 LAKESIDE AVE RICHMOND VA 23228 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W52-048305 202,757.21 6.84% 0.00% CATHERINE R BECK RICHARD BECK 3214 W 101 STREET LEAWOOD KS 66206 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W79-107433 200,202.11 6.76% 0.00% THOMAS L LARRY SUZANNE M LARRY 243 HILLVIEW DR GOLETA CA 93117 - -----------------------------------------------------------------------------------------------------------------------
D-7
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- Liquidity B BANC OF AMERICA SECURITIES LLC 1,403,637,000.21 89.95% 1.76% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------------- Market B BANK OF AMERICA SWP DISBURSEMENT NC 3,810,000,000.00 97.76% 4.77% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Marsico B SUNSTONE FINANCIAL GROUP INC AS AGT 21,908,506.83 99.99% 0.03% FOR MARISCO FUNDS INC 803 W MICHIGAN ST SUITE A MILWAUKEE WI 53233-2301 - ----------------------------------------------------------------------------------------------------------------------- Service B BANK OF AMERICA SWP DISBURSEMENT NC 873,000,000.00 88.82% 1.09% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 5,115,011,947.72 93.92% 6.41% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Classic Value Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 303,878.51 15.92% 0.76% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 334,648.84 8.44% 0.83% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 807,639.53 18.71% 2.02% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 29,381,824.58 98.37% 73.31% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - -----------------------------------------------------------------------------------------------------------------------
D-8
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- Convertible Securities Fund - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 460,984.62 27.75% 0.90% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 119,609.03 7.20% 0.23% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 18,283,043.95 89.99% 35.56% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary A B NATIONS BOND FUND 1,604,979.02 7.90% 3.12% ATTN DEL LUCAS 101 S TRYON ST NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------- Emerging Markets Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B A G EDWARDS & SONS INC FBO 21,953.90 5.85% 0.82% OPTIK GROUP LLC A/C 0793-026358 ONE NORTH JEFFERSON ST LOUIS MO 63103-2287 - ------------------------------------------------------------------------------------------------------------------------- Investor A B CHARLES SCHWAB & CO INC 138,168.09 36.84% 5.17% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W52-693553 1,476.83 5.01% 0.06% JOSEPH JAMES MULVANEY P O BOX 4703 DES MOINES IA 50306 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-379344 3,279.12 11.14% 0.12% JULIE B WARD 353 D AVE LAKE OSWEGO OR 97034 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-471771 2,219.63 7.54% 0.08% LAWSON LIVING TR ROBERT LAWSON U/A 03/13/1995 1610 SW BROADWAY PORTLAND OR 97201 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 1,624,895.41 79.03% 60.74% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST - -------------------------------------------------------------------------------------------------------------------------
D-9
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary A B NATIONS FUNDS TRUST 270,247.13 13.14% 10.10% LIFEGOAL GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 2.43 100.00% 0.00% NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Financial Services Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A R JOHN W ZIMMERMAN & 3,948.75 17.37% 0.69% MARY T ZIMMERMAN JTWROS 809 CASTLE FOREST CT BALLWIN MO 63021 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W38-619981 6,182.58 27.20% 1.08% NFS/FMTC IRA FBO RICHARD V FOLEA SR P O BOX 1130 LUSBY MD 20657 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W53-060453 2,490.29 10.95% 0.44% NFS/FMTC IRA FBO DAN R COLE 430 BLANCHE DR ST CHARLES MO 63303 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W76-073059 5,399.57 23.76% 0.95% NFS/FMTC ROLLOVER IRA FBO JACK C STEPHENS 2733 WESTVILLE TRAIL COOL CA 95614 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W77-422290 1,490.17 6.55% 0.26% PAVEL HRMAAPT F234 2455 GEORGE WASHINGTON WAY RICHLAND WA 99352 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # 010-903060 2,295.97 7.96% 0.40% NFS/FMTC IRA FBO DANIEL ROY SWEARINGEN 14444 SE US HIGHWAY 301 SUMMERFIELD FL 34491 - ------------------------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W19-075787 2,049.18 7.11% 0.36% INVERSIONES MAQUI LTD 4103 CARRIAGE DR APT H2 POMPANO BEACH FL 33069 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-066508 3,245.62 11.26% 0.57% LESLIE C DUNCAN TTEE LESLIE C DUNCAN TRUST U/A 3/3/95 14621 HIGHLAND HARBOUR COURT FORT MYERS FL 33908 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W62-142166 2,631.58 9.13% 0.46% JOSEPH VON HEDRICH - -------------------------------------------------------------------------------------------------------------------------
D-10
- ------------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------------ 2 OLD KINGS RD N PALM COAST FL 32137 - ------------------------------------------------------------------------------------------------------------------------------ Investor B R NFSC FEBO # W62-161144 1,887.76 6.55% 0.33% NFS/FMTC ROLLOVER IRA FBO LAURINE FOWLER PO BOX 353973 PALM COAST FL 32135 - ------------------------------------------------------------------------------------------------------------------------------ Investor B R NFSC FEBO # W74-119547 2,868.07 9.95% 0.50% SON DU LAM NHAN Q LAM 52 MARBLEHEAD LN NOVATO CA 94949 - ------------------------------------------------------------------------------------------------------------------------------ Investor B R NFSC FEBO # W78-052850 3,371.87 11.69% 0.59% NFS/FMTC IRA FBO JOHN OLCESE 41775 NAVARRE CT PALM DESERT CA 92260 - ------------------------------------------------------------------------------------------------------------------------------ Investor B R NFSC FEBO # W82-142450 2,430.13 8.43% 0.43% DAVID PARRI PO BOX 94077 TUCSON AZ 85733 - ------------------------------------------------------------------------------------------------------------------------------ Investor C R A G EDWARDS & SONS INC C/F 2,004.11 45.50% 0.35% CHARLES F HECK ROLLOVER IRA ACCOUNT 816 RENDERER WARSON WOODS MO 63122-1646 - ------------------------------------------------------------------------------------------------------------------------------ Investor C R A G EDWARDS & SONS INC C/F 978.92 22.22% 0.17% JOHN G LAMBRECHT IRA ACCOUNT 3420 WILKINSON WOODS DR SARASOTA FL 34231-8663 - ------------------------------------------------------------------------------------------------------------------------------ Investor C B NFSC FEBO # W19-660051 1,420.04 32.24% 0.25% MAN CON INCORPORATED TTEE PROFIT SHARING PLAN & TRUST 3460 SW 11TH ST DEERFIELD BCH FL 33442 - ------------------------------------------------------------------------------------------------------------------------------ Primary A B BACAP ALTERNATIVE ADVISORS INC 500,555.00 97.24% 87.72% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------------ Florida Intermediate Bond Fund - ------------------------------------------------------------------------------------------------------------------------------ Investor A R NFSC FEBO # W19-124273 64,045.95 7.01% 0.29% ELIZABETH M GEDDES GORDON L GEDDES 7311 PIMLICO LN PARKLAND FL 33067 - ------------------------------------------------------------------------------------------------------------------------------ Investor B B MERRILL LYNCH, PIERCE, FENNER 44,953.49 6.73% 0.21% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------------
D-11
- ------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Investor C B DONALDSON LUFKIN JENRETTE 34,304.51 14.46% 0.16% SECURITIES CORPORATION INC. P. O. BOX 2052 JERSEY CITY, NJ 07303-9998 - ------------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 99,609.88 42.00% 0.46% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W16-038695 37,944.14 16.00% 0.17% ARNOLD P ROSEN MURIEL S ROSEN NANCY R SCHAFFEL 9999 COLLINS AVE APT 18B BAL HARBOR FL 33154 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W67-678635 14,117.97 5.95% 0.06% CARL N TASEFF LUCILLE C TASEFF 2548 BAY POINTE DR WESTON FL 33327 - ------------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 19,949,116.46 99.75% 91.44% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------ Florida Bond Fund - ------------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 17,184.15 40.31% 0.13% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W65-141259 10,040.50 23.55% 0.08% MARVIN L PALES 637 GREEN COVE TERRACE UNIT 133 ALTAMONTE SPRINGS FL 33714 - ------------------------------------------------------------------------------------------------------------------------ Investor C R RAYMOND JAMES & ASSOC INC 15,075.38 35.36% 0.12% FBO PARMER,FW&A BIN# 50100337 880 CARILLON PKWY ST PETERSBURG FL 33716 - ------------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 7,352,793.32 99.99% 57.13% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------ Georgia Intermediate Bond Fund - ------------------------------------------------------------------------------------------------------------------------ Investor A B FIRST CLEARING CORPORATION 168,353.92 11.99% 0.99% A/C 5941-4811 - ------------------------------------------------------------------------------------------------------------------------
D-12
- ------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------ LYLES W SANDERS & MARY C SANDERS JT/WROS 2305 WELTON PL DUNWOODY GA 30338-5344 - ------------------------------------------------------------------------------------------------------------------------ Investor A R NFSC FEBO # W14-004162 95,127.11 6.77% 0.56% ALICE HINTON RAY P O BOX 415 DACULA GA 30019 - ------------------------------------------------------------------------------------------------------------------------ Investor A R NFSC FEBO # W14-086592 80,335.08 5.72% 0.47% JAMES T WILLOUGHBY 451 CHESTNUT HILL RD MARIETTA GA 30064 - ------------------------------------------------------------------------------------------------------------------------ Investor B B FIRST CLEARING CORPORATION 254,882.29 20.19% 1.49% A/C 2110-7902 DERST INVESTMENTS LP 258 VARN DR SAVANNAH GA 31405-5469 - ------------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 22,137.91 7.99% 0.13% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # N23-542849 18,433.18 6.65% 0.11% ANNA L BROOKINS 3214 MARICOPA DR COLUMBUS GA 31907 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W14-005215 18,578.15 6.70% 0.11% ROBERT NETOLICKA MARIA D KITTEL NETOLICKA 340 PINE VALLEY ROAD MARIETTA GA 30067 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W14-132438 79,694.02 28.77% 0.47% AARON F PASS LYNNELL L PASS 4921 HOLLAND VIEW DRIVE FLOWERY BRANCH GA 30542 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W14-652571 50,561.43 18.25% 0.30% LETTY C CAGLE DOUGLAS CAGLE APT 318 8592 ROSWELL RD ATLANTA GA 30350 - ------------------------------------------------------------------------------------------------------------------------ Investor C R PAINEWEBBER FOR THE BENEFIT OF 18,309.37 6.61% 0.11% KAY S COLLINS 1512 NORTH CHENEY DR VIDALIA GA 30474-4322 - ------------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 14,122,322.85 99.98% 82.75% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------
D-13
- ------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------ Global Value Fund - ------------------------------------------------------------------------------------------------------------------------ Investor A B MERRILL LYNCH, PIERCE, FENNER 2,389,225.38 50.59% 13.50% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Investor A B PAINEWEBBER FOR THE BENEFIT OF 293,367.08 6.21% 1.66% FRANK STABILE 84 PASCAL LN AUSTIN TX 78746-2552 - ------------------------------------------------------------------------------------------------------------------------ Investor B B MERRILL LYNCH, PIERCE, FENNER 562,555.87 30.72% 3.18% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 1,682,660.68 34.94% 9.51% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 4,441,086.66 70.03% 25.10% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------ Primary A B DONALDSON LUFKIN JENRETTE 1,107,027.73 17.45% 6.26% SECURITIES CORPORATION INC. P. O. BOX 2052 JERSEY CITY, NJ 07303-9998 - ------------------------------------------------------------------------------------------------------------------------ Government Reserves - ------------------------------------------------------------------------------------------------------------------------ Advisor B BANC OF AMERICA SECURITIES LLC 648,499,011.43 63.30% 12.66% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------ Advisor B NATIONAL FINANCIAL FOR THE 263,021,451.60 25.67% 5.13% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------ Capital B BANC OF AMERICA SECURITIES LLC 917,203,606.14 60.16% 17.90% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------
D-14
- ------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Capital B HARTFORD LIFE INSURANCE CO 140,267,554.12 9.20% 2.74% SERIES II WAMCO FIXED INCOME MORTGAGE BACKED DIVISION ATTN JOHN PADDEN 200 HOPMEADOW ST A-3 SIMSBURY CT 06089 - ------------------------------------------------------------------------------------------------------------------------ Capital B LONE STAR TECHNOLOGIES INC 134,544,583.09 8.82% 2.63% ATTN CHARLES J KESZLER PO BOX 803546 DALLAS TX 75380-3546 - ------------------------------------------------------------------------------------------------------------------------ Daily B NATIONAL FINANCIAL FOR THE 310,914,850.31 99.45% 6.07% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------ Institutional B BANC OF AMERICA SECURITIES LLC 94,013,247.23 79.92% 1.84% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------ Institutional B BANK OF AMERICA NA 23,612,431.60 20.07% 0.46% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------ Investor B BANC OF AMERICA SECURITIES LLC 281,438,219.24 30.03% 5.49% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------ Investor B NATIONAL FINANCIAL FOR THE 617,066,688.52 65.85% 12.04% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------ Investor A B NATIONAL FINANCIAL FOR THE 5,710,146.91 82.16% 0.11% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------------ Investor A B TWINSTAR INVESTMENTS LP 401,818.02 5.78% 0.01% 58 BROAD STREET RD 103 SABOT PARK MANAKIN SABOT VA 23103 - ------------------------------------------------------------------------------------------------------------------------ Investor B B DEAN WITTER FOR THE BENEFIT OF 358,098.16 17.64% 0.01% CARYL S BERNSTEIN - ------------------------------------------------------------------------------------------------------------------------
D-15
- ------------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------ PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 - ------------------------------------------------------------------------------------------------------------------------ Investor B B DEAN WITTER FOR THE BENEFIT OF 265,399.28 13.07% 0.01% GEORGE K BERNSTEIN TRUST PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 - ------------------------------------------------------------------------------------------------------------------------ Investor B R NFSC FEBO # W67-626333 385,909.93 19.01% 0.01% CARLOS EXPOSITO 40 NW 124 AVE MIAMI FL 33182 - ------------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W65-140643 983,403.85 99.99% 0.02% THE JOHNNIE EILEEN CORDELL BREED JOHNNIE C BREED TTEE C/O TRANSCOR INC. 7758 BAYMEADOWS WAY STE 108 JACKSONVILLE FL 32256 - ------------------------------------------------------------------------------------------------------------------------ Liquidity B BANC OF AMERICA SECURITIES LLC 99,823,062.35 62.61% 1.95% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------------ Liquidity B BANK OF AMERICA SWP DISBURSEMENT NC 33,000,000.00 20.70% 0.64% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------ Liquidity B QUINTANA MINERALS CORP 9,065,000.23 5.68% 0.18% 601 JEFFERSON SUITE 3600 HOUSTON TX 77002 - ------------------------------------------------------------------------------------------------------------------------ Liquidity B WRANGLER HOLDINGS LLC 12,310,268.27 7.72% 0.24% ATTN ROBERT CHAMBERS 300 CRESCENT COURT STE 1000 DALLAS TX 75201 - ------------------------------------------------------------------------------------------------------------------------ Market B BANK OF AMERICA SWP DISBURSEMENT NC 577,000,000.00 99.99% 11.26% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------ Service B BANK OF AMERICA SWP DISBURSEMENT NC 42,000,000.00 99.99% 0.82% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------ Trust B BANK OF AMERICA NA 408,341,336.38 97.68% 7.97% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST - ------------------------------------------------------------------------------------------------------------------------
D-16
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Government Securities Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B UNION BANK TRUST NOMINEE 276,233.73 5.02% 1.02% FBO ANGELUS SANITARY CAN MACHINE CO EMP WELFARE BP 610001305-00 PO BOX 85484 SAN DIEGO CA 92186-5484 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 15,676.62 8.18% 0.06% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W53-678562 19,399.14 10.12% 0.07% RUTH LEE PAAR 750 WEBSTER WARSAW IL 62379 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W53-710237 10,109.32 5.27% 0.04% NFSC/FMTC IRA FBO MILDRED DELUCA 5512 COLUMBIA AV SAINT LOUIS MO 63139 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W78-031712 10,126.11 5.28% 0.04% JAMES E LEMON TTEE JANE H LEMON TRUST U/A 7/14/00 1141 CLAIBORNE DRIVE LONG BEACH CA 90807 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-168254 20,119.57 10.50% 0.07% ANNA M BLEDSOE 1626 LAUREL RD OCEANSIDE CA 92054 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W81-052370 12,151.44 6.34% 0.05% ALOYSIUS R POH NFS/FMTC IRA THE BAYSHORE 34 BAYSHORE ROAD #03 05 SINGAPORE - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 15,731,369.11 98.06% 58.32% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 2.20 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- High Yield Bond Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B BANC OF AMERICA SECURITIES LLC 799,463.31 14.58% 1.84% 510-05562-15 - -------------------------------------------------------------------------------------------------------------------------
D-17
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- NC1-004-03-06 200 NORTH COLLEGE ST 3rd FL CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 476,084.30 8.68% 1.10% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W74-755850 293,373.20 5.35% 0.68% ROLF F ILLSLEY TTEE OF THE ROLF F ILLSLEY 1995 REV TR, U/A 11/16/95 P O BOX 2804 SANTA ROSACA 95405 - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W76-007692 755,323.06 13.78% 1.74% LARRY A SHEHADEY 1451 W ROBINWOOD LANE FRESNO CA 93711 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 295,208.59 12.68% 0.68% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 24,817,398.65 93.95% 57.26% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Intermediate Bond Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B BANK OF AMERICA NA 2,041,990.25 32.18% 5.21% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Investor A B SEAFIRST BANK 2,834,804.05 44.68% 7.23% FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 - ------------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 54,257.18 6.24% 0.14% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 109,857.40 35.07% 0.28% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - -------------------------------------------------------------------------------------------------------------------------
D-18
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-385131 16,205.62 5.17% 0.04% MORGAN GALAZIA PER REP EST ROBERT M WALSH 1100 CURLEW RD LOT 215 DUNEDIN FL 34698 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-712183 15,672.90 5.00% 0.04% DOROTHY I BROTHERSON ROBERT E BROTHERSON SR 613 S RACE RD COUPVILLE WA 98239 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 31,654,160.90 99.88% 80.73% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Intermediate Municipal Bond Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W77-383864 186,751.67 5.87% 0.15% ROSARIA P HAUGLAND 2233 LASATER BLVD EUGENE OR 97405 - ------------------------------------------------------------------------------------------------------------------------- Investor A R WARREN K MONTOURI TTEE 385,569.79 12.12% 0.32% WARREN K MONTOURI TRUST U/A DTD 10/08/97 2440 VIRGINIA AVE NW STE 100 WASHINGTON DC 20037-2601 - ------------------------------------------------------------------------------------------------------------------------- Investor A B WILBRANCH & CO 311,904.77 9.80% 0.26% PO BOX 2887 WILSON NC 27894-2887 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W15-626244 28,295.26 6.21% 0.02% ROBERT J EVANS OLLIE P EVANS MARY HELEN SCHULTE 255 WEATHERLY CLUB DR ALABASTER AL 35007 - ------------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W27-071226 24,835.74 5.45% 0.02% JAMES H CROSSINGHAM HELEN H CROSSINGHAM PO BOX 588 MT AIRY NC 27030 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 78,861.20 30.06% 0.07% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-336394 14,851.61 5.66% 0.01% M A PROCTOR BETTY JANE PROCTOR 303 2ND ST S #C-7 KIRKLAND WA 98033 - ------------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-352160 50,014.10 19.06% 0.04% GLENDA N MACMAHON - -------------------------------------------------------------------------------------------------------------------------
D-19
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- PO BOX 44667 TACOMA WA 98444 - ------------------------------------------------------------------------------------------------------------------------- Investor C R SWS SECURITIES FBO 24,829.10 9.46% 0.02% SHELDON KLEIN P O BOX 509002 DALLAS TX 75250-9002 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 115,946,572.32 98.91% 95.72% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- International Equity Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B BANK OF AMERICA NA 194,004.18 5.42% 0.38% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Investor C B E LARRY FONTS TTEE FBO 7,285.00 5.87% 0.01% CENTRAL DALLAS ASSOCIATION PROFIT SHARING PLAN 1200 MAIN ST SUITE 125 DALLAS TX 75202 - ------------------------------------------------------------------------------------------------------------------------- Investor C B JAMES HIGHTOWER ART HIGHTOWER AND 8,488.74 6.84% 0.02% WLLIAM HIGHTOWER TTEES FBO HIGHTOWER CONSTRUCTION CO INC 401K PROFIT SHARING PLAN P O BOX 1369 GOOSE CREEK SC 29445 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 46,415.85 37.44% 0.09% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C B TATSUSHI T KUBO, MAX W DAHLGREN, 6,907.61 5.57% 0.01% & JOHN DAHLGREN TTEES FBO EPIC PRODUCTS INTERNATIONAL CORPORATION 401(K) PLAN PO BOX 5808 ARLINGTON TX 76005-5808 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 8,914,748.84 19.37% 17.68% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 34,294,356.89 74.52% 68.03% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.39 44.55% 0.00% ATTN: CINDY COLE - -------------------------------------------------------------------------------------------------------------------------
D-20
- ------------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------------- 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.74 55.44% 0.00% NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------------- Investor A B BANKERS TRUST AS TRUSTEE FBO 2,752,813.84 5.10% 1.19% HARRIS CORPORATION RETIREMENT PLAN INTERNATIONAL VALUE FUND 1025 W NASA BLVD MS17 MELBOURNE FL 32919 - ------------------------------------------------------------------------------------------------------------------------- International Value Fund - ------------------------------------------------------------------------------------------------------------------------- Investor A B CHARLES SCHWAB & CO INC 8,843,231.41 16.38% 3.83% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ------------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 13,316,286.90 24.67% 5.76% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 1,136,965.55 14.90% 0.49% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 3,589,941.44 31.44% 1.55% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 103,479,235.09 65.52% 44.79% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------------- Primary A B CHARLES SCHWAB & CO INC 21,460,206.50 13.58% 9.29% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ------------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.50 100.00% 0.00% NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 - -------------------------------------------------------------------------------------------------------------------------
D-21
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- Kansas Municipal Income Fund - --------------------------------------------------------------------------------------------------------------------- Investor A B GTRUST 15,459.52 9.41% 0.17% PO BOX 2127 TOPEKA KS 66601-2127 - --------------------------------------------------------------------------------------------------------------------- Investor A B JARNAT 31,686.48 19.29% 0.34% C/O FIRST NATIONAL BANK PO BOX 545 WINFIELD KS 67156 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # STL-741647 17,155.88 10.44% 0.18% VIRGINIA FALCONE LANG TTEE VIRGINIA FALCONE LANG REV TRT 8813 W 142ND PLACE OVERLAND PARK KS 66221 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W52-003573 24,799.02 15.10% 0.27% V. KATHERYN COPELAND REVOCABLE T V KATHERYN COPELAND U/A 11/30/90 14431 SIEFKES CT WICHITA KS 67230 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W52-044210 10,538.46 6.41% 0.11% NORMA H DETHLEFSEN TTEE NORMA H DETHLEFSEN LIVING TRUS U/A 10/30/92 400 S MARTINSON #214 WICHITA KS 67213 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W52-044652 24,360.62 14.83% 0.26% DOUGLAS J TERNES 12011 HICKORY LN WICHITA KS 67235 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # X33-189804 14,969.36 9.11% 0.16% JAMES R PAULSEN JANET S PAULSEN 811 E 6TH ST GOODLAND KS 67735-2111 - --------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W52-007030 2,467.35 99.95% 0.03% JOAN BERNS TTEE JOAN BERNS REVOCABLE TRUST U/A 9/23/96 412 N VINE PEABODY KS 66866 - --------------------------------------------------------------------------------------------------------------------- Investor C R STEPHENS INC 1.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - --------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 9,130,938.46 99.99% 98.21% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------------------- LargeCap Index Fund - --------------------------------------------------------------------------------------------------------------------- Investor A B DIVERSIFIED INVESTMENT ADVISORS 93,077.57 5.90% 0.16% - ---------------------------------------------------------------------------------------------------------------------
D-22 - -------------------------------------------------------------------------------- Account Ownership Registration Address Shares % of % of Fund/Class Type Owned Class Fund - -------------------------------------------------------------------------------- ATTN: BHEESHAM PERSAUD MAIL DROP 2-52 4 MANHATTANVILLE ROAD PURCHASE NY 10577-2119 - -------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 36,463,261.14 64.30% 62.57% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - -------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 19,620,692.65 34.60% 33.67 ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - -------------------------------------------------------------------------------- Primary B R STEPHENS INC 0.82 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - -------------------------------------------------------------------------------- LargeCap Value Fund - -------------------------------------------------------------------------------- Investor A R NFSC FEBO # EMP-157805 4,963.61 7.52% 0.18% NFS/FMTC IRA FBO SARAH C MCGAUGHY 110 IDORA AVE SAN FRANCISCO CA 94127 - -------------------------------------------------------------------------------- Investor A R NFSC FEBO # W66-272698 5,937.53 8.99% 0.22% WILLIAM A NAFF TTEE NAFF AND ASSOC INC MNY PRCHSE PEN PL 330 SW WASHINGTON ST #103 PEORIA IL 61602 - -------------------------------------------------------------------------------- Investor A R NFSC FEBO # W76-072435 7,435.81 11.26% 0.27% MARY LOU COLLINS 12565 MESA DRIVE MADERA CA 93638 - -------------------------------------------------------------------------------- Investor A R NFSC FEBO # W76-073059 5,330.49 8.07% 0.19% NFS/FMTC ROLLOVER IRA FBO JACK C STEPHENS 2733 WESTVILLE TRAIL COOL CA 95614 - -------------------------------------------------------------------------------- Investor A R NFSC FEBO # W79-068080 11,235.63 17.02% 0.41% MATHIEU IVSIC 1350 DEVLIN DR LOS ANGELES CA 90069 - -------------------------------------------------------------------------------- Investor B R NFSC FEBO # W32-092878 4,705.94 7.98% 0.17% NFS/FMTC ROLLOVER IRA FBO EDWARD W OSTAN JR 7846 10TH AVE S ST PETERSBURG FL 33707 - -------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-157872 4,575.97 7.76% 0.17% NFS/FMTC ROLLOVER IRA FBO JAMES H WAGSTAFF JR 3240 GULF OF MEXICO DR #404 - -------------------------------------------------------------------------------- D-23
- ------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Class - ------------------------------------------------------------------------------------------------------------------- LONGBOAT KEY FL 34228 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-157899 5,264.66 8.93% 0.19% NFS/FMTC IRA FBO KATHLEEN J BARRON 15 B HAWTHORNE VILLAGE FRANKLIN MA 02038 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W78-055727 4,127.35 7.00% 0.15% NFS/FMTC ROLLOVER IRA FBO JOHN G KELLY 4703 DUNROBIN AVE LAKEWOOD CA 90713 - ------------------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W79-048380 2,998.05 5.08% 0.11% CHRISTOPHER A KEYSER TTEE MAD BEN PRODUCTIONS DEFND BENEFIT TR 1784 WESTRIDGE RD LOS ANGELES CA 90049 - ------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W26-086517 1,834.29 58.59% 0.07% WILLIAM S GREEN TRUST ROBERT W GREEN U/A 08/28/01 111 PARADISE PT GRAFTON VA 23692 - ------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-731650 213.52 6.82% 0.01% ANETH C SULLIVAN TTEE OF THE ANETH C SULLIVAN LIVING TR, U/A 8/27/91 2780 RUTGERS AV LONG BEACH CA 90815 - ------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-847488 193.51 6.18% 0.01% NFSC/FMTC IRA FBO MARLENE MARIE LAMASTER 2932 PEMBA DR COSTA MESA CA 92626 - ------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W82-141089 316.97 10.12% 0.01% VIRGINIA H GEFFRE VIRGINIA H GEFFRE 1214 W MALIBU DR TEMPE AZ 85282 - ------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO W80-860069 1,423.83 45.48% 0.05% NFSC FMTC IRA FBO EVELYN H CREMER 8816 YUBA CIR APT 1111C HUNTINGTON BEACH CA 92646-8711 - ------------------------------------------------------------------------------------------------------------------- Primary A B BANC OF AMERICA ADVISORS LLC 502,022.30 19.09% 18.20% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 2,127,008.11 80.90% 77.09% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - -------------------------------------------------------------------------------------------------------------------
D-4
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- LifeGoal Balanced Growth Portfolio - ----------------------------------------------------------------------------------------------------------------------- Investor A B STATE STREET BANK & TRUST CO TTEE 176,288.12 10.81% 0.69% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 148,154.76 33.06% 0.58% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 17,291,584.50 92.37% 68.00% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ----------------------------------------------------------------------------------------------------------------------- Primary A B DIVERSIFIED INVESTMENT ADVISORS 1,275,617.31 6.81% 5.02% ATTN: BHEESHAM PERSAUD MAIL DROP 2-52 4 MANHATTANVILLE ROAD PURCHASE NY 10577-2119 - ----------------------------------------------------------------------------------------------------------------------- Primary B R BNY CUST ROLLOVER IRA FBO 28,013.80 85.35% 0.11% MICHAEL CARDELINO 1712 FLATWOOD DRIVE FLOWER MOUND TX 75028 - ----------------------------------------------------------------------------------------------------------------------- Primary B R BNY CUST SEP IRA FBO 4,798.89 14.62% 0.02% RONALD E ROSS 4004 NEW TOWN RD WAXHAW NC 28173-9759 - ----------------------------------------------------------------------------------------------------------------------- LifeGoal Growth Portfolio - ----------------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 104,013.90 29.11% 0.81% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 6,942,215.24 96.76% 54.30% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ----------------------------------------------------------------------------------------------------------------------- Primary B R BNY CUST IRA FBO 698.41 99.79% 0.01% FRANK W TIMPA PO BOX 612 FORT MYERS FL 33902-0000 - ----------------------------------------------------------------------------------------------------------------------- LifeGoal Income & Growth Portfolio - ----------------------------------------------------------------------------------------------------------------------- Investor A B DIVERSIFIED INVESTMENT ADVISORS 77,450.93 13.77% 1.49% ATTN: BHEESHAM PERSAUD MAIL DROP 2-52 4 MANHATTANVILLE ROAD PURCHASE NY 10577-2119 - -----------------------------------------------------------------------------------------------------------------------
D-25
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W53-028258 37,840.44 6.73% 0.73% P A NILSEN FLORA M NILSEN 1601 S FORT AVE APT 229 SPRINGFIELD MO 65807 - ----------------------------------------------------------------------------------------------------------------------- Investor A B STATE STREET BANK & TRUST CO TTEE 49,440.77 8.79% 0.95% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 14,541.95 5.83% 0.28% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W78-096970 30,652.75 12.30% 0.59% VICTOR P FLEMING 1623 ROSEGLEN AVE SAN PEDRO CA 90731 - ----------------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 83,505.47 33.51% 1.61% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 2,509,886.58 99.06% 48.28% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ----------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.24 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Managed Index Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B MUIR & CO 160,947.26 8.51% 1.02% C/O FROST NATIONAL BANK PO BOX 2479 SAN ANTONIO TX 78298-2479 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 11,952,298.20 85.59% 75.39% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Primary A B THE NORTHERN TRUST COMPANY 984,646.48 7.05% 6.21% FBO AVIS RENT A CAR SYSTEMS PENSION PO BOX 92956 CHICAGO IL 60675 - ----------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.37 100.00% 0.00% ATTN: CINDY COLE - -----------------------------------------------------------------------------------------------------------------------
D-26
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Marsico 21st Century Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 187,066.84 9.67% 2.13% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 293,045.12 5.02% 3.33% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 152,340.07 26.48% 1.73% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 438,995.38 99.82% 4.99% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B CHARLES SCHWAB & CO INC 2,336,477.96 7.17% 2.11% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ----------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 13,762,206.51 42.24% 12.45% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 6,865,595.75 15.93% 6.21% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 6,799,143.54 54.97% 6.15% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 7,371,589.00 32.83% 6.67% - -----------------------------------------------------------------------------------------------------------------------
D-27
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 9,422,901.36 41.96% 8.53% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Primary A B CHARLES SCHWAB & CO INC 1,588,223.50 7.07% 1.44% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ----------------------------------------------------------------------------------------------------------------------- Primary A B NATIONS FUNDS TRUST 1,663,104.78 7.40% 1.50% LIFEGOAL BALANCED GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Primary A B NATIONS FUNDS TRUST 1,667,111.25 7.42% 1.51% LIFEGOAL GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.47 100.00% 0.00% NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Marsico Growth Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 12,962,874.64 77.03% 34.94% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 1,389,184.54 9.97% 3.74% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 1,444,593.46 57.87% 3.89% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 3,411,969.41 88.20% 9.20% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - -----------------------------------------------------------------------------------------------------------------------
D-28
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Primary A B CHARLES SCHWAB & CO INC 320,359.97 8.28% 0.86% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ----------------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.60 100.00% 0.00% NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Marsico International Opportunities Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 78,388.30 40.74% 5.47% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W75-017418 10,070.49 5.23% 0.70% STEPHEN G DILLY LYNETTE DILLY 500 REMILLARD DRIVE HILLSBOROUGH CA 94010 - ----------------------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 68,196.80 28.01% 4.76% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B FISERV CORRESPONDENT SVC 7,190.48 6.85% 0.50% FAO MONTSDEOCA RANCH INC ATTN: JUDY BRONSON P O BOX 206 LORIDA FL 33857 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 55,560.08 52.97% 3.88% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C R RAYMOND JAMES & ASSOC INC CSDN 5,829.55 5.55% 0.41% LOUIS B PAUL IRA 4 WIMBLEDON CT APT 203 HILTON HEAD ISLAND SC 29928-5572533 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 730,407.39 82.07% 51.01% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Primary A R STEPHENS GROUP INC 150,000.00 16.85% 10.48% ATTN JOLENE JOHNSON 111 CENTER ST - -----------------------------------------------------------------------------------------------------------------------
D-29
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Maryland Intermediate Bond Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W13-061581 359,113.87 15.83% 1.63% ROBERT GLADSTONE LESLIE GLADSTONE 2468 BELMONT RD NW WASHINGTON DC 20008 - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W13-640379 165,498.68 7.29% 0.75% CAROL C CHILDS PETER W HOUSE 4210 LEEWARD PL BETHESDA MD 20816 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 32,097.97 17.29% 0.15% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W13-776971 9,579.96 5.16% 0.04% ELIZABETH W NICHOLSON 408 GREAT FALLS ROAD ROCKVILLE MD 20850 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W38-028541 21,076.83 11.35% 0.10% ELIZABETH GREGORY PO BOX 2327 OCEAN CITY MD 21843 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W38-081264 46,390.25 24.99% 0.21% DOUGLAS S GOODWIN REVOCABLE TRUS DOUGLAS S GOODWIN U/A 02/09/01 2224 CREST ROAD BALTIMORE MD 21209 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W38-636932 46,240.61 24.91% 0.21% JOSEPH J HOCK III GLORIA D HOCK 1342 ASTER DR GLEN BURNIE MD 21061 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 17,375,325.86 99.73% 79.05% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- MidCap Growth Fund - ----------------------------------------------------------------------------------------------------------------------- Investor C B BANK OF AMERICA NA 29,427.74 94.83% 79.65% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 17,381.27 10.71% 0.06% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS - -----------------------------------------------------------------------------------------------------------------------
D-30
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C B TATSUSHI T KUBO, MAX W DAHLGREN, 13,785.05 6.32% 0.04% & JOHN DAHLGREN TTEES FBO EPIC PRODUCTS INTERNATIONAL CORPORATION 401(K) PLAN PO BOX 5808 ARLINGTON TX 76005-5808 - ----------------------------------------------------------------------------------------------------------------------- Primary A R STEPHENS INC 39,059,688.20 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------------- Primary B B NFSC FEBO # W25-059382 1.03 5.01% 0.03% JOHN L MANNING III P/ADM ORGAIN READY MIX PFT SHRING PL 240 KRAFT ST CLARKSVILLE TN 37040 - ----------------------------------------------------------------------------------------------------------------------- MidCap Index Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W32-074136 16,013.16 8.01% 0.02% WILLIAM J MEURER FMT CO TTEE NFRP PS 16215 TALAVERA DE AVILA TAMPA FL 33613 - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W38-068063 11,018.91 5.51% 0.01% ABBY ALT GODDARD TTEE ABBY LYNN ALT 1997 CRUT U/A 4/16/97 16000 GREENWOOD RD MONTE SERENO CA 95030 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA TTEE 27,996,459.59 28.35% 28.30% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 70,200,497.80 71.10% 70.96% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- MidCap Value Fund - ----------------------------------------------------------------------------------------------------------------------- Investor A B BANK OF AMERICA NA 30,289.35 17.24% 0.17% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W79-068080 10,352.24 5.89% 0.06% MATHIEU IVSIC 1350 DEVLIN DR LOS ANGELES CA 90069 - ----------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 4,412.39 22.23% 0.02% - -----------------------------------------------------------------------------------------------------------------------
D-31
- ----------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------------- & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W53-662607 3,149.93 15.87% 0.02% J ROBERT COPPER TTEE J ROBERT COPPER TRUST U/A 9/15/94 5777 GENE SARAZEN DR BRASELTON GA 30517 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W75-069299 4,032.83 20.31% 0.02% ALLISON E N METZ TTEE METZ FAMILY LIVING TRUST U/A 1/21/99 325 LANSDALE AVE SAN FRANCISCO CA 94127 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-099732 1,564.20 7.88% 0.01% NFS/FMTC ROLLOVER IRA FBO HUSSAM MIHTAR MD 13951 UMBRIA WAY POWAY CA 92064 - ----------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W80-099830 1,191.53 6.00% 0.01% NFS/FMTC SEP IRA FBO HUSSAM MIHTAR MD 13951 UMBRIA WAY POWAY CA 92064 - ----------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 15,678,887.23 88.28% 86.64% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------------- Primary A B NATIONS FUNDS TRUST 1,222,977.53 6.88% 6.76% LIFEGOAL BALANCED GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ----------------------------------------------------------------------------------------------------------------------- Money Market Reserves - ----------------------------------------------------------------------------------------------------------------------- Advisor B BANC OF AMERICA SECURITIES LLC 501,885,157.14 61.37% 3.58% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------------- Advisor B HARE & CO, BANK OF NEW YORK 242,028,876.76 29.59% 1.73% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA SECURITIES LLC 3,906,629,035.65 36.90% 27.86% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 - -----------------------------------------------------------------------------------------------------------------------
D-32
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Capital B HARE & CO, BANK OF NEW YORK 2,395,771,297.69 22.63% 17.09% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - --------------------------------------------------------------------------------------------------------------------- Capital B US BANK CORP TRUST SERVICES 1,117,596,793.37 10.55% 7.97% VAR & CO (US BANK TRUST NA) ATTN CASH SWEEP SPEN0603 P O BOX 1787 MILWAUKEE WI 53201 - --------------------------------------------------------------------------------------------------------------------- Daily B NATIONAL FINANCIAL FOR THE 4,520,625.05 99.96% 0.03% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - --------------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA SECURITIES LLC 352,223,777.71 76.12% 2.51% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Instl B ED FUND 31,301,630.88 6.76% 0.22% ATTN: JAIME FLORES, MANAGER P.O. BOX 419038 RANCHO CORDOVA CA 95741 - --------------------------------------------------------------------------------------------------------------------- Investor B BANK OF OKLAHOMA NA AS TRUSTEE 7,500,000.00 15.58% 0.05% FOR THE CREEK COUNTY HOME FINANCE AUTHORITY ATTN SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD SUITE 800 BEVERLY HILLS CA 90212 - --------------------------------------------------------------------------------------------------------------------- Investor B CHASE MANHATTAN TRUST CO 26,375,000.00 54.80% 0.19% TRUSTEE FOR NKY SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD STE 800 BEVERLY HILLS CA 90212 - --------------------------------------------------------------------------------------------------------------------- Investor B THE BANK OF NEW YORK CO OF FL AS 5,139,134.00 10.67% 0.04% TTEE FOR CAPITAL AREA HOUSING FINANCE CORP SER 2000-1 ATTN PEG MAKOWSKI 600 NORTH PEARL ST STE 420 DALLAS TX 75201 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # APX-212474 235,775.19 48.69% 0.00% RONALD COHN 869 ROSECRANS STREET SAN DIEGO CA 92106 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W23-049930 26,801.07 5.53% 0.00% VINCENT L VISOSKY 5715 CHAMPIONS GLEN HOUSTON TX 77069 - ---------------------------------------------------------------------------------------------------------------------
D-33
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W67-611476 125,638.07 25.94% 0.00% AIDA K DE ARAB COHEN 19018 N W 77 PLACE MIAMI FL 33015 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W76-051594 24,321.29 5.02% 0.00% NFS/FMTC ROLLOVER IRA FBO PATRICIA M MCELROY PO BOX 7793 CITRUS HEIGHTS CA 95621 - --------------------------------------------------------------------------------------------------------------------- Liquidity B BANC OF AMERICA SECURITIES LLC 499,459,695.31 98.77% 3.56% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Market B BANK OF AMERICA SWP DISBURSEMENT NC 1,337,500,000.00 99.99% 9.54% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - --------------------------------------------------------------------------------------------------------------------- Service B BANK OF AMERICA SWP DISBURSEMENT NC 133,000,000.00 98.66% 0.95% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - --------------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 36,723,683.05 32.33% 0.26% AS SECURED PARTY COLLATERAL ACCOUNT FOR WORLDCOM INC ATTN ACCOUNTING 500 CLINTON CENTER DR CLINTON MS 39056 - --------------------------------------------------------------------------------------------------------------------- Trust B US BANK CORP TRUST SERVICES 76,155,896.89 67.04% 0.54% VAR & CO (US BANK TRUST NA) ATTN CASH SWEEP SPEN0603 P O BOX 1787 MILWAUKEE WI 53201 - --------------------------------------------------------------------------------------------------------------------- Municipal Income Fund - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W77-013960 244,160.02 5.77% 0.31% RICHARD C BRIGGS 3251 106TH AVE SE BELLEVUE WA 98004 - --------------------------------------------------------------------------------------------------------------------- Investor A B WELLS FARGO INVESTMENTS LLC 284,219.15 6.72% 0.36% A/C 7742-3276 608 SECOND AVENUE SOUTH 8TH FL MINNEAPOLIS, MN 55402 - --------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 11,626.88 7.99% 0.01% & SMITH INC FOR THE SOLE BENEFIT - ---------------------------------------------------------------------------------------------------------------------
D-34
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W23-056383 14,022.78 9.63% 0.02% KAREN I EINDORF OCTAVIO MARQUEZ 58 E SUNDANCE CIR SPRING TX 77382 - --------------------------------------------------------------------------------------------------------------------- Investor C R PRUDENTIAL SECURITIES INC. FBO 11,952.37 8.21% 0.02% MR EMMET DAVID GELHOT 5630 OLEATHA AVE SAINT LOUIS MO 63139-1504 - --------------------------------------------------------------------------------------------------------------------- Investor C B RAYMOND JAMES & ASSOC INC 7,434.68 5.10% 0.01% FBO SAPPINGTON/ BIN# 53902768 880 CARILLON PKWY ST PETERSBURG FL 33716 - --------------------------------------------------------------------------------------------------------------------- Investor C R SWS SECURITIES FBO 22,964.56 15.78% 0.03% SHELDON KLEIN P O BOX 509002 DALLAS TX 75250-9002 - --------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 71,464,597.47 97.90% 91.27% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------------------- Municipal Reserves - --------------------------------------------------------------------------------------------------------------------- Advisor B BANC OF AMERICA SECURITIES LLC 91,473,245.53 52.17% 3.59% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Advisor B NATIONAL FINANCIAL FOR THE 72,691,909.87 41.46% 2.86% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - --------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA SECURITIES LLC 227,350,838.57 29.37% 8.93% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Capital B BANK OF AMERICA NA 395,505,457.02 51.10% 15.54% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------------------- B NATIONAL FINANCIAL FOR THE 623,400,413.85 99.99% 24.49% - ---------------------------------------------------------------------------------------------------------------------
D-35
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- Daily EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - --------------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA SECURITIES LLC 58,102,212.38 44.56% 2.28% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Institutional B BANK OF AMERICA NA 72,284,194.03 55.43% 2.84% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------------------- Investor B BANC OF AMERICA SECURITIES LLC 38,525,934.10 36.44% 1.51% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Investor B NATIONAL FINANCIAL FOR THE 66,149,496.75 62.58% 2.60% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - --------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W26-738484 11,426.58 22.45% 0.00% BARBARA C TAYLOR 615 COUNTRY CLUB DR WYTHEVILLE VA 24382 - --------------------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W27-746380 23,272.90 45.74% 0.00% SWEET JANE'S INC 4823 MEADOW DRIVE SUITE 210 DURHAM NC 27713 - --------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-402095 9,704.31 19.07% 0.00% THOMAS P DOLAN TTEE THOMAS P DOLAN TRUST U/A 1/5/89 4165 BOCA POINTE DRIVE SARASOTA FL 34238 - --------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W65-628310 6,461.69 12.70% 0.00% ROSALIA FILART ROSALIA FILART 1320 N MAIN STREET SUITE A KISSIMMEE FL 34744 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-828483 65,162.46 99.98% 0.00% JANET E SYATA TOD WALTER SYATA TOD EUGENIA SYATA 4413 NE PLAINS WY #77 - ---------------------------------------------------------------------------------------------------------------------
D-36
- ------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------- VANCOUVER WA 98662 - ------------------------------------------------------------------------------------------------------------------- Liquidity B BANC OF AMERICA SECURITIES LLC 44,232,989.36 87.80% 1.74% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Market B BANK OF AMERICA SWP DISBURSEMENT NC 164,000,000.00 99.99% 6.44% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------- Service B BANK OF AMERICA SWP DISBURSEMENT NC 18,000,000.00 99.99% 0.71% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 471,616,630.50 93.55% 18.53% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------- New York Tax-Exempt Reserves - ------------------------------------------------------------------------------------------------------------------- Advisor B BANC OF AMERICA ADVISORS LLC 1,003.07 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Capital B BANC OF AMERICA ADVISORS LLC 20,078,234.10 97.90% 46.54% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Daily B BANC OF AMERICA ADVISORS LLC 1,001.71 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA ADVISORS LLC 1,004.40 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------- Investor B BANC OF AMERICA ADVISORS LLC 1,003.07 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - -------------------------------------------------------------------------------------------------------------------
D-37
- --------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of %of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------------------- Investor B B BANC OF AMERICA ADVISORS LLC 1,000.41 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Investor C B BANC OF AMERICA ADVISORS LLC 1,000.41 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Liquidity B BANC OF AMERICA ADVISORS LLC 1,004.43 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Market B BANC OF AMERICA ADVISORS LLC 1,003.07 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Service B BANC OF AMERICA ADVISORS LLC 1,000.41 99.90% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 22,635,104.38 99.99% 52.46% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------------------- North Carolina Intermediate Bond Fund - --------------------------------------------------------------------------------------------------------------------- Investor A B ARROW & CO 102,754.45 6.41% 0.46% PO BOX 30010 DURHAM NC 27702-3010 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W16-714542 96,535.01 6.02% 0.43% W FRANK DOWD JR P O BOX 35430 CHARLOTTE NC 28235 - --------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # X68-061336 108,562.44 6.77% 0.48% JULIA E CLARK 4600 TROY'S MTN LN DURHAM NC 27705 - --------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 24,109.55 25.51% 0.11% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - --------------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W27-706680 6,668.80 7.05% 0.03% HAZEL A D'ORANGE 4320 WRIGHTSVILLE AVE WILMINGTON NC 28403 - ---------------------------------------------------------------------------------------------------------------------
D-38
- -------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - -------------------------------------------------------------------------------------------------------------------- Investor C B WEXFORD CLEARING SERVICES CORP FBO 42,547.84 45.02% 0.19% THE HAMMOCK HOUSE LLC GILLES CLOUTIER & ELIZABETH B CLOUTIER 100 CHESTNUT RD CHAPEL HILL NC 27514-9548 - -------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 18,747,889.37 99.71% 83.55% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - -------------------------------------------------------------------------------------------------------------------- Research Fund - -------------------------------------------------------------------------------------------------------------------- Investor A B BACAP ALTERNATIVE ADVISORS INC 1,000.00 7.20% 0.10% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - -------------------------------------------------------------------------------------------------------------------- Investor A R DAVID A PRESSON 1,401.22 10.09% 0.14% 12903 WALNUT WAY TERRACE CT ST LOUIS MO 63146 - -------------------------------------------------------------------------------------------------------------------- Investor A R JOHN W ZIMMERMAN & 2,530.36 18.22% 0.25% MARY T ZIMMERMAN JTWROS 809 CASTLE FOREST CT BALLWIN MO 63021 - -------------------------------------------------------------------------------------------------------------------- Investor A R MICHAEL J ANCELL & 2,079.00 14.97% 0.21% PAMELA S ANCELL JTWROS 1203 CHAVANIAC DR BALLWIN MO 63011 - -------------------------------------------------------------------------------------------------------------------- Investor A R SARAH ROSS 1,538.46 11.08% 0.15% 1246 PERSHING APT 2E ST LOUIS MO 63130 - -------------------------------------------------------------------------------------------------------------------- Investor A R THOMAS E LERITZ & 1,059.32 7.63% 0.10% LAURIE E LERITZ JTWROS 7112 NORTHMOOR ST LOUIS MO 63105 - -------------------------------------------------------------------------------------------------------------------- Investor B B BACAP ALTERNATIVE ADVISORS INC 1,000.00 99.90% 0.10% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - -------------------------------------------------------------------------------------------------------------------- Investor C B BACAP ALTERNATIVE ADVISORS INC 1,000.00 99.90% 0.10% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - -------------------------------------------------------------------------------------------------------------------- Primary A B BACAP ALTERNATIVE ADVISORS INC 997,000.00 99.99% 98.49% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------------------
D-39
- ------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------- Nations Short-Intermediate Government Fund - ------------------------------------------------------------------------------------------------------- Investor A B BANK OF AMERICA NA 1,213,837.21 12.28% 1.13% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------- Investor A B NFSC FEBO # W14-610208 1,043,999.69 10.56% 0.97% BURGESS PIGMENT CO PO BOX 349 DECK BLVD SANDERSVILLE GA 31082 - ------------------------------------------------------------------------------------------------------- Investor B B MERRILL LYNCH, PIERCE, FENNER 358,719.56 7.33% 0.33% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 97,298.85 5.88% 0.09% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W75-025127 430,965.55 26.07% 0.40% PALM MICROSYSTEMS INC 630 ALDER DR. MILPITAS CA 95035 - ------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W75-058190 127,555.83 7.71% 0.12% NFS/FMTC IRA FBO BONNIE U ORR 2275 BROADWAY #521 SAN FRANCISCO CA 94115 - ------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 88,571,845.96 96.91% 82.12% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------- Primary B B RELIANCE TRUST CO 35,524.90 99.99% 0.03% PO BOX 48529 ATLANTA GA 30362 - ------------------------------------------------------------------------------------------------------- Short-Term Income Fund - ------------------------------------------------------------------------------------------------------- Investor A B BANC OF AMERICA SECURITIES LLC 2,094,115.37 19.03% 2.88% 734-00046-18 NC1-004-03-06 200 NORTH COLLEGE ST 3rd FL CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------- Investor A B NFSC FEBO # W16-029262 1,534,407.18 13.94% 2.11% TRYON ASSURANCE CO LTD CREDIT CARD REINSURANCE VICTORIA HALL 11 VICTORIA ST HAMILTON BERMUDA 21 BERMUDA - -------------------------------------------------------------------------------------------------------
D-40
- ----------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------- Investor A B NFSC FEBO # W16-698636 926,920.30 8.42% 1.27% TRYON ASSURANCE CO LTD VICTORIA HALL 11 VICTORIA ST HAMILTON BERMUDA 21 BERMUDA - ----------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W17-731269 46,653.11 18.85% 0.06% WEST ANDERSON RURAL WATER & SEWER CO INC 2767 WHITEHALL RD ANDERSON SC 29625 - ----------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W17-731277 27,666.21 11.18% 0.04% W ANDERSON RURAL WATER & SEWER RESERVE FUND 2767 WHITEHALL RD ANDERSON SC 29625 - ----------------------------------------------------------------------------------------------------------- Investor B B NFSC FEBO # W17-737127 15,333.02 6.19% 0.02% CLEMSON ARCHITECTURAL FNDTN 108 STRODE TOWER CLEMSON SC 29634 - ----------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 269,904.12 5.42% 0.37% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W75-025127 403,209.97 8.10% 0.55% PALM MICROSYSTEMS INC 630 ALDER DR. MILPITAS CA 95035 - ----------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W75-621188 313,618.79 6.30% 0.43% JESUIT COMMNTY UNVRSTY OF SANTA CLARA SANTA CLARA UNIVERSITY SANTA CLARA CA 95053 - ----------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 53,164,829.73 93.90% 73.07% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.03 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------- Short-Term Municipal Income Fund - ----------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W73-032085 693,222.15 5.00% 1.09% MARTIN AND MARSHA BRANDER TRUS MARTIN I BRANDER U/A 12/05/1995 323 N CARMELINA AVE LOS ANGELES CA 90049 - ----------------------------------------------------------------------------------------------------------- Investor B R JIM'S BUILDERS HARDWARE INC 11,289.83 6.28% 0.02% 565 W DOUGLAS WICHITA KS 67213 - -----------------------------------------------------------------------------------------------------------
D-41
- ------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W14-726940 16,099.58 8.96% 0.03% JUDITH C BROWN 708 OLD GREENVILLE RD FAYETTEVILLE GA 30215 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W26-056430 11,823.84 6.58% 0.02% ANNIE W SMITH LIVING TRUST ANNIE W SMITH U/A 12/02/91 206 GRAVES CIRCLE NEWPORT NEWS VA 23602 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W26-643050 18,589.07 10.34% 0.03% MRS ANN W CUTCHINS 5906 OCEANFRONT VIRGINIA BCH VA 23451 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W52-709450 13,097.60 7.28% 0.02% KIRK S KOWALEWSKI JEANETTE KOWALEWSKI 13008 W 128TH PL OVERLAND PARK KS 66213 - ------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 873,341.05 15.67% 1.37% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 42,627,205.94 96.49% 66.84% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------- Small Company Fund - ------------------------------------------------------------------------------------------------------- Investor A B BANK OF AMERICA NA 71,207.16 90.13% 70.41% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 44,283.70 5.75% 0.16% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 44,793.14 15.87% 0.10% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------- Primary A R STEPHENS INC 8,480,529.72 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - --------------------------------------------------------------------------------------------------------
D-42
- ------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------- SmallCap Index Fund - ------------------------------------------------------------------------------------------------------- Investor B B CHARLES SCHWAB & CO INC 80,729.45 11.01% 0.18% SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 - ------------------------------------------------------------------------------------------------------- Investor C B BANK OF AMERICA NA TTEE 50,400.79 21.22% 20.88% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 34,620,537.73 77.57% 76.35% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------- Primary A B DADE COMMUNITY FOUNDATION INC 31,003,007.10 6.84% 0.11% 200 SOUTH BISCAYNE BLVD STE 2780 MIAMI FL 33131-2343 - ------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.14 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------- Primary B B WILMINGTON TRUST CO CUST FBO 1.04 6.92% 0.11% BERMAN FAMILY INVESTMENT LIMITED PARTNERSHIP A/C 55346-0 U/A DTD 05/24/01 PO BOX 8882 ATTN MUTUAL FUNDS WILMINGTON DE 19899-8882 - ------------------------------------------------------------------------------------------------------- SmallCap Value Fund - ------------------------------------------------------------------------------------------------------- Investor A R LORI J ENSINGER 3,960.40 12.71% 0.13% 98 DEEPWOOD DRIVE CHAPPAQUA NY 10514 - ------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W17-003204 2,612.33 8.38% 0.08% LOUISE COKER EWING 1267 LAUREL LANE PO BOX 311 BLOWING ROCK NC 28605 - ------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W17-627976 2,612.33 8.38% 0.08% MICHAEL EWING 705 MARTEN'S CT PMB 84-BOX 262 LAREDO TX 78041 - ------------------------------------------------------------------------------------------------------- Investor A B NFSC FEBO # W18-017892 2,988.05 9.59% 0.09% A CHRIS BRYAN II SPECIAL ACCT/SEPERATE PROPERTY 4347 W NORTHWEST HWY SUITE 120-PMB369 DALLAS TX 75220 - -------------------------------------------------------------------------------------------------------
D-43
- ------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------- Investor A B NFSC FEBO # W78-006270 7,657.66 24.59% 0.24% THE SHOWTIME RACING INC EMP WL JEREMY MCGRATH 31265 MURRIETA RD MENIFEE CA 92584 - ------------------------------------------------------------------------------------------------------- Investor B R BNY CUST IRA FBO 538.79 5.71% 0.02% JANE KELLY WILLIAMS ROTH CONVERSION IRA 20 WINDSOR ROAD TENAFLY NJ 07670 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W27-640638 891.36 9.45% 0.03% NFSC/FMTC IRA FBO GAYLE B MCCOMBS 5609 SHENANDOAH AV NORFOLK VA 23509 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-141755 1,906.32 20.22% 0.06% MARY A CONVERSE TRUST MARY A CONVERSE TTEE LAKEHOUSE WEST 3435 FOX RUN ROAD APT. 305 SARASOTA FL 34231 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W61-160571 715.02 7.58% 0.02% NFS/FMTC IRA FBO CATHERINE HUDSON 21147 RED FISH COVE DR PUNTA GORDA FL 33955 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W75-031470 513.88 5.45% 0.02% NFS/FMTC ROLLOVER IRA FBO DEANNE J KENNEALLY 626 LOMBARDY WAY REDWOOD CITY CA 94062 - ------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO W82-724475 1,351.52 14.33% 0.04% JAMES S GOODPASTURE VIRGINIA G GOODPASTURE 11064 W WINCHESTER DR SUN CITY AZ 85351-1559 - ------------------------------------------------------------------------------------------------------- Investor C B BANC OF AMERICA ADVISORS LLC 100.00 21.96% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W77-381586 81.97 18.00% 0.00% MELINDA B NELSON STUART NELSON 26010 CIRCLE DR NW POULSBO WA 98370 - ------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W78-055859 272.28 59.80% 0.01% GARY L RAMBERG 12876 FALL VIEW CT CHINO HILLS CA 91709 - ------------------------------------------------------------------------------------------------------- Primary A B BANC OF AMERICA ADVISORS LLC 999,700.00 32.05% 31.63% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST - -------------------------------------------------------------------------------------------------------
D-44
- --------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - --------------------------------------------------------------------------------------------------------- CHARLOTTE NC 28255-0001 - --------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 2,119,398.62 67.94% 67.07% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------- South Carolina Intermediate Bond Fund - --------------------------------------------------------------------------------------------------------- Investor A R DEAN WITTER FOR THE BENEFIT OF 93,632.96 5.05% 0.38% D PIERRE G CAMERON JR. TTEE PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 - --------------------------------------------------------------------------------------------------------- Investor A R DEAN WITTER FOR THE BENEFIT OF 193,810.41 10.47% 0.78% J C BERNARD & PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 - --------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W15-645788 79,922.78 5.75% 0.32% GUSTAVE J CRISPYN MILDRED M CRISPYN 2382 CAT TAIL POND RD JOHNS ISLAND SC 29455 - --------------------------------------------------------------------------------------------------------- Investor C B DONALDSON LUFKIN JENRETTE 26,896.53 6.05% 0.11% SECURITIES CORPORATION INC. P. O. BOX 2052 JERSEY CITY, NJ 07303-9998 - --------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W15-020141 78,496.64 17.65% 0.32% GIRARD M BLOUNT JR 4569 CARRIAGE RUN CIRCLE MURRELLS INLET SC 29576 - --------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W15-636169 25,749.80 5.79% 0.10% 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 - --------------------------------------------------------------------------------------------------------- Investor C R WEXFORD CLEARING SERVICES CORP FBO 22,459.27 5.05% 0.09% GARY D MITCHELL 1003 MEADOW LN ANDERSON SC 29621-1916 - --------------------------------------------------------------------------------------------------------- Investor C R WEXFORD CLEARING SERVICES CORP FBO 37,816.59 8.50% 0.15% GEORGIA T ROBERSON PERSONAL REP EST MARSHALL H ROBERSON 1001 THORNHILL DR ANDERSON SC 29621-1560 - --------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 21,035,896.10 100.00% 85.10% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - --------------------------------------------------------------------------------------------------------- Strategic Growth Fund - ----------------------------------------------------------------------------------------------------------
D-45
- ----------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------- Investor A B SEAFIRST BANK 22,224,868.76 52.10% 14.30% FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 - ----------------------------------------------------------------------------------------------------------------- Investor C B STATE STREET BANK & TRUST CO TTEE 1,086,475.39 68.79% 0.70% FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 - ----------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 102,614,676.21 97.52% 66.02% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------- Strategic Income Fund - ----------------------------------------------------------------------------------------------------------------- Investor C B FISERV SECURITIES, INC. 17,116.18 6.42% 0.08% FAO 25155571 ATTN: MUTUAL FUNDS ONE COMMERCE SQUARE 2005 MARKET STREET SUITE 1200 PHILADELPHIA, PA 19103 - ----------------------------------------------------------------------------------------------------------------- Investor C R JAMES B FORD AND 13,334.10 5.00% 0.06% JOANNE W FORD JTTEN 3441 LEBANON PIKE STE 113 HERMITAGE TN 37076-2000 - ----------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 27,782.50 10.42% 0.12% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ----------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W17-662682 18,199.95 6.82% 0.08% NFSC/FMTC IRA ROLLOVER FBO LINDA G WALKER 7 SALLY ST SPARTANBURG SC 29301 - ----------------------------------------------------------------------------------------------------------------- Investor C B NFSC FEBO # W25-059382 29,453.73 11.04% 0.13% JOHN L MANNING III P/ADM ORGAIN READY MIX PFT SHRING PL 240 KRAFT ST CLARKSVILLE TN 37040 - ----------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W53-067121 33,325.77 12.50% 0.15% J DAVID PAISLEY 16 WESTMINSTER LAKE OSWEGO OR 97034 - ----------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 15,023,804.81 99.82% 66.12% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------- Primary B R STEPHENS INC 1.06 100.00% 0.00% ATTN: CINDY COLE - -----------------------------------------------------------------------------------------------------------------
D-46
- ------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------ 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------ Tax-Exempt Reserves - ------------------------------------------------------------------------------------------------------------ Advisor R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------ Capital B BANK OF AMERICA NA 16,369,601.57 14.17% 0.59% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS INTERMEDIATE MUNICIPAL 32,217,391.92 27.90% 1.16% BOND FUND 043187336 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS MUNICIPAL INCOME FUND 11,189,974.12 9.69% 0.40% 51-0331215 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS NORTH CAROLINA 6,596,973.76 5.71% 0.24% INTERMEDIATE MUNICIPAL BOND FUND 51-0342673 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS SHORT TERM MUNICIPAL 12,552,525.18 10.87% 0.45% INCOME FUND 51-0349911 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-31 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS SOUTH CAROLINA 9,883,891.90 8.55% 0.36% INTERMEDIATE MUNI BOND BOND FUND 06-1330744 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Capital B NATIONS VIRGINIA INTERMEDIATE 7,023,931.66 6.08% 0.25% MUNI BOND FUND 51-0319828 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-12-01 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------ Daily B NATIONAL FINANCIAL FOR THE 89,813,290.10 99.76% 3.24% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------
D-47
- ----------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ----------------------------------------------------------------------------------------------------------------- Institutional B BANC OF AMERICA ADVISORS LLC 1,000.43 99.01% 0.00% ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------- Investor B HARE & CO, BANK OF NEW YORK 31,076,056.98 16.93% 1.12% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ----------------------------------------------------------------------------------------------------------------- Investor A B BANC OF AMERICA SECURITIES LLC 16,851,976.81 24.41% 0.61% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ----------------------------------------------------------------------------------------------------------------- Investor A B NATIONAL FINANCIAL FOR THE 50,772,371.55 73.56% 1.83% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ----------------------------------------------------------------------------------------------------------------- Investor B R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------- Investor C R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------- Liquidity R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------- Market R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------- Service R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ----------------------------------------------------------------------------------------------------------------- Trust B BANK OF AMERICA NA 2,280,783,873.33 98.58% 82.29% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ----------------------------------------------------------------------------------------------------------------- Tennessee Intermediate Bond Fund - ----------------------------------------------------------------------------------------------------------------- Investor A B HUBCO 174,884.22 13.79% 2.92% REGIONS FINANCIAL CORP C/R/R ACCOUNT - -----------------------------------------------------------------------------------------------------------------
D-48
- ---------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ---------------------------------------------------------------------------------------------------------------- P.O. BOX 830688 P.O. BOX 830688 BIRMINGHAM AL 35283-0688 - ---------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W25-050610 118,216.97 9.32% 1.97% CHARLES GROSS 155 CHEEK ROAD NASHVILLE TN 37205 - ---------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W25-680427 107,422.49 8.47% 1.79% BOB G LONG PO BOX 266 HERMITAGE TN 37076 - ---------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W25-683256 133,256.44 10.50% 2.23% MARSHALL T POLK III PO BOX 90148 NASHVILLE TN 37209 - ---------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W25-684716 63,891.74 5.03% 1.07% JAMES R KELLAM III 3605 SYCAMORE LANE NASHVILLE TN 37215 - ---------------------------------------------------------------------------------------------------------------- Investor A R RALPH S GRAHAM TTEE 64,745.40 5.10% 1.08% RALPH S GRAHAM REV LIV TRUST U/A DTD 08/14/1990 PO BOX 235 BIG SANDY TN 38221 - ---------------------------------------------------------------------------------------------------------------- Investor C R J CHASE COLE 8,558.93 13.90% 0.14% 511 UNION ST STE 2100 NASHVILLE TN 37219 - ---------------------------------------------------------------------------------------------------------------- Investor C B LPL FINANCIAL SERVICES 7,114.99 11.55% 0.12% A/C 7111-6230 9785 TOWNE CENTRE DRIVE SAN DIEGO CA 92121-1968 - ---------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 8,278.80 13.44% 0.14% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ---------------------------------------------------------------------------------------------------------------- Investor C B MORGAN KEEGAN & COMPANY, INC. 3,553.86 5.77% 0.06% FBO 220539381 50 NORTH FRONT STREET MEMPHIS TN 38103 - ---------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W25-060623 11,998.83 19.49% 0.20% EARL W RICE MARGIE R RICE 275 TEMPLE CREST TRL FRANKLIN TN 37069 - ---------------------------------------------------------------------------------------------------------------- Investor C R NFSC FEBO # W25-617954 4,454.89 7.23% 0.07% FRANK W CONDURELIS JANE E CONDURELIS 806 BRENTVIEW DR NASHVILLE TN 37220 - ---------------------------------------------------------------------------------------------------------------- Investor C R WILLIAM O. DEBERRY AND 4,877.57 7.92% 0.08% - ----------------------------------------------------------------------------------------------------------------
D-49
- ------------------------------------------------------------------------------------------------------------------- Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------- MELBA W. DEBERRY JTWROS 1420 BROOKSIDE DRIVE GERMANTOWN TN 38138-1847 - ------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 3,993,763.88 95.03% 66.72% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------- Investor A R MADELINE O'DONNELL 43,993.54 8.20% 0.16% 2395 NICHOLS CANYON RD HOLLYWOOD CA 90046 - ------------------------------------------------------------------------------------------------------------------- Investor A B MERRILL LYNCH, PIERCE, FENNER 38,077.58 7.10% 0.14% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------- Investor A B MOTCO 130,761.36 24.39% 0.49% P O BOX 17001-TRUST SAN ANTONIO TX 78217 - ------------------------------------------------------------------------------------------------------------------- Investor A R NFSC FEBO # W18-708275 28,805.43 5.37% 0.11% SHARRA LANKFORD 238 VAN ROWE DUNCANVILLE TX 75116 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W18-719404 37,691.45 6.35% 0.14% MONTINE T WISDOM 6335 W NORTHWEST HWY #1318 DALLAS TX 75225 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W40-678880 35,060.56 5.91% 0.13% JAMES ROBERT MALLORY FAITH K MALLORY 2400 WINTON TERR E FORT WORTH TX 76109 - ------------------------------------------------------------------------------------------------------------------- Investor B B SOUTHWEST SECURITIES FOB 49,781.55 8.39% 0.19% ACCT# 54346528 P.O. BOX 509002 DALLAS, TX 75250 - ------------------------------------------------------------------------------------------------------------------- Investor C B MERRILL LYNCH, PIERCE, FENNER 1,714.33 22.15% 0.01% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------- Investor C R STEPHENS INC 603.75 7.80% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------- Investor C B USAA INVESTMENT MANAGEMENT CO 5,421.23 70.04% 0.02% FBO 64373936 9800 FREDERICKSBURG ROAD SAN ANTONIO TX 78288 - ------------------------------------------------------------------------------------------------------------------- Primary A B BANK OF AMERICA NA 25,671,699.65 99.56% 95.45% - -------------------------------------------------------------------------------------------------------------------
D-50
- ------------------------------------------------------------------------------------------------------------------ Fund/Class Ownership Account Shares % of % of Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------ ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------ Treasury Reserves - ------------------------------------------------------------------------------------------------------------------ Advisor B BANC OF AMERICA SECURITIES LLC 561,461,311.17 25.41% 5.25% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------ Advisor B BANK OF AMERICA 116,407,100.00 5.26% 1.09% ATTN ROSEMARY ZUMBO CA4-704-05-21 2000 CLAYTON RD 5TH FL CONCORD CA 94520-3275 - ------------------------------------------------------------------------------------------------------------------ Advisor B HARE & CO, BANK OF NEW YORK 372,376,207.25 16.85% 3.48% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ------------------------------------------------------------------------------------------------------------------ Advisor B BANK OF AMERICA NA AGENT FBO GLOBAL 550,032,011.64 24.89% 5.15% FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202 - ------------------------------------------------------------------------------------------------------------------ Advisor B BANK OF AMERICA SWP DISBURSEMENT NC 398,000,000.00 18.01% 3.72% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Capital B BANC OF AMERICA SECURITIES LLC 1,453,392,258.82 72.40% 13.60% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------ Capital B BANK OF AMERICA NA 173,364,014.90 8.63% 1.62% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------ Daily B NATIONAL FINANCIAL FOR THE 342,021,081.74 29.53% 3.20% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------ Daily B BANK OF AMERICA NA AGENT FBO 360,000,000.00 31.08% 3.37% GLOBAL FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS - ------------------------------------------------------------------------------------------------------------------
D-51
- ------------------------------------------------------------------------------------------------------------------ Ownership Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------ 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202 - ------------------------------------------------------------------------------------------------------------------ Daily B BANK OF AMERICA SWP DISBURSEMENT NC 296,000,000.00 25.56% 2.77% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Institutional B BANC OF AMERICA SECURITIES LLC 263,402,344.34 42.85% 2.46% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------ Institutional B BANK OF AMERICA NA 117,771,701.73 19.16% 1.10% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------ Institutional B BENTLY PRESSURIZED BEARING CO 183,361,795.89 29.83% 1.72% 1711 ORBIT WAY BLDG 2 MINDEN NV 89423 - ------------------------------------------------------------------------------------------------------------------ Institutional B RUMSEY INDIAN RANCHERIA 50,131,108.37 8.15% 0.47% P O BOX 18 BROOKS CA 95606-0018 - ------------------------------------------------------------------------------------------------------------------ Investor B HARE & CO, BANK OF NEW YORK 225,751,612.88 26.67% 2.11% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ------------------------------------------------------------------------------------------------------------------ Investor B NATIONAL FINANCIAL FOR THE 48,761,620.79 5.76% 0.46% EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 - ------------------------------------------------------------------------------------------------------------------ Investor B SILICON VALLEY BANK 488,936,124.32 57.76% 4.58% ATTN: BRIAN ARAKI 3003 TASMAN DRIVE MSHG 110 SANTA CLARA CA 95054 - ------------------------------------------------------------------------------------------------------------------ Investor A B BANC OF AMERICA SECURITIES LLC 114,250,201.68 12.95% 1.07% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------ Investor A B HARE & CO, BANK OF NEW YORK 750,642,457.02 85.10% 7.02% ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 - ------------------------------------------------------------------------------------------------------------------ Investor B R BNY CUST ROLLOVER IRA FBO 79,047.07 15.51% 0.00% WILLIAM D PLUMLEY - ------------------------------------------------------------------------------------------------------------------
D-52
- ------------------------------------------------------------------------------------------------------------------ Fund/Class Ownership Account Shares % of % of Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------ 5555 SW 28TH AVE OCALA FL 34474 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W14-618039 53,621.97 10.52% 0.00% SUSIE BEARD ELLA P BEARD 946 DEWEY ST SW ATLANTA GA 30310 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W77-337501 138,220.23 27.12% 0.00% NFS/FMTC IRA FBO CARLOS O RIOJA 11903 AMBAUM BLVD SW SEATTLE WA 98146 - ------------------------------------------------------------------------------------------------------------------- Investor B R NFSC FEBO # W77-343994 191,649.95 37.61% 0.00% NFS/FMTC ROLLOVER IRA FBO KATHRYN THOMSON 1120 SPRINGS ST APT 603 SEATTLE WA 98104 - ------------------------------------------------------------------------------------------------------------------- Investor C R STEPHENS INC 10.00 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------ Liquidity B BANC OF AMERICA SECURITIES LLC 311,583,732.57 76.99% 2.92% OMNIBUS ACCT FOR THE EXCLUSIVE BENEFIT OF OUR CLIENTS NC1-004-03-06 200 N COLLEGE STREET 3rd FLOOR CHARLOTTE NC 28255-0001 - ------------------------------------------------------------------------------------------------------------------ Liquidity R JOHN H MCCALL 23,738,941.89 5.86% 0.22% PO BOX 17068 AUSTIN TX 78760-7068 - ------------------------------------------------------------------------------------------------------------------ Liquidity B BANK OF AMERICA SWP DISBURSEMENT NC 47,000,000.00 11.61% 0.44% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Market B BANK OF AMERICA SWP DISBURSEMENT NC 1,410,000,000.00 99.99% 13.19% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Service B BANK OF AMERICA SWP DISBURSEMENT NC 247,000,000.00 86.83% 2.31% BANK OF AMERICA SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Trust B BANK OF AMERICA NA 854,455,234.83 98.62% 8.00% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 - ------------------------------------------------------------------------------------------------------------------
D-53
- ------------------------------------------------------------------------------------------------------------------ Fund/Class Ownership Account Shares % of % of Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------ 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------ Value Fund - ------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 36,288.51 6.07% 0.06% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------ Investor C B STUART K COLONNA TTEE 79,353.55 13.29% 0.14% BAYSHORE CONCRETE PRODUCTS CORP RETIREMENT SAVINGS PLAN 1 BAYSHORE RD P O BOX 230 CAPE CHARLES VA 23310 - ------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA TTEE 10,562,512.51 23.86% 18.75% BANK OF AMERICA 401K PLAN ATTN NORMA AJA / TX4-213-06-14 P O BOX 2518 HOUSTON TX 77252-2518 - ------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 22,319,970.87 50.42% 39.61% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------ Primary A B NATIONS FUNDS TRUST 4,694,781.95 10.60% 8.33% LIFEGOAL BALANCED GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Primary A B NATIONS FUNDS TRUST 3,876,530.51 8.75% 6.88% LIFEGOAL GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 - ------------------------------------------------------------------------------------------------------------------ Primary B R STEPHENS INC 1.42 100.00% 0.00% ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 - ------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Bond Fund - ------------------------------------------------------------------------------------------------------------------ Investor A R NFSC FEBO # W26-088374 235,465.98 5.07% 0.75% WALTER E BLACKBURN TOD LEONA E SEAY 1776 HUNGARY RD RICHMOND VA 23228 - ------------------------------------------------------------------------------------------------------------------ Investor C R DOROTHY LEE WALSHE 10,434.22 8.17% 0.03% 5801 MILL SPRING RD MIDLOTHIAN VA 23112 - ------------------------------------------------------------------------------------------------------------------ Investor C B MERRILL LYNCH, PIERCE, FENNER 23,297.88 18.25% 0.07% & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS - ------------------------------------------------------------------------------------------------------------------
D-54
- ------------------------------------------------------------------------------------------------------------------ Account Shares % of % of Fund/Class Type Registration Address Owned Class Fund - ------------------------------------------------------------------------------------------------------------------ ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3rd FLOOR JACKSONVILLE FL 32246 - ------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W26-049425 11,817.11 9.26% 0.04% COLLIN PEEL MARGIE PEEL 195 FAIRWAY LN WYTHEVILLE VA 24382 - ------------------------------------------------------------------------------------------------------------------ Investor C R NFSC FEBO # W26-616656 9,115.77 7.14% 0.03% RONALD E SWEENEY TOD RONALD E SWEENEY TRUST 12309 OLD GREENWAY CT GLEN ALLEN VA 23059 - ------------------------------------------------------------------------------------------------------------------ Investor C R PAINEWEBBER FOR THE BENEFIT OF 17,899.86 14.02% 0.06% MR. GARY KLINE 4496 OCCOQUAN VIEW CT WOODBRIDGE VA 22192-5803 - ------------------------------------------------------------------------------------------------------------------ Primary A B BANK OF AMERICA NA 24,832,443.68 99.28% 79.01% ATTN FUNDS ACCOUNTING (ACI) TX1-945-08-18 411 NORTH AKARD ST DALLAS TX 75201-3307 - ------------------------------------------------------------------------------------------------------------------
D-55 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 May 17, 2002, filed herewith. - -------------------------------------------------------------------------------- C-1 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (d)(2) Form of Investment Advisory Agreement between BA Advisors and the Registrant, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. (d)(3) 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 May 17, 2002, filed herewith. (d)(4) Form of Investment Sub-Advisory Agreement among BA Advisors, BACAP and the Registrant, incorporated by reference to Post- Effective Amendment No. 25, filed June 28, 2002. (d)(5) 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)(6) Investment Sub-Advisory Agreement among BA Advisors, Gartmore Global Partners ("Gartmore") and the registrant dated May 10, 2002, filed herewith. - -------------------------------------------------------------------------------- (e) Underwriting Contract: (e)(1) Distribution Agreement between the Registrant and Stephens Inc. ("Stephens") dated February 14, 2000, Schedule I dated May 17, 2002, filed herewith. (e)(2) Form of Distribution Agreement between the Registrant and Stephens, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. - -------------------------------------------------------------------------------- (f) Bonus or Profit Sharing Contracts: (f)(1) Deferred Compensation Plan dated December 9, 1999 last amended February 28, 2002, incorporated by reference to Post-Effective Amendment No. 20, filed May 1, 2002. - -------------------------------------------------------------------------------- (g) Custodian Agreements: (g)(1) Amended and Restated Custody Agreement between the Registrant and The Bank of New York ("BNY") dated July 2, 2001, Schedule I dated May 17, 2002, filed herewith. (g)(2) Form of Amended and Restated Custody Agreement between the Registrant and BNY, incorporated by reference to Post- Effective C-2 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- Amendment No. 25, filed June 28, 2002. (g)(3) Custody Agreement between the Registrant and Bank of America, N.A. on behalf of the LifeGoal Portfolios dated June 8, 2001, incorporated by reference to Post-Effective Amendment No. 11, filed July 31, 2001. - -------------------------------------------------------------------------------- (h) Other Material Contracts: (h)(1) Co-Administration Agreement among the Registrant, Stephens and BA Advisors dated February 14, 2000, Schedule I dated May 17, 2002, filed herewith. (h)(2) Form of Co-Administration Agreement among the Registrant, Stephens and BA Advisors, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. (h)(3) Sub-Administration Agreement among the Registrant, BNY and BA Advisors dated February 14, 2000, Schedule I dated May 17, 2002, filed herewith. (h)(4) Form of Sub-Administration Agreement among the Registrant, BNY and BA Advisors, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. (h)(5) Shareholder Servicing Plan relating to Investor B Shares, Exhibit I amended May 17, 2002, filed herewith. (h)(6) Shareholder Servicing Plan relating to Investor C Shares, Exhibit I amended May 17, 2002, filed herewith. (h)(7) Shareholder Servicing Plan relating to Adviser Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(8) Shareholder Servicing Plan relating to Daily Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(9) Shareholder Servicing Plan relating to Investor Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(10) Shareholder Servicing Plan relating to Liquidity Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(11) Shareholder Servicing Plan relating to Market Class Shares, Exhibit I amended May 10, 2002, filed herewith. - -------------------------------------------------------------------------------- C-3 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (h)(12) Shareholder Servicing Plan relating to Service Class Shares, Schedule I amended May 10, 2002, filed herewith. (h)(13) Shareholder Administration Plan relating to Investor B and Investor C Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(14) Shareholder Administration Plan relating to Institutional Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(15) Shareholder Administration Plan relating to Trust Class Shares, Exhibit I amended May 10, 2002, filed herewith. (h)(16) 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 May 17, 2002, filed herewith. (h)(17) 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)(18) 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)(19) Form of Amended and Restated Transfer Agency and Services Agreement between PFPC and the Registrant, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. (h)(20) Sub-Transfer Agency Agreement between PFPC and Bank of America, N.A. ("Bank of America") dated September 11, 1995, Schedule A dated May 17, 2002, filed herewith. (h)(21) 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)(22) 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)(23) Form of Amended and Restated Sub-Transfer Agency and Services Agreement between PFPC and Bank of America, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. - -------------------------------------------------------------------------------- C-4 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (h)(24) Amended and Restated Foreign Custody Manager Agreement between BNY and the Nations Funds family dated July 2, 2001, Appendix dated May 17, 2002, filed herewith. (h)(25) Form of Amended and Restated Foreign Custody Manager Agreement between BNY and the Registrant, incorporated by reference to Post-Effective Amendment No. 25, filed June 28, 2002. (h)(26) 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. - -------------------------------------------------------------------------------- (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, incorporated by reference to Post-Effective Amendment No. 11, filed July 31, 2001. (m)(2) Shareholder Servicing and Distribution Plan relating to Investor A Shares, Exhibit A amended May 17, 2002, filed herewith. (m)(3) Distribution Plan relating to Investor B Shares, Exhibit A amended May 17, 2002, filed herewith. (m)(4) Distribution Plan relating to Investor C Shares, Exhibit A amended May 17, 2002, filed herewith. - -------------------------------------------------------------------------------- C-5 - -------------------------------------------------------------------------------- Exhibit Letter Description - -------------------------------------------------------------------------------- (m)(5) Distribution Plan relating to Daily Class Shares, Exhibit A amended May 10, 2002, filed herewith. (m)(6) Distribution Plan relating to Investor Class Shares, Exhibit A amended May 10, 2002, filed herewith. (m)(7) Distribution Plan relating to Liquidity Class Shares, Exhibit A amended May 10, 2002, filed herewith. (m)(8) Distribution Plan relating to Market Class Shares, Exhibit A amended May 10, 2002, filed herewith. (m)(9) Distribution Plan relating to Service Class Shares, Exhibit A amended May 10, 2002, filed herewith. - -------------------------------------------------------------------------------- (n) Financial Data Schedule: Not Applicable. - -------------------------------------------------------------------------------- (o) Rule 18f-3 Plan: (o)(1) Rule18f-3 Multi-Class Plan, last amended May 17, 2002, filed herewith. - -------------------------------------------------------------------------------- (p) Codes of Ethics: (p)(1) Nations Funds Family Code of Ethics, filed herewith. (p)(2) BA Advisors and BACAP Code of Ethics, incorporated by reference to Post-Effective Amendment No. 20, filed May 1, 2002. (p)(3) Brandes Code of Ethics, incorporated by reference to Post-Effective Amendment No. 9, filed April 9, 2001. (p)(4) Gartmore Code of Ethics, filed herewith. (p)(5) 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. - -------------------------------------------------------------------------------- C-6 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 ("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 C-7 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 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. C-8 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 Gartmore, 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 Gartmore, 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 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) Gartmore performs investment sub-advisory services for the Registrant and certain other customers. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by Gartmore with the SEC pursuant to the Advisers Act (file no. 801-48811). 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 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 C-9 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) Gartmore, Gartmore House, 8 Fenchurch Place, London EC3M 4PH, England (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). (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 C-10 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, 2002. 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, 2002 - ------------------------- (A. Max Walker) of the Board of Trustees (Principal Executive Officer) /s/ Richard H. Blank, Jr. Treasurer July 31, 2002 - ------------------------- (Richard H. Blank, Jr.) Secretary (Principal Financial and Accounting Officer) * Trustee July 31, 2002 - ------------------------- (Edmund L. Benson, III) * Trustee July 31, 2002 - ------------------------- (William P. Carmichael) * Trustee July 31, 2002 - ------------------------- (William H. Grigg) * Trustee July 31, 2002 - ------------------------- (Thomas F. Keller) * Trustee July 31, 2002 - ------------------------- (Carl E. Mundy, Jr.) * Trustee July 31, 2002 - ------------------------- (Cornelius J. Pings) * Trustee July 31, 2002 - ------------------------- (Charles B. Walker) * Trustee July 31, 2002 - ------------------------- (Thomas S. Word) * Trustee July 31, 2002 - ------------------------- (James B. Sommers)
/s/ Richard H. Blank, Jr. - -------------------------- Richard H. Blank, Jr. *Attorney-in-Fact Signatures Pursuant to the requirements of the Investment Company Act of 1940, the Registrant 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, 2002. NATIONS MASTER INVESTMENT 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 EXHIBIT INDEX Nations Funds Trust File No. 333-89661 EX.-99.23(d)(1) Investment Advisory Agreement between BA Advisors and Nations Funds Trust EX.-99.23(d)(3) Investment Sub-Advisory Agreement among BA Advisors, BACAP and Nations Funds Trust EX.-99.23(d)(6) Investment Sub-Advisory Agreement among BA Advisors, Gartmore and Nations Funds Trust EX.-99.23(e)(1) Distribution Agreement with Stephens Inc. EX.-99.23(g)(1) Amended and Restated Custody Agreement with The Bank of New York EX.-99.23(h)(1) Co-Administration Agreement among Stephens, BA Advisors and Nations Funds Trust EX.-99.23(h)(3) Sub-Administration Agreement among BNY, BA Advisors and Nations Funds Trust EX.-99.23(h)(5) Shareholder Servicing Plan relating to Investor B Shares EX.-99.23(h)(6) Shareholder Servicing Plan relating to Investor C Shares EX.-99.23(h)(7) Shareholder Servicing Plan relating to Adviser Class Shares EX.-99.23(h)(8) Shareholder Servicing Plan relating to Daily Class Shares EX.-99.23(h)(9) Shareholder Servicing Plan relating to Investor Class Shares EX.-99.23(h)(10) Shareholder Servicing Plan relating to Liquidity Class Shares EX.-99.23(h)(11) Shareholder Servicing Plan relating to Market Class Shares EX.-99.23(h)(12) Shareholder Servicing Plan relating to Service Class Shares EX.-99.23(h)(13) Shareholder Administration Plan relating to Investor B and Investor C Shares EX.-99.23(h)(14) Shareholder Administration Plan relating to Institutional Class Shares EX.-99.23(h)(15) Shareholder Administration Plan relating to Trust Class Shares EX.-99.23(h)(16) Transfer Agency and Services Agreement between PFPC Inc. and the Nations Funds family EX.-99.23(h)(20) Sub-Transfer Agency Agreement between PFPC and Bank of America, N.A. EX.-99.23(h)(24) Amended and Restated Foreign Custody Manager Agreement between BNY and the Nations Funds family 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)(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(m)(5) Distribution Plan relating to Daily Class Shares EX.-99.23(m)(6) Distribution Plan relating to Investor Class Shares EX.-99.23(m)(7) Distribution Plan relating to Liquidity Class Shares EX.-99.23(m)(8) Distribution Plan relating to Market Class Shares EX.-99.23(m)(9) Distribution Plan relating to Service Class Shares EX.-99.23(o)(1) Rule 18f-3 Multi-Class Plan EX.-99.23(p)(1) Nations Funds Family Code of Ethics EX.-99.23(p)(4) Gartmore Code of Ethics EX-99.23D1 3 dex9923d1.txt INV. ADV. AGREEMENT BTWN BA ADVISORS AND NFST 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. 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. -6- 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% 03/30/00 Nations Kansas Municipal Income Fund 0.50% 07/14/00 Nations Financial Services Fund 0.75% 03/29/01 Nations Classic Value Fund 0.65% 04/09/01 Nations Global Value Fund 0.90% 04/09/01 Nations Asset Allocation Fund 0.65% 06/08/01 Nations Government Securities Fund 0.50% up to $100 million 06/08/01 0.45% up to $250 million 0.40% in excess of $250 million Nations LifeGoal Growth Portfolio 0.25% 06/08/01 Nations LifeGoal Balanced Growth Portfolio 0.25% 06/08/01 Nations LifeGoal Income and Growth Portfolio 0.25% 06/08/01 Nations MidCap Value Fund 0.75% 11/19/01 Nations LargeCap Value Fund 0.65% 11/19/01 Nations New York Tax-Exempt Reserves 0.15% 02/15/02 Nations Research Fund 0.65% 03/27/02 Nations Research Fund 0.65% 03/27/02 Nations Value Fund 0.65% 05/17/02 Nations Capital Growth Fund 0.65% 05/10/02 Nations MidCap Growth Fund 0.65% 05/10/02 Nations LargeCap Index Fund 0.40% 05/10/02 Nations Managed Index Fund 0.40% 05/10/02
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Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations SmallCap Index Fund 0.40% 05/10/02 Nations Short-Intermediate Government Fund 0.30% 05/10/02 Nations Municipal Income Fund 0.50% 05/10/02 Nations Short-Term Municipal Income Fund 0.30% 05/10/02 Nations Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Short-Term Income Fund 0.30% 05/10/02 Nations Strategic Income Fund 0.50% 05/10/02 Nations Bond Fund 0.40% 05/10/02 Nations Florida Municipal Bond Fund 0.50% 05/10/02 Nations Florida Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Georgia Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Maryland Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations North Carolina Intermediate Municipal Bond 0.40% 05/10/02 Fund Nations South Carolina Intermediate Municipal Bond 0.40% 05/10/02 Fund Nations Tennessee Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Texas Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Virginia Intermediate Municipal Bond Fund 0.40% 05/10/02 Nations Small Company Fund 0.90% 05/17/02 Nations Cash Reserves 0.15% 05/10/02 Nations Treasury Reserves 0.15% 05/10/02 Nations Municipal Reserves 0.15% 05/10/02
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Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations Government Reserves 0.15% 05/10/02 Nations Tax-Exempt Reserves 0.15% 05/10/02 Nations Money Market Reserves 0.15% 05/10/02 Nations California Tax-Exempt Reserves 0.15% 05/10/02 Nations Convertible Securities Fund 0.65% 05/10/02 Nations California Municipal Bond Fund 0.50% 05/17/02 Nations Emerging Markets Fund 1.00% 05/10/02
Approved: December 9, 1999 Last Amended: May 17, 2002 -11- IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 17th day of May, 2002. BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon -------------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary -12- EX-99.23D3 4 dex9923d3.txt INV. SUB-ADVISORY AGREEMENT 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 Effective --------- Fund Compensation Date ---- ------------ ---- Nations MidCap Index Fund 0.10% 03/30/00 Nations Kansas Municipal Income Fund 0.07% 07/14/00 Nations Financial Services Fund 0.25% 03/29/01 Nations Asset Allocation Fund 0.25% 06/08/01 (non-equity portion) 03/27/02 (equity portion) Nations Government Securities Fund 0.15% 06/08/01 Nations LifeGoal Growth Portfolio 0.05% 06/08/01 Nations LifeGoal Balanced Growth Portfolio 0.05% 06/08/01 Nations LifeGoal Income and Growth Portfolio 0.05% 06/08/01 Nations MidCap Value Fund 0.25% 11/19/01 Nations LargeCap Value Fund 0.25% 11/19/01 Nations New York Tax-Exempt Reserves 0.033% 02/15/02 Nations Research Fund 0.25% 03/27/02 Nations Value Fund 0.25% 05/17/02 Nations Capital Growth Fund 0.25% 05/10/02 Nations MidCap Growth Fund 0.25% 05/10/02
-8-
Rate of Effective --------- Fund Compensation Date ---- ------------ ---- Nations LargeCap Index Fund 0.10% 05/10/02 Nations Managed Index Fund 0.10% 05/10/02 Nations SmallCap Index Fund 0.10% 05/10/02 Nations Short-Intermediate Government Fund 0.15% 05/10/02 Nations Municipal Income Fund 0.07% 05/10/02 Nations Short-Term Municipal Income Fund 0.07% 05/10/02 Nations Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Short-Term Income Fund 0.15% 05/10/02 Nations Strategic Income Fund 0.15% 05/10/02 Nations Bond Fund 0.15% 05/10/02 Nations Florida Municipal Bond Fund 0.07% 05/10/02 Nations Florida Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Georgia Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Maryland Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations North Carolina Intermediate Municipal Bond 0.07% 05/10/02 Fund Nations South Carolina Intermediate Municipal Bond 0.07% 05/10/02 Fund Nations Tennessee Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Texas Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Virginia Intermediate Municipal Bond Fund 0.07% 05/10/02 Nations Small Company Fund 0.25% 05/17/02
-9-
Rate of Effective --------- Fund Compensation Date ---- ------------ ---- Nations Cash Reserves 0.033% 05/10/02 Nations Treasury Reserves 0.033% 05/10/02 Nations Municipal Reserves 0.033% 05/10/02 Nations Government Reserves 0.033% 05/10/02 Nations Tax-Exempt Reserves 0.033% 05/10/02 Nations Money Market Reserves 0.033% 05/10/02 Nations California Tax-Exempt Reserves 0.033% 05/10/02 Nations Convertible Securities Fund 0.25% 05/10/02 Nations California Municipal Bond Fund 0.07% 05/17/02
Approved: December 9, 1999 Last Amended: May 17, 2002 -10- IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 17th day of May, 2002. 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/ Michael E. Kenneally ------------------------ Michael E. Kenneally President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary -11- EX-99.23D6 5 dex9923d6.txt INV. SUB-ADV. AGRMNT - BA ADV., GARTMORE, NFST INVESTMENT SUB-ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of May 10, 2002, by and between BANC OF AMERICA ADVISORS, LLC, a North Carolina corporation (the "Adviser"), GARTMORE GLOBAL PARTNERS, a Delaware general partnership (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 and is regulated by the Investment Management Regulatory Organization Limited ("IMRO") of the United Kingdom in the conduct of its investment business and is a member of IMRO; 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, as reasonably requested by the Adviser or the Trust; (d) Making recommendations, or making determinations under authority delegated by the Adviser or the Trust, 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 books and records as are required to comply with Section 3(a) of this Agreement with respect to the investment decisions and securities transactions for each Fund; (h) Furnishing any and all other services, upon reasonable request and 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, the conditions of any order affecting the Trust or a Master Portfolio issued thereunder of which it receives written notice from the Adviser or the Trust, and the Conduct of Business Rules of IMRO ("IMRO Rules") to the extent that the IMRO Rules are not inconsistent with any applicable requirements under the 1940 Act, the Advisers Act, other United States federal or state law, or the terms of this Agreement; -2- (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 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. -3- 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 Agreement and Declaration of Trust (such Agreement and Declaration of Trust, as presently in effect and as from time to time amended, is herein called the "Declaration of Trust"); (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. However, nothing in this clause shall be interpreted to provide the Adviser, the Trust, or the Funds with any property right in any software owned or developed by the Sub-Adviser to maintain such records. Upon surrendering such records, the Sub-Adviser may retain copies of any such records necessary to meet regulatory or legal requirements. 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 -4- 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 the Adviser receives pursuant to the Investment Advisory Agreement with respect to a Fund is reduced or reimbursed, and there is no corresponding increase in another fee received by the Adviser from the Fund, the fee that the Sub-Adviser would otherwise receive pursuant to this Agreement shall be reduced or reimbursed proportionately. The parties agree that an increase in another fee that is attributable to an enhancement in non-advisory services provided to a Fund shall not be deemed to correspond to a reduction or reimbursement of fees received under the Investment Advisory Agreement. 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, 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: -5- (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: (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, discharged or terminated except by an instrument in writing signed by all parties. -6- 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 Gartmore House, 8 Fenchurch Place, London EC3M 4PH, England, Attention: Chris Russell (Director), Stephen Watson (Chief Investment Officer), and Sarah Barrett (Relationship Manager). 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 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 Master Portfolio except in accordance with such policies and procedures as may be mutually agreed to in writing. 24. IMRO Rules. Addendum A attached hereto sets forth certain requirements under the IMRO Rules which are applicable to the Sub-Adviser, that are expressly incorporated herein and made a part hereof, but only to the extent that such requirements are not inconsistent with -7- any applicable requirements under the 1940 Act, the Advisers Act, other United States federal or state law, or the policies and procedures of the Trust. -8- 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 GARTMORE GLOBAL PARTNERS By: /s/ Chris Russell ------------------ Chris Russell Director -9- 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 Emerging Markets Fund 0.66% 5/10/02
Approved: October 10, 2001 -10- ADDENDUM A 1. To the extent that the Sub-Adviser receives any commissions or other forms of remuneration, directly or indirectly, in connection with Fund transactions, no portion of the Sub-Adviser's accrued investment advisory fee shall be abated thereby. 2. Subject to the supervision of the Adviser and the policies and ultimate control of the Trust's Board of Trustees, the Sub-Adviser shall advise the Trust and the Adviser on the management of the Funds' investments in accordance with the terms of this Agreement and in accordance with the investment parameters (including, inter alia, percentage limitations, quality standards, investment selection criteria and types of permissible investments and investment techniques, such as borrowing, options and futures transactions, portfolio securities lending, etc.) established pursuant to the investment objectives, policies and restrictions specifically embodied in the Trust's Registration Statement on Form N-1A, and any amendments thereto, under the Securities Act of 1933 and the 1940 Act (the "Fund's Registration Statement"). 3. The Sub-Adviser shall not have or maintain custody of any securities, cash or other assets of the Funds. Custody of the Funds' assets will be maintained by the custodian bank pursuant to an agreement approved by the Funds' Board of Trustees. It is expected that such custodian, or any successor thereto, will not be an "Associate" of the Sub-Adviser as that term is defined under IMRO Rules. 4. In the event the Funds or the Adviser has a significant complaint regarding the services provided by the Sub-Adviser under the Sub-Advisory Agreement by and among the Trust, the Adviser and the Sub-Adviser, a Fund officer should communicate such complaint to the Sub-Adviser, whereupon such complaint will be recorded on a standard form prepared by the Sub-Adviser for such purposes. The Sub-Adviser's complaints procedure requires that if a complaint has not been cleared within twenty-one (21) days, the Sub-Adviser must so advise IMRO and the Fund also must be advised that it has the right to issue its complaint directly to the Investment Ombudsman. A statement describing the Funds' right to compensation (if any) in the event that the Sub-Adviser is unable to meet its liabilities is available on request. 5. The Sub-Adviser will provide to the Funds' Board of Trustees written financial reports and analyses on the Funds' securities transactions and the operations of comparable investment companies on a quarterly basis or more frequently as requested by the Board of Trustees. Such reports and analyses shall include information as of the last day of an applicable reporting period. 6. The Funds may from time to time request or instruct the Sub-Adviser, directly or through the Adviser, to act or not to act regarding certain Fund-related investment and/or operational matters. Such request or instructions will be communicated orally or in writing to the Sub-Adviser, directly or through the Adviser and will be acknowledged in the same manner in which they are communicated. To the extent that a particular request A-1 or instruction is, or may be, refused (i.e., because it (a) is in contravention of (i) a law or regulation, (ii) an investment policy of the Fund, or (iii) a provision of this Agreement or (b) is not operationally feasible), such refusal shall be communicated by the Sub-Adviser, including through the Adviser, and the Fund and the Sub-Adviser, upon advice of counsel, shall discuss alternatives and determine an appropriate course of action which will be reported to the full Board at the next meeting of the Fund's Board of Trustees for its approval. 7. Notwithstanding that all required disclosure concerning the risks associated with the Funds' permissible investments and investment techniques is included in the Funds' Registration Statement, which Statement is intended for review by the investors in the Funds and to be retained by them for future reference, with respect to the Funds' specified use of options and futures transactions, the following shall be specifically noted herein: "Options and futures markets can be highly volatile and transactions of this type carry a high risk of loss. Moreover, a relatively small adverse market movement with respect to these types of transactions may result not only in loss of the original investment but also in unquantifiable further loss exceeding any margin deposited." Further, in managing the Funds' assets, the Sub-Adviser shall consider the risks associated with the Fund's permissible investments and investment techniques. 8. The Sub-Adviser or its representatives may from time to time recommend to the Funds or effect on behalf of the Funds with respect to Fund transactions in securities the subject of a recent new issue, the price of which transactions may have been influenced by bids made or transactions effected for the purpose of stabilizing the price of those securities. Such transactions would at all times be effected in accordance with the provisions of IMRO Rule 14 and, in particular, with the conditions of the IMRO Rule 14.02, including the requirement that the Sub-Adviser, with respect to any specific transaction, communicate to the Fund orally or in writing a statement in a form substantially similar to that which is set forth in IMRO Rule 14.02(c). In addition, with respect to these transactions, it is understood when executing this Agreement and thereafter when approving the continuance of this Agreement in accordance with its terms, that management of the Fund has carefully read the following paragraphs in order to enable Fund management to judge whether it wishes a Fund's assets to be invested at all in such securities or, if so, whether it wishes to authorize the Sub-Adviser generally to effect transactions in such securities on behalf of the Fund without further reference to Fund management or whether Fund management wishes to be consulted before any particular transaction is effected on behalf of the Fund. Stabilization is a process whereby the market price of a security is pegged or fixed during the period in which a new issue of securities is sold to the public. Stabilization may take place in the new issue or in other securities related to the new issue in such a way that the price of the other securities may affect the price of the new issue or vice versa. A-2 The reason stabilization is permitted is that when a new issue is brought to market the sudden glut will sometimes force the price lower for a period of time before buyers are found for the securities on offer. As long as it obeys a strict set of rules, the "stabilizing manager," normally the issuing house chiefly responsible for bringing a new issue to market, is entitled to buy securities in the market that it has previously sold to investors or allotted to institutions who were included in the new issue but who have decided not to continue participating. The effect of this may be to keep the price at a higher level than would otherwise be the case during the period of stabilizing. The rules referred to above in the immediately preceding paragraph limit the period in which the stabilizing manager may stabilize, fix the price at which it may stabilize (in the case of shares and warrants but not bonds), and require the stabilizing manager to disclose that it may be (but not that it is) stabilizing. The fact that a new issue or a related security is being stabilized does not in itself mean that investors are not interested in the issue, but neither should the existence of transactions in an issue where the stabilizing may take place be relied upon as an indication that investors are interested in the new issue or interested in purchasing at the price at which transactions are taking place. 9. A report containing the Funds' financial statements (including the contents and valuation of the Funds) shall be submitted to shareholders and to the Securities and Exchange Commission at least semi-annually. Such reports shall include information as at the last day of any semi-annual period for which such reports relate. To the extent that any performance information is included in such report, it shall conform to the standards set forth in the Funds' Registration Statement. 10. Except as permitted by or pursuant to Section 17 of the 1940 Act and the Rules promulgated thereunder, the Sub-Adviser, or an "affiliate" thereof (as that term is defined in the 1940 Act), may not effect transactions: (i) with or for the Funds in which the Sub-Adviser or such affiliate has directly or indirectly a material interest or a relationship of any kind with another party which may involve a conflict with the Sub-Adviser's responsibilities to the Funds as a sub-investment adviser; or (ii) with or through the agency or another person with whom the Sub-Adviser or such affiliate maintains an arrangement as described in Rule 6.01 of Chapter IV of the IMRO Rules. 11. Upon termination of the Sub-Advisory Agreement by and among the Company, the Adviser and the Sub-Adviser, unless otherwise directed by the Fund's Board of Trustees, all securities positions and other portfolio transactions then in progress shall be transferred to the successor investment adviser selected by the Board of Trustees. Termination shall be without prejudice to the completion of transactions already initiated. 12. The Sub-Adviser shall be entitled at its discretion to disclose any information known to it relating to the Fund's business or affairs to the Securities and Investment Board or to IMRO on the terms that the information so disclosed shall not without its consent be A-3 further disclosed otherwise than is permitted in respect of Restricted Information under the provisions of Part VIII of the Financial Services Act of 1986. 13. The Funds and the Adviser agree to waive their right to receive a contract note for each transaction and agree to waive the right to receive the information which would have been contained in the contract notes in the periodic valuation. 14. The initial value and composition of the assets managed by the Sub-Adviser under this Agreement shall be as agreed. 15. The Sub-Adviser may effect transactions under this Agreement with or through the agency of a person who provides services under any Soft Commission Agreement and such transactions will be effected in accordance with the IMRO Rule of Best Execution disregarding any benefit which might enure directly or indirectly to the Funds or the Adviser from the services or benefit provided under any such arrangement. It is the policy of the Sub-Adviser's group ("Gartmore") to conduct part of its business through brokers on an agency basis, rather than dealing direct as principal with market makers, because of the benefits of the services which they provide. Gartmore uses a number of full service brokers who provide research which benefits the whole range of Gartmore's clients by contributing to its investment decision making processes. These services are provided on a no commitment basis. Gartmore also uses agency brokers offering soft commission arrangements to obtain more specialized services which also benefits the full range of our clients by assisting in our investment decision making processes. Some such specialized services are also obtained for the benefit of one or more specific clients. Services from agency brokers through soft commission arrangements are obtained in exchange for a commitment from Gartmore to provide them with an agreed amount of business. Currently, Gartmore has a policy of committing no more than 25% of its total commission payments to soft commission arrangements. When Gartmore decides through whom to effect a securities transaction on our client's behalf and whether to transact the business on a soft commission basis, Gartmore takes no account of the benefits derived from the soft commission arrangement and will also provide best execution. Although some of the services obtained by soft commission arrangements are also available for cash, Gartmore prefers to obtain them through agency brokers because this practice results, we believe, in an efficient use of commission payments and it also helps to minimize the extent to which such costs need to be defrayed by other means, such as clients' fees. VAT is generally chargeable on the services received under a soft commission arrangement but part of the VAT is recoverable from Customs and Excise. In practice, the agency broker will pay the supplier of the services provided under the soft commission arrangement for the cost of those services. As the benefits provided by soft commission A-4 arrangements must consist only of disclosable softing services and must not include cash received following the recovery of VAT, Gartmore will pay soft commission brokers a cash equivalent of the recoverable VAT. The broker will pay the supplier the full cost of the services (including VAT) and will charge our soft commission account with the net amount. Gartmore will recover part of the VAT from Customs and Excise. This soft commission policy applies on a combined basis to the Gartmore group as a whole. Gartmore has entered into soft commission agreements with the following: Salomon Smith Barney Robert Fleming & Co Ltd ABN Amro Equities (UK) Ltd Credit Suisse First Boston Deutsche Bank AG Warburg Dillon Read William O'Neill & Co Merrill Lynch International Dresdner Kleinwort Benson Securities Ltd Instinet UK Ltd HSBC Investment Bank PLC A-5 EX-99.23E1 6 dex9923e1.txt DISTRIBUTION AGRMNT WITH STEPHENS INC. 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, to 3 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 NATIONS FUNDS TRUST: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 9 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund Approved: December 9, 1999 Last Amended: May 17, 2002 10 EX-99.23G1 7 dex9923g1.txt AMD. AND RESTATED CUST. AGRMNT WITH BANK OF NY 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 the services herein set forth in return for the compensation as provided in Paragraph 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"). I-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 I-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 I-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 I-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 I-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 I-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 I-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. I-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 I-10 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; (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. I-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 I-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. I-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 I-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 I-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 I-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 data0bases made available to the Trust by utilizing the Software (other than databases relating solely to the I-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 I-18 such instruction has been given by an Authorized Person and, where required, signed by 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. I-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 I-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 I-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 I-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, I-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; I-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, I-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 I-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 I-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 I-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. I-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 I-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 Fund Nations MidCap Value Fund Nations LargeCap Value Fund Nations New York Tax-Exempt Reserves Nations Research Fund Nations SmallCap Value Fund Nations Tax-Exempt Reserves Nations Value Fund Nations Strategic Growth Fund Nations Capital Growth Fund Nations MidCap Growth Fund Nations LargeCap Index Fund Nations Managed Index Fund Nations SmallCap Index Fund Nations Short-Intermediate Government Fund Nations Short-Term Income Fund Nations Strategic Income Fund Nations Bond Fund Nations Municipal Income Fund Nations Short-Term Municipal Income Fund Nations Intermediate Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund I-1 Nations Maryland Intermediate Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Virginia Intermediate Municipal Bond Fund Nations Small Company Fund Nations Government Reserves Nations Municipal Reserves Nations Cash Reserves Nations Treasury Reserves Nations Money Market Reserves Nations California Tax-Exempt Reserves Nations Convertible Securities Fund Nations California Municipal Bond Fund Nations Intermediate Bond Fund Nations International Equity Fund Nations International Value Fund Nations Emerging Markets Fund Approved: May 23, 2001 Last Amended: May 17, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule I to be executed by their officers designated below as of the 17th day of May, 2002. NATIONS FUNDS TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary THE BANK OF NEW YORK By: Ira Rosner ---------- Ira Rosner Vice President 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 I-4 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. I-5 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 Ira Rosner President and Chairman of Vice President the Board of Trustees Date: July 2, 2001 Date: July 2, 2001 I-6 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. I-7 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 Ira Rosner President and Chairman of Vice President the Board of Trustees Date: July 2, 2001 Date: July 2, 2001 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. I-8 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. I-9 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. I-10 SCHEDULE IV OVERDRAFT RATE I-11 EX-99.23H1 8 dex9923h1.txt CO-ADMIN AGRMNT - STEPHENS, BA ADV. AND NFST 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 Nations Funds Trust: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund I-1 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund Approved: December 9, 1999 Last Amended: May 17, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 17th day of May, 2002. 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/ Robert H. Gordon -------------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Carolyn Wyse ---------------- Carolyn Wyse Assistant Secretary I-3 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 0.22% Yield Bond Fund): 3. Nations High Yield Bond Fund: 0.18% 4. Nations Marsico International 0.12% Opportunities Fund: 5. Domestic Equity Funds (except Nations 0.23% Marsico 21st Century Fund, Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund): 6. Nations Marsico 21st Century Fund, 0.13% Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund: 7. Nations LifeGoal Growth Portfolio, As mutually agreed upon by the Nations LifeGoal Balanced Growth Trust, Stephens and BAAI from Portfolio and Nations LifeGoal Income and time to time. Pursuant to Growth Portfolio: separate agreements for these Funds, BAAI has agreed to absorb all fees and expenses incurred under this Agreement. 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 A-1 supplies and such other out-of-pocket expenses as the parties may agree to from time to time. B-1 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule A to be executed by their officers designated below as of the 17th day of May, 2002. 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: Robert H. Gordon ---------------- Robert H. Gordon President NATIONS FUNDS TRUST on behalf of the Funds By: Carolyn Wyse ------------ Carolyn Wyse Assistant Secretary EX-99.23H3 9 dex9923h3.txt SUB-ADMIN AGRMNT - BNY, BA ADV. AND NFST 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 the procedures 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 be required 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 a failure 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 reasonably practicable 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 Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund I-1 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value Fund Approved: December 9, 1999 Last Amended: May 17, 2002 I-2 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 17th day of May, 2002. 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/ Robert H. Gordon -------------------- Robert H. Gordon President I-3 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: .. 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. .. 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. .. 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. .. Prepare Return of Capital Statement of Position 93-2 adjustments. .. 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. .. 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. .. Prepare calculations for capital gains pursuant to IRS rules in conjunction with BAAI and the Funds' independent accountant. .. 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: . 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 . When instructed by BAAI, enter manual prices supplied by broker and link to pricing procedures . 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 . Review variance reporting for price changes in individual securities using variance levels established by Fund and report to Fund portfolio managers and to BAAI . Review for ex-dividend items indicated by pricing sources; trace to general ledger for agreement . 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: . Calculate, subject to the approval of BAAI, net investment income available for distribution daily as appropriate . Calculate daily dividend rate, and 1, 7, 30-day yields/SEC yields . Calculate dollar weighted average maturity 3. Determine and Report Cash Availability: . Receive daily cash and transaction statements from the Funds' custodian . Complete daily bank cash reconciliations (including documentation of any reconciling items) and notify the Funds' custodian . Report investable cash to BAAI and Fund sub-advisers 4. Daily Expense Accruals: . 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 . If applicable, accrue daily amortization of organization expense as instructed by BAAI II-3 . If applicable, accrue daily Rule 12b-1 Plan expenses . 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: . Track income and provide year end tax schedules . Review and verify all interest and amortization reports . Periodic tie-out of receivables . Ensure security masters denote proper interest and amortization methods as per the fund set up sheets as instructed by BAAI 6. Monitor Securities: . Review each Fund's portfolio holdings and current day's security trades for dividend activity . Interface with Funds' custodian for timely collection and postings of corporate actions, dividends and interest pre-payments 7. Enter All Security Trades: . Review verification of trade and interest calculations . Verify settlement through custodian statements . Maintain security ledger transaction reporting . Maintain tax lot holdings . Determine realized gains or losses on security trades . Provide broker commission information 8. Enter All Fund Share Transactions: . Periodically reconcile dividend payable amounts with the Funds' transfer agent . Process activity identified on transfer agent reports . Verify settlement through custodian statements . Reconcile to transfer agency report balances . Process and track capital stock gain/loss activity 9. Prepare Daily Trial Balance: . Post manual entries to general ledger . Post custodian bank activity . Require automated settled transactions between custody and activity records (prepare, clear and post) . Post shareholder and security transactions . Post and verify income and expense accruals and resolve differences . Prepare general ledger . Post corporate action activity II-4 10. Review and Reconcile Custodian Statements: . Verify all posted interest, dividends, expenses, and shareholder and security payments/receipts, etc. when requested . Post all cash settlement activity to trial balance . Reconcile to ending cash balance accounts . Report to BAAI the status of past due items and failed trades with the custodian . Reconcile cash exception Income items, tax reclaims and past due income items with custody area 11. Preparation of Accounting Reports: . Price Variance Report . Trial Balance . Portfolio Valuation . NAV Calculation Report . Cash Availability . Change in NAV . Non-standard entries . Stale Price Report . 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: . SEC yield reporting . Income by state reporting . Standard Industry Code Valuation Report (please provide BAAI's industry code classifications/is there a standard for all Funds) . 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: . Accrete discounts and amortize premiums to put and call events as directed by BAAI and in a manner acceptable under generally accepted accounting principles . Process principal repayments on mortgage backed securities . Update variable securities with current rates . Process corporate action events through a primary vender feed, and monitor results via Reuters, Bloomberg, or other available sources as the parties may agree . Perform automated portfolio pricing with a second vendor as requested by BAAI . 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: . Calculating the daily portfolio weighted average maturity . Report portfolio diversification based on trade/security information provided by BAAI by: Country, State, Tier, Liquidity, Asset Backed Securities, Industry, Letter of Credit . Listing percentage of portfolio maturing in specified intervals (i.e., number of days) . Providing issuer and guarantor diversification exception reporting International Funds: BNY shall provide the following services: . Report in base and local currency II-6 . Processing of tax liability on foreign income subject to approval of BAAI . Daily variance analysis performed on FX rates for security position held . Produce automated bifurcation reporting in compliance with IRC Section 988 . Mark to market security receivables and payables on a daily basis . 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 Agency Income/2/ Total 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 -- 99.04% Municipal Bond Fund - --------------------------------------------------------------------------------------------------- Nations Global Government Income 0.00% -- Fund - --------------------------------------------------------------------------------------------------- Nations Intermediate Municipal -- 100.00% Bond Fund - --------------------------------------------------------------------------------------------------- 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 -- 6.12% Fund - --------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate -- 79.38% Municipal Bond Fund - --------------------------------------------------------------------------------------------------- Nations South Carolina Municipal 93.25% -- Bond Fund - --------------------------------------------------------------------------------------------------- Nations U.S. Government Bond -- 46.40% Fund - --------------------------------------------------------------------------------------------------- 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 Nations Nations Short-Term Intermediate Municipal Nations STATE Tax-Exempt Municipal Municipal Income Municipal Fund Income Fund Bond Fund Fund Reserves - ----------------------------------------------------------------------------------------------- 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 Nation 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 & Corporations Foreign FUND 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 (A) Amount Not (B) Foreign Source Fund Eligible For Foreign Income Factor Tax Credit 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 personnel [_] Tax provision packages including Sub-M and (PWC) excise 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 ** denotes greater than 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-99.23H5 10 dex9923h5.txt SHAREHOLDER SERV. PLAN RELATING TO INV. B SHARES 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 Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund Approved: December 9, 1999 Last Amended: May 17, 2002 EX-99.23H6 11 dex9923h6.txt SHAREHOLDER SERV. PLAN RELATING TO INV. C SHARES 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 Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund Approved: December 9, 1999 Last Amended: May 17, 2002 EX-99.23H7 12 dex9923h7.txt SHAREHOLDER SERV. PLAN RELATING TO ADVISER SHARES NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") ADVISER CLASS 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 Adviser Class Shares ("Servicing Agents") in any of the Trust's Funds set forth on Exhibit I attached hereto, 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 Adviser Class 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 0.25% of the average daily net asset value of the Adviser Class 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 entirely by the holders of the Adviser Class Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Adviser Class Shares of a particular Fund, then the expenses may be allocated between or among the Adviser Class 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 administrator and/or co-administrator 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. To the extent 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 5. This Plan will become effective immediately, as to any Fund's Adviser Class Shares, upon its approval by (a) a majority of the outstanding Adviser Class 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 this Plan. Section 6. This 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. 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 Adviser Class Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Adviser Class 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. This Plan is terminable, as to a Fund's Adviser Class 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 Adviser Class Shares of such Fund. Section 9. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 10. 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 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, and all persons dealing with a Fund's Adviser Class Shares of the Trust must look solely to the Trust property belonging to such Fund's Adviser Class Shares for the enforcement of any claims against the Trust. Section 11. The Trust will preserve copies of this Plan, and any Agreements and written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 EX-99.23H8 13 dex9923h8.txt SHAREHOLDER SERV. PLAN RELATING TO DAILY CLASS SH NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") DAILY CLASS 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 Daily Class Shares in any of the Trust's Funds (as defined on Exhibit I) (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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 EX-99.23H9 14 dex9923h9.txt SHAREHOLDER SERV. PLAN RELATING TO INV. CLASS SHRS NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") INVESTOR CLASS 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 Investor Class Shares ("Servicing Agents") in any Funds of the Trust set forth on Exhibit I attached hereto, 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 Investor Class 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 0.25% of the average daily net asset value of the Investor Class Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, co-administrators 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 Investor Class Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Investor Class Shares of a particular Fund, then the expenses may be allocated between or among the Investor Class Shares of the Funds in a fair and equitable manner. Section 2. The Trust's co-administrators shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's co-administrators 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 co-administrators 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. 1 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. 2 EXHIBIT I 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 3 EX-99.23H10 15 dex9923h10.txt SHAREHOLDER SERV. PLAN RELATING TO LIQUIDITY CL. S NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") LIQUIDITY CLASS 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 (a) duly approved by the Trust's Board of Trustees or (b) approved and entered into by the officers of the Trust, with advice of counsel, and ratified by the 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 Liquidity Class 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. 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 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 is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 6. 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 7. 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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 EX-99.23H11 16 dex9923h11.txt SHAREHOLDER SERV. PLAN RELATING TO MKT CLASS SHRS NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") MARKET CLASS 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 Market Class Shares ("Servicing Agents") in any of the Trust's Funds set forth on Exhibit I attached hereto, 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 Market Class 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 0.25% of the average daily net asset value of the Market Class 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 entirely by the holders of the Market Class Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Market Class Shares of a particular Fund, then the expenses may be allocated between or among the Market Class 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 administrator and/or co-administrator 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. This Plan will become effective immediately, as to any Fund's Market Class Shares, upon its approval by (a) a majority of the outstanding Market Class 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 this Plan. Section 5. This 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 4. Section 6. 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 Market Class Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Market Class 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 4 hereof. Section 7. This Plan is terminable, as to a Fund's Market Class 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 Market Class Shares of such Fund. Section 8. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 9. 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 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, and all persons dealing with a Fund's Market Class Shares of the Trust must look solely to the Trust property belonging to such Fund's Market Class Shares for the enforcement of any claims against the Trust. Section 10. The Trust will preserve copies of this Plan, and any Agreements and written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 EX-99.23H12 17 dex9923h12.txt SHAREHOLDER SERV. PLAN RELATING TO SERV. CLAS SHRS NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") SERVICE CLASS 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 Service Class Shares of the Funds of the Trust (as listed on Schedule 1) (collectively, the "Shares") in any of the Trust's portfolios listed on Schedule 1 (the "Funds") 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 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, co-administrators 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 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 co-administrators shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's co-administrators 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 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 Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, as amended, 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. 1 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. 2 SCHEDULE I 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 3 EX-99.23H13 18 dex9923h13.txt SHRHLDER SERV. PLAN REL. TO INV. B AND INV. C SHRS NATIONS FUNDS TRUST SHAREHOLDER ADMINISTRATION PLAN ("PLAN") INVESTOR B SHARES AND 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/or other financial institutions that are dealers of record or holders of record or which have a servicing relationship with the same or directly with the beneficial owners of Investor B Shares or Investor C Shares ("Administration Agents") of certain of the Trust's Funds (as listed on Exhibit I), provided that any material modifications to the services listed in the Agreements shall be presented for approval or ratification by the Board of Trustees at the next regularly scheduled Meeting. Pursuant to such Agreements, Administration Agents shall provide shareholder administration services as set forth therein, directly or indirectly, beneficial owners of Investor B Shares or Investor C Shares of the Funds (as listed on Exhibit I) 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 0.10% of the average daily net asset value of the Investor B Shares or Investor C Shares. The Trust's distributor, co-administrators and investment adviser are eligible to become Administration 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 Investor B Shares and Investor C Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Investor B Shares or Investor C Shares of a particular Fund, then the expenses may be allocated between or among the Investor B Shares and Investor C Shares of the Funds in a fair and equitable manner. Section 2. The Trust's co-administrators shall monitor the arrangements pertaining to the Trust's Agreements with Administration Agents. The Trust's co-administrators shall not, however, be obligated by this Plan to recommend, the Trust shall not be obligated to execute, any Agreement with any qualifying Administration Agents. Section 3. 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, as amended, 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. 2 EXHIBIT I NATIONS FUNDS TRUST 1. Nations New York Tax-Exempt Reserves 2. Nations Tax-Exempt Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Government Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 3 EX-99.23H14 19 dex9923h14.txt SHAREHOLDER SERV. PLAN RELATING TO INST. CLAS SHRS NATIONS FUNDS TRUST SHAREHOLDER ADMINISTRATION PLAN ("PLAN") INSTITUTIONAL CLASS 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/or other financial institutions that are dealers of record or holders of record or which have a servicing relationship with the same or directly with the beneficial owners of Institutional Class Shares ("Administration Agents") of certain Funds of the Trust (as listed on Exhibit I), provided that any material modifications to the services listed in the Agreements shall be presented for approval or ratification by the Board of Trustees at the next regularly scheduled Meeting. Pursuant to such Agreements, Administration Agents shall provide shareholder administration services as set forth therein, directly or indirectly, beneficial owners of Institutional Class Shares of the Funds (as listed on Exhibit I) 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 0.04% of the average daily net asset value of the Institutional Class Shares. The Trust's distributor, co-administrators and investment adviser are eligible to become Administration 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 Institutional Class Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Institutional Class Shares of a particular Fund, then the expenses may be allocated between or among the Institutional Class Shares of the Funds in a fair and equitable manner. Section 2. The Trust's co-administrators shall monitor the arrangements pertaining to the Trust's Agreements with Administration Agents. The Trust's co-administrators shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Administration Agents. Section 3. 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, as amended, 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 4. 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 3. Section 5. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 6. 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 7. 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 New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 EX-99.23H15 20 dex9923h15.txt SHRHOLDER SERV. PLAN RELATING TO TRUST CLASS SHRS NATIONS FUNDS TRUST SHAREHOLDER ADMINISTRATION PLAN ("PLAN") TRUST CLASS 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 Trust Class Shares ("Administration Agents") in certain Funds of the Trust (as listed on Exhibit I) 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, Administration Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Trust Class 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 0.10% of the average daily net asset value of the Trust Class Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, co-administrators and adviser are eligible to become Administration 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 Trust Class Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Trust Class Shares of a particular Fund, then the expenses may be allocated between or among the Trust Class Shares of the Funds in a fair and equitable manner. Section 2. The Trust's co-administrators shall monitor the arrangements pertaining to the Trust's Agreements with Administration Agents. The Trust's co-administrators shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Administration 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, as amended, of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement 1 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. 2 EXHIBIT I 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 3 EX-99.23H16 21 dex9923h16.txt TRANS. AGENCY AND SERV. AGRMNT - PFPC INC. AND NFS 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 1.34 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 20.1 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 Funds Trust: 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations Convertible Securities Fund 33. Nations California Municipal Bond Fund 34. Nations Intermediate Bond Fund 35. Nations International Equity Fund 36. Nations International Value Fund 37. Nations Emerging Markets Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 1 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations LifeGoal Growth Portfolio 51. Nations LifeGoal Balanced Growth Portfolio 52. Nations LifeGoal Income and Growth Portfolio 53. Nations MidCap Value Fund 54. Nations LargeCap Value Fund 55. Nations New York Tax-Exempt Reserves 56. Nations Research Fund 57. Nations SmallCap Value 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 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 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: May 17, 2002 2 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule G to be executed by their officers designated below as of the 17th day of May, 2002. PFPC Inc. (indirect successor to The Shareholder Services Group, Inc.) By: /s/ Mark Hoefel ----------------- Mark Hoefel 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 3 NATIONS GOVERNMENT INCOME TERM TRUST 2003, INC. By: /s/ Robert B. Carroll ------------------------ Robert B. Carroll Secretary NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC. By: /s/ Robert B. Carroll -------------------------- Robert B. Carroll Secretary 4 EX-99.23H20 22 dex9923h20.txt SUB-TRANSF. AGENCY AGRMNT - PFPC INC. AND BOA 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. 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. 11 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 Funds Trust 1. Nations Tax-Exempt Fund 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Convertible Securities Fund 27. Nations California Municipal Bond Fund 28. Nations Intermediate Bond Fund 29. Nations International Equity Fund 30. Nations International Value Fund 31. Nations Emerging Markets Fund 32. Nations High Yield Bond Fund 33. Nations MidCap Index Fund 34. Nations Kansas Municipal Income Fund 35. Nations Marsico 21st Century Fund 36. Nations Marsico International Opportunities Fund 37. Nations Financial Services Fund 38. Nations Classic Value Fund 39. Nations Global Value Fund 40. Nations Asset Allocation Fund 41. Nations Government Securities Fund 42. Nations Marsico Focused Equities Fund 13 43. Nations Marsico Growth Fund 44. Nations LifeGoal Growth Portfolio 45. Nations LifeGoal Balanced Growth Portfolio 46. Nations LifeGoal Income and Growth Portfolio 47. Nations MidCap Value Fund 48. Nations LargeCap Value Fund 49. Nations Research Fund 50. Nations SmallCap Value Fund Last Amended: May 17, 2002 14 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule A to be executed by their officers designated below as of the 17th day of May, 2002. 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. 2 (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. 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-99.23H24 23 dex9923h24.txt AMD. AND RESTATED FOR. CUST. MGR AGRMNT 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 Funds Trust 1. Nations Tax-Exempt Reserves 2. Nations Value Fund 3. Nations Strategic Growth Fund 4. Nations Capital Growth Fund 5. Nations MidCap Growth Fund 6. Nations LargeCap Index Fund 7. Nations Managed Index Fund 8. Nations SmallCap Index Fund 9. Nations Short-Intermediate Government Fund 10. Nations Short-Term Income Fund 11. Nations Strategic Income Fund 12. Nations Bond Fund 13. Nations Municipal Income Fund 14. Nations Short-Term Municipal Income Fund 15. Nations Intermediate Municipal Bond Fund 16. Nations Florida Intermediate Municipal Bond Fund 17. Nations Florida Municipal Bond Fund 18. Nations Georgia Intermediate Municipal Bond Fund 19. Nations Maryland Intermediate Municipal Bond Fund 20. Nations North Carolina Intermediate Municipal Bond Fund 21. Nations South Carolina Intermediate Municipal Bond Fund 22. Nations Tennessee Intermediate Municipal Bond Fund 23. Nations Texas Intermediate Municipal Bond Fund 24. Nations Virginia Intermediate Municipal Bond Fund 25. Nations Small Company Fund 26. Nations Government Reserves 27. Nations Municipal Reserves 28. Nations Cash Reserves 29. Nations Treasury Reserves 30. Nations Money Market Reserves 31. Nations California Tax-Exempt Reserves 32. Nations International Equity Fund 33. Nations International Value Fund 34. Nations Emerging Markets Fund 35. Nations Convertible Securities Fund 36. Nations California Municipal Bond Fund 37. Nations Intermediate Bond Fund 38. Nations High Yield Bond Fund 39. Nations MidCap Index Fund 40. Nations Kansas Municipal Income Fund 41. Nations Marsico 21st Century Fund 42. Nations Marsico International Opportunities Fund -8- 43. Nations Financial Services Fund 44. Nations Classic Value Fund 45. Nations Global Value Fund 46. Nations Asset Allocation Fund 47. Nations Government Securities Fund 48. Nations Marsico Focused Equities Fund 49. Nations Marsico Growth Fund 50. Nations MidCap Value Fund 51. Nations LargeCap Value Fund 52. Nations New York Tax-Exempt Reserves 53. Nations Research Fund 54. Nations SmallCap Value 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 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 International Equity Master Portfolio 3. Nations Marsico Focused Equities Master Portfolio 4. Nations Marsico Growth Master Portfolio 5. 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 12. Nations SmallCap Value Master Portfolio 13. Nations Strategic Growth Master Portfolio Last amended: May 17, 2002 -9- IN WITNESS WHEREOF, the parties hereto have caused the amended Appendix to be executed by their officers designated below as of the 17th day of May, 2002. NATIONS SEPARATE ACCOUNT TRUST By: /s/ Richard H. Blank, Jr. ------------------------------ Richard H. Blank, Jr. Secretary NATIONS MASTER INVESTMENT 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 THE BANK OF NEW YORK By: /s/ Ira Rosner ------------------ Ira Rosner Vice President -10- EX-99.23I1 24 dex9923i1.txt OPINION AND CONSENT OF MORRISON AND FOERSTER [MORRISON & FOERSTER LLP LETTERHEAD] July 30, 2002 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. 26 and Amendment No. 27 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 23(i)(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 July 30, 2002 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 25 dex9923j1.txt CONSENT OF PRICEWATERHOUSECOOPERS, LLP 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 17, 2002 and May 23, 2002, relating to the financial statements and financial highlights which appear in the March 31, 2002 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 17, 2002 and May 23, 2002 relating to the financial statements and financial highlights of the portfolios of Nations Master Investment Trust also contained in such Annual Reports. We also consent to the references to us under the headings "Independent Accountants and Reports" and "Financial Highlights" in such Registration Statement. PricewaterhouseCoopers LLP New York, New York July 29, 2002 EX-99.23M2 26 dex9923m2.txt SHRHLDR SERV. AND DIST. PLAN - INVESTOR A SHARES 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 Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio 16. Nations MidCap Value Fund 17. Nations LargeCap Value Fund 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations LargeCap Index Fund 26. Nations Managed Index Fund 27. Nations SmallCap Index Fund 28. Nations Short-Intermediate Government Fund 29. Nations Short-Term Income Fund 30. Nations Strategic Income Fund 31. Nations Bond Fund 32. Nations Municipal Income Fund 33. Nations Short-Term Municipal Income Fund 34. Nations Intermediate Municipal Bond Fund 35. Nations Florida Intermediate Municipal Bond Fund 36. Nations Florida Municipal Bond Fund 37. Nations Georgia Intermediate Municipal Bond Fund 38. Nations Maryland Intermediate Municipal Bond Fund 39. Nations North Carolina Intermediate Municipal Bond Fund 40. Nations South Carolina Intermediate Municipal Bond Fund 41. Nations Tennessee Intermediate Municipal Bond Fund 42. Nations Texas Intermediate Municipal Bond Fund 5 43. Nations Virginia Intermediate Municipal Bond Fund 44. Nations Small Company Fund 45. Nations Cash Reserves 46. Nations Treasury Reserves 47. Nations Government Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund Approved: December 9, 1999 Last Amended: May 17, 2002 6 EX-99.23M3 27 dex9923m3.txt DISTRIBUTION PLAN - INVESTOR B SHARES 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 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 Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 4 42. Nations Cash Reserves 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund Approved: December 9, 1999 Last Amended: May 17, 2002 5 EX-99.23M4 28 dex9923m4.txt DISTRIBUTION PLAN - INVESTOR C SHARES 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 Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio 15. Nations MidCap Value Fund 16. Nations LargeCap Value Fund 17. Nations New York Tax-Exempt Reserves 18. Nations Research Fund 19. Nations SmallCap Value Fund 20. Nations Tax-Exempt Reserves 21. Nations Value Fund 22. Nations Strategic Growth Fund 23. Nations Capital Growth Fund 24. Nations MidCap Growth Fund 25. Nations Short-Intermediate Government Fund 26. Nations Short-Term Income Fund 27. Nations Strategic Income Fund 28. Nations Bond Fund 29. Nations Municipal Income Fund 30. Nations Short-Term Municipal Income Fund 31. Nations Intermediate Municipal Bond Fund 32. Nations Florida Intermediate Municipal Bond Fund 33. Nations Florida Municipal Bond Fund 34. Nations Georgia Intermediate Municipal Bond Fund 35. Nations Maryland Intermediate Municipal Bond Fund 36. Nations North Carolina Intermediate Municipal Bond Fund 37. Nations South Carolina Intermediate Municipal Bond Fund 38. Nations Tennessee Intermediate Municipal Bond Fund 39. Nations Texas Intermediate Municipal Bond Fund 40. Nations Virginia Intermediate Municipal Bond Fund 41. Nations Small Company Fund 42. Nations Cash Reserves 4 43. Nations Treasury Reserves 44. Nations Government Reserves 45. Nations Municipal Reserves 46. Nations Money Market Reserves 47. Nations California Tax-Exempt Reserves 48. Nations Intermediate Bond Fund 49. Nations Convertible Securities Fund 50. Nations California Municipal Bond Fund 51. Nations International Equity Fund 52. Nations International Value Fund 53. Nations Emerging Markets Fund Approved: December 9, 1999 Last Amended: May 17, 2002 5 EX-99.23M5 29 dex9923m5.txt DISTRIBUTION PLAN RELATING TO DAILY CLASS SHARES NATIONS FUNDS TRUST DISTRIBUTION PLAN DAILY CLASS SHARES This Daily Class Distribution Plan (the "Plan") has been adopted by the Board of Trustees of Nations Funds Trust (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 Daily Class Shares of the Trust's Funds, as listed on Exhibit A (collectively, the "Funds" or, individually, a "Fund"). Payments by the Trust under this Section of this 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, 0.35% of the average daily net asset value of a Fund's Daily Class Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 of this Plan 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 Sales Support Agreements with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 of this Plan may be made with respect to: 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; 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; overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; 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 any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section 2 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. 1 Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in substantially the form attached hereto as Exhibit B ("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. Except for the payments specified in Section 1, no additional payments are to be made by the Trust under this Plan, provided that nothing herein shall be deemed to preclude the payments such Funds are otherwise obligated to make (i) to their investment adviser, administrator, co-administrator, transfer agent or custodian pursuant to their respective agreements with the Trust, (ii) to Servicing Agents pursuant to Shareholder Servicing Agreements and (iii) for the expenses otherwise incurred by a Fund and the Trust on behalf of the Daily Class Shares in the normal conduct of such Fund's business pursuant to the agreements referenced above. To the extent any such payments by the Trust on behalf of a Fund to the Fund's investment adviser, administrator, co-administrator, transfer agent, custodian or a Servicing Agent, or any affiliate thereof, to any party pursuant to any agreement, or, generally, by the Trust on behalf of a Fund to any party, are deemed to be payments for the financing of any activity primarily intended to result in the sale of the Daily Class Shares within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been approved pursuant to this Plan without regard to Section 1. With respect to Daily Class 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 shall be obligated to make any payments under this Plan that exceed the maximum amounts payable under Article III, Section 26 of the Rules of Fair Practice 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 Daily Class Shares, upon its approval by (a) a majority of the outstanding Daily Class 2 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 this Plan. Section 7. Continuance of Plan. This 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. 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 Daily Class Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Daily Class 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 Daily Class 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 Daily Class Shares of such Fund. Section 10. Selection/Nomination of Trustees. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 11. 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 on file at the 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 Daily Class Shares of the Trust must look solely to the Trust property belonging to such Fund's Daily Class Shares for the enforcement of any claims against the Trust. Section 12. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. Section 13. 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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 4 EX-99.23M6 30 dex9923m6.txt DISTRIBUTION PLAN RELATING TO INVESTOR CLASS SHRES NATIONS FUNDS TRUST DISTRIBUTION PLAN INVESTOR CLASS SHARES This Investor Class Distribution Plan (the "Plan") has been adopted by the Board of Trustees of Nations Funds Trust (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 Class Shares of certain Funds of the Trust, as listed on Exhibit A (collectively, the "Funds" or, individually, a "Fund"). Payments by the Trust under this Section of this 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, 0.10% of the average daily net asset value of a Fund's Investor Class Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 of this Plan 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 Sales Support Agreements with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 of this Plan may be made with respect to: 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; 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; overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; 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 any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section 2 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. Payments under Section 1, above, shall not be made for personal services and/or the maintenance of shareholder accounts as such terms are interpreted by the National Association of Securities Dealers, Inc. 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 1 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 ("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. Except for the payments specified in Section 1, no additional payments are to be made by the Trust under this Plan, provided that nothing herein shall be deemed to preclude the payments such Funds are otherwise obligated to make (i) to their investment adviser, administrator, co-administrator, transfer agent or custodian pursuant to their respective agreements with the Trust, (ii) to Servicing Agents pursuant to Shareholder Servicing Agreements and (iii) for the expenses otherwise incurred by a Fund and the Trust on behalf of the Investor Class Shares in the normal conduct of such Fund's business pursuant to the agreements referenced above. To the extent any such payments by the Trust on behalf of a Fund to the Fund's investment adviser, administrator, co-administrator, transfer agent, custodian or a Servicing Agent, or any affiliate thereof, to any party pursuant to any agreement, or, generally, by the Trust on behalf of a Fund to any party, are deemed to be payments for the financing of any activity primarily intended to result in the sale of the Investor Class Shares within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been approved pursuant to this Plan without regard to Section 1. With respect to Investor Class 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 shall be obligated to make any payments under this Plan that exceed the maximum amounts payable under Rule 2830 of the National Association of Securities Dealers, Inc. Conduct Rules. 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. 2 Section 6. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor Class Shares, upon its approval by (a) a majority of the outstanding Investor Class 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 this Plan. Section 7. Continuance of Plan. This 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. 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 Class 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 Class 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 Class 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 Class Shares of such Fund. Section 10. Selection/Nomination of Trustees. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 11. 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 on file at the 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 Class Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor Class Shares for the enforcement of any claims against the Trust. Section 12. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. 3 Section 13. 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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 5 EX-99.23M7 31 dex9923m7.txt DIST. PLAN RELATING TO LIQUIDITY CLASS SHRES NATIONS FUNDS TRUST DISTRIBUTION PLAN LIQUIDITY CLASS SHARES WHEREAS, Nations Funds Trust (the "Trust") is engaged in business as a diversified, open-end investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Trustees of the Trust have determined that there is a reasonable likelihood that the following Distribution Plan will benefit the Trust and the owners of units of beneficial interest ("Unitholders") in Liquidity Class Shares of Nations New York Tax-Exempt Reserves of the Trust and such other funds as may be added to the Trust (the "Liquidity Class Funds"); NOW THEREFORE, the Trustees of the Trust hereby adopt this distribution plan pursuant to Rule 12b-1 under the 1940 Act. Section 1. The Trust has adopted this distribution plan (the "Plan") to enable the Trust to directly or indirectly bear expenses relating to the distribution of Liquidity Class securities of which the Trust is the issuer. Section 2. The Trust may incur expenses for the items stipulated in Section 3 of this Plan, provided that in no event shall the Trust incur reimbursable expenses for Liquidity Class Shares that exceed an annual rate of 0.30% of the Trust's average daily net assets relating to the Class during any fiscal year of the Trust. All expenditures pursuant to this Plan shall be made only pursuant to authorization by the President, any Vice President or the Treasurer of the Trust. If there should be more than one series of Trust units, expenses incurred pursuant to this Plan shall be allocated among the several series of the Trust on the basis of their relative net asset values, unless otherwise determined by a majority of the Qualified Trustees. In addition, the Trust will pay the Distributor a fee of up to .30% of the Liquidity Class Funds' (.35% with respect to Liquidity Class Shares of Nations Treasury Reserves) average daily net assets which the distributor can use to compensate certain financial institutions which provide administrative and/or distribution services to Liquidity Class unitholders relating to the Trust. The actual fee paid to the administrators will be negotiated based on the extent and quality of services provided. Section 3. Reimbursable expenses permitted pursuant to this Plan shall include the following expenses incurred with respect to the Liquidity Class securities: (a) the incremental printing costs incurred in producing for and distributing to persons other than current Unitholders of the Trust, the reports, prospectuses, notices and similar materials that are prepared by the Trust for current Unitholders; (b) the cost of complying with state and federal laws pertaining to the distribution of the Trust's units; 1 (c) advertising; (d) the costs of preparing, printing and distributing any literature used in connection with the offering of the Trust's units and not covered by Section 3(a) of this Plan; (e) expenses incurred in connection with the promotion and sale of the Trust's units including, without limitation, travel and communication expenses and expenses for the compensation of and benefits for sales personnel; and (f) any other expenses reasonably incurred in connection with the distribution and marketing of the Liquidity Class securities subject to approval of a majority of the Qualified Trustees; Section 4. This Plan shall not take effect until it has been approved (a) by a vote of at least a majority of the outstanding voting securities in Liquidity Class of the Trust; and (b) together with any related agreements, by votes of the majority of both (i) the Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a Board of Trustees meeting called for the purpose of voting on this Plan or such agreement. Section 5. This Plan shall continue in effect for a period of more than one year after it takes effect only for so long as such continuance is specifically approved at least annually in the manner provided in Part (b) of Section 4 herein for the approval of this Plan. Section 6. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 7. This Plan may be terminated at any time by the vote of a majority of the Qualified Trustees or by vote of a majority of the Trust's outstanding voting securities. Section 8. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide (a) that such agreement may be terminated at any time, without payment of any penalty, by the vote of a majority of the Qualified Trustees or by the vote of Unitholders holding a majority of the Trust's outstanding voting securities, on not more than 60 days written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. Section 9. This plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 2 hereof without the approval of Unitholders holding a majority of the outstanding voting securities in the Liquidity Class of the Trust, and all material amendments to this Plan shall be approved in the manner provided in Part (b) of Section 4 herein for the approval of this Plan. 2 Section 10. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Section 11. Nothing in this Plan shall operate or be construed to limit the extent to which the Trust's Sponsor, Manager, Distributor, or Investment Adviser or any other person, other than the Trust, may incur costs out of their own monies and bear expenses associated with the distribution of securities of which the Trust is the issuer. Section 12. While this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. Section 13. This Plan shall not obligate the Trust or any other party to enter into an agreement with any particular person. 3 EXHIBIT A 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Approved: November 28, 2001 Last Amended: May 10, 2002 EX-99.23M8 32 dex9923m8.txt DISTRIBUTION PLAN RELATING TO MARKET CLASS SHARES NATIONS FUNDS TRUST DISTRIBUTION PLAN MARKET CLASS SHARES This Distribution Plan (the "Plan") has been adopted by the Board of Trustees of Nations Funds Trust (the "Trust"), on behalf of its Market Class Shares 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 Market Class Shares of the Trust's Funds, as listed on Exhibit A (collectively, the "Funds" or, individually, a "Fund"). Payments by the Trust under this Section of this 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, 0.20% of the average daily net asset value of a Fund's Market Class Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 of this Plan 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 Sales Support Agreements with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 of this Plan may be made with respect to: 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; 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; overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; 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 any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section 2 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. 1 Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in substantially the form attached hereto as Exhibit B ("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. Except for the payments specified in Section 1, no additional payments are to be made by the Trust under this Plan, provided that nothing herein shall be deemed to preclude the payments such Funds are otherwise obligated to make (i) to their investment adviser, administrator, co-administrator, transfer agent or custodian pursuant to their respective agreements with the Trust, (ii) to Servicing Agents pursuant to Shareholder Servicing Agreements and (iii) for the expenses otherwise incurred by a Fund and the Trust on behalf of the Market Class Shares in the normal conduct of such Fund's business pursuant to the agreements referenced above. To the extent any such payments by the Trust on behalf of a Fund to the Fund's investment adviser, administrator, co-administrator, transfer agent, custodian or a Servicing Agent, or any affiliate thereof, to any party pursuant to any agreement, or, generally, by the Trust on behalf of a Fund to any party, are deemed to be payments for the financing of any activity primarily intended to result in the sale of the Market Class Shares within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been approved pursuant to this Plan without regard to Section 1. With respect to Market Class 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. 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. Notwithstanding anything herein to the contrary, no Fund shall be obligated to make any payments under this Plan that exceed the maximum amounts payable under Article III, Section 26 of the Rules of Fair Practice 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 Market Class Shares, upon its approval by (a) a majority of the outstanding Market Class 2 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 this Plan. Section 7. Continuance of Plan. This 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. 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 Market Class Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Market Class 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 Market Class 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 Market Class Shares of such Fund. Section 10. Selection/Nomination of Trustees. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 11. 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 on file at the 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, and all persons dealing with a Fund's Market Class Shares of the Trust must look solely to the Trust property belonging to such Fund's Market Class Shares for the enforcement of any claims against the Trust. Section 12. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. Section 13. 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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 4 EX-99.23M9 33 dex9923m9.txt DISTRIBUTION PLAN RELATING TO SERVICE CLASS SHARES NATIONS FUNDS TRUST DISTRIBUTION PLAN SERVICE CLASS SHARES This Service Class Distribution Plan (this "Plan") has been adopted by the Board of Trustees of Nations Funds Trust (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 pay its Distributor for certain expenses that are incurred in connection with the support and distribution of Service Class Shares of the Trust's Funds (collectively, the "Shares"), as defined in Exhibit A (collectively the "Funds"). 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 the annual rate of 0.75% of the average daily net asset value of the Service Class Shares of the Funds (as defined in Exhibit A). For purposes of determining the payments payable under this Plan, the net asset value of the outstanding Shares of the respective Funds shall be computed in the manner specified in the Trust's then current prospectuses and statement of additional information as amended or supplemented from time to time for such Shares. Section 2. Expenses Covered by Plan. Payments to the Distributor under Section 1 of this Plan will be used by the Distributor (i) to compensate banks, broker/dealers or other financial institutions that have entered into Sales Support Agreements with the Distributor ("Selling Agents") for providing distribution assistance relating to Shares, (ii) for promotional activities intended to result in the sale of 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. 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 substantially the form attached hereto as Exhibit B ("Agreements"), with Selling Agents. As used herein, promotional activities include, but are not limited to, advertising via radio, television, newspapers, magazines and otherwise; preparing, printing and mailing sales materials, brochures and prospectuses (except for prospectuses used for regulatory purposes or for distribution to existing shareholders). 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 ("SEC") as in effect from time to time. Upon proper authorization by the Trust's Trustees in accordance with Rule 12b-1 under the Act, expenses covered by this Plan may also include other expenses the Distributor (or any other person) may incur in connection with the distribution of the Trust's Shares including, without limitation, expenditures for telephone facilities and in-house telemarketing, or in connection with shareholder servicing. Distribution service fees will not be used to pay any interest expenses, carrying charges or other financing costs (except to the extent permitted by the SEC). Distribution service fees will not be used to pay any general or administrative expenses of the Distributor. Except for the payments specified in Section 1, no additional payments are to be made by the Trust under this Plan, provided that nothing herein shall be deemed to preclude the payments such Funds are otherwise obligated to make (i) to their investment adviser, administrator, co-administrator, transfer agent or custodian pursuant to their respective agreements with the Trust, (ii) to Servicing Agents pursuant to Shareholder Servicing Agreements and (iii) for the expenses otherwise incurred by a Fund and the Trust on behalf of the Service Class Shares in the normal conduct of such Fund's business pursuant to the agreements referenced above. To the extent any such payments by the Trust on behalf of a Fund to the Fund's investment adviser, administrator, co-administrator, transfer agent, custodian or a Servicing Agent, or any affiliate thereof, to any party pursuant to any agreement, or, generally, by the Trust on behalf of a Fund to any party, are deemed to be payments for the financing of any activity primarily intended to result in the sale of the Service Class Shares within the context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to have been approved pursuant to this Plan without regard to Section 1. With respect to Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by the 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 the 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 shall be obligated to make any payments under this Plan that exceed the maximum amounts payable under Rule 2830 of the National Association of Securities Dealers, Inc. Conduct Rules. 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 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. 2 Section 6. Approval of Plan. The Plan will become effective immediately, as to any Fund's Shares, upon its approval by (a) a majority of the outstanding Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of 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 this 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. Section 8. Amendments. The 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 Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding 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. The Plan is terminable, as to a Fund's Shares, without penalty at any time by (a) a vote of a majority of 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 Shares of such Fund. Section 10. Selection/Nomination of Trustees. While this Plan is in effect, the selection and nomination of those Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust shall be committed to the discretion of such non-interested Trustees. Section 11. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and 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 office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of 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 Shares of the Trust must look solely to the Trust property belonging to such Fund's Shares for the enforcement of any claims against the Trust. Section 12. Records. 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. 3 Section 13. 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 1. Nations New York Tax-Exempt Reserves 2. Nations Government Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Tax-Exempt Reserves 6. Nations Municipal Reserves 7. Nations Money Market Reserves 8. Nations California Tax-Exempt Reserves Dated: February 15, 2002 Last Amended: May 10, 2002 5 EX-99.2301 34 dex992301.txt RULE 18F-3 MULTI-CLASS PLAN 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 fifty-seven separate investment portfolios: Nations MidCap Index Fund, Nations High Yield Bond 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 Fund, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations California Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Capital Growth Fund, Nations Strategic Growth Fund, Nations Convertible Securities Fund, Nations Value Fund, Nations MidCap Growth Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations SmallCap Index Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund, Nations Bond Fund, Nations Small Company Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Intermediate Bond Fund, Nations Research Fund and Nations SmallCap Value Fund (the "Non-Money Market Funds") and Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio (the "LifeGoal Portfolios") and Nations Government Reserves, Nations Cash Reserves, Nations Treasury Reserves, Nations Tax-Exempt Reserves, Nations Municipal Reserves, Nations Money Market Reserves, Nations California 1 Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves (the "Money Market Funds"). 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) Non-Money Market Funds (except Nations MidCap Index Fund, Nations SmallCap Index Fund, Nations LargeCap Index Fund, Nations Managed Index Fund and Nations Short-Intermediate Government Fund) -- Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares; (ii) Nations MidCap Index Fund, Nations SmallCap Index Fund and Nations LargeCap Index Fund-- Primary A Shares and Investor A Shares; (iii) Nations Managed Index Fund -- Primary A Shares, Primary B Shares and Investor A Shares; (iv) LifeGoal Portfolios and Nations Short-Intermediate Government Fund - Primary A Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C Shares; (v) Nations Government Reserves, Nations Treasury Reserves and Nations Tax-Exempt Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares, Investor C Shares and Investor A Shares; (vi) Nations Municipal Reserves, Nations Money Market Reserves, Nations California Tax-Exempt Reserves and Nations New York Tax-Exempt Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares and Investor C Shares; and (vii) Nations Cash Reserves -- Capital Class Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily Class Shares, Service Class Shares, Investor Class Shares, Trust Class Shares, Institutional Class Shares, Investor B Shares, Investor C Shares, Investor A Shares and Marsico 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 2 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. 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. 3 D. Income and any expenses of Nations California Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund and Nations Bond 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 Nations California Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Income Fund and Nations Bond 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. Income, realized and unrealized capital gains and losses, and any expenses of Nations MidCap Index Fund, Nations High Yield Bond 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 Fund, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Capital Growth Fund, Nations Strategic Growth Fund, Nations Convertible Securities Fund, Nations Value Fund, Nations MidCap Growth Fund, Nations LargeCap Index Fund, Nations Managed Index Fund, Nations SmallCap Index Fund, Nations Small Company Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Intermediate Bond Fund, Nations Research Fund, Nations SmallCap Value Fund, the LifeGoal Portfolios and the Money Market Funds 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. E. In certain cases, Banc of America Advisors, LLC, Banc of America Capital Management, LLC, Brandes Investment Partners, LP, Gartmore Global Partners, Banc of America Securities LLC, Bank of America, N.A., Stephens Inc., PFPC Inc. or another service 4 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. Capital Class Shares -- Money Market Funds Only. 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/Exchange Privileges: Capital Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Capital Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. B. Liquidity Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Liquidity Class Shares of each Money Market Fund may reimburse Stephens for certain expenses incurred by Stephens in connection with the distribution of Liquidity Class Shares. Such reimbursement payments may not exceed 0.30%, on an annual basis, of the average daily net assets of such shares. In addition, the Distribution Plan permits the Liquidity Class Shares of Nations Cash Reserves, Nations 5 Government Reserves, Nations Municipal Reserves, Nations California Tax-Exempt Reserves, Nations Money Market Reserves and Nations Tax-Exempt Reserves to pay Stephens up to 0.30% and Nations Treasury Reserves to pay Stephens up to 0.35%, on an annual basis, of the average daily net assets of such shares which Stephens can use to compensate financial institutions that provide administrative and/or distribution services to the holders of Liquidity Class Shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Liquidity Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Liquidity Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Liquidity Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. C. Adviser Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Shareholder Servicing/Rule 12b-1 Distribution Fees: Pursuant to a Shareholder Servicing Plan, Adviser Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25%, on an annual basis, of the average daily net assets of such shares. The Adviser Class Shareholder Servicing Plan provides that, to the extent any portion of the fees payable under the Plan is deemed to be primarily for distribution-related services, such fees are deemed approved pursuant to the Shareholder Servicing Plan and Rule 12b-1. 4. Conversion Features/Exchange Privileges: Adviser Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6 5. Other Shareholder Services. Adviser Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. D. Market Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Market Class Shares of each Money Market Fund may pay distribution fees of up to 0.20% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Market Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Market Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Market Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. E. Trust Class Shares -- Money Market Funds 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, Trust Class Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 7 5. Conversion Features/Exchange Privileges: Trust Class Shares of a Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Trust Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. F. Institutional Class Shares -- Money Market Funds 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, Institutional Class Shares of each Money Market Fund may pay shareholder administration fees of up to 0.04% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Institutional Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Institutional Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. G. Investor Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor Class Shares of each Money Market Fund may pay distribution fees of up to 0.10% of the average daily net assets of such shares. 8 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Investor Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Investor Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. H. Daily Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Daily Class Shares of each Money Market Fund may pay distribution fees of up to 0.35% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Daily Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Daily Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Daily Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. I. Service Class Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 9 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Service Class Shares of each Money Market 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, Service Class Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features/Exchange Privileges: Service Class Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Service Class Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. J. 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/Exchange Privileges: Primary A Shares of a Fund shall have such conversion features and exchange privileges, 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. Other Shareholder Services: Primary A Shares of a Fund shall have such shareholder services, 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. 10 K. Primary B Shares -- LifeGoal Portfolios, Nations Short- Intermediate Government Fund and Nations Managed Index Fund 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. The Primary B Shareholder Administration Plan provides that, to the extent any portion of the fees payable under the Plan is deemed to be primarily for distribution-related services, such fees are deemed approved pursuant to the Shareholder Administration Plan and Rule 12b-1. 5. Conversion Features/Exchange Privileges: Primary B Shares of a Fund shall have such conversion features and exchange privileges, 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. Other Shareholder Services: Primary B Shares of a Fund shall have such shareholder services, 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. L. Investor A Shares -- Money Market Funds Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor A Shares of each Money Market Fund may pay distribution fees of up to 0.10% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor A Shares of each Money Market Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 11 5. Conversion Features/Exchange Privileges: Investor A Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 6. Other Shareholder Services: Investor A Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. M. Investor A Shares -- Nations MidCap Index Fund, Nations LargeCap Index Fund, Nations SmallCap Index Fund and Nations Managed Index Fund (the "Index Funds") 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/Exchange Privileges: Investor A Shares of a Fund shall have such conversion features and exchange privileges, 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. Other Shareholder Services: Investor A Shares of a Fund shall have such shareholder services, 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. N. Investor A Shares -- LifeGoal Portfolios and all Non-Money Market Funds other than the Index Funds. 1. Maximum Initial Sales Load: (a) 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 Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Value Fund, Nations Capital Growth Fund, Nations MidCap Growth Fund, Nations Strategic Growth Fund, Nations Small Company Fund, Nations Convertible Securities Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity 12 Fund, Nations Research Fund and Nations SmallCap Value Fund: maximum of 5.75%. (b) Nations High Yield Bond Fund, Nations Government Securities Fund, Nations California Municipal Bond Fund, Nations Strategic Income Fund, Nations Municipal Income Fund and Nations Florida Municipal Bond Fund: maximum of 4.75%. (c) Nations Intermediate Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Kansas Municipal Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Intermediate Municipal Bond Fund and Nations Bond Fund: maximum of 3.25%. (d) Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund: maximum of 1.00% 2. 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 may pay a combined distribution and shareholder servicing fee of up to 0.25% of the average daily net assets of such shares. 3. Conversion Features/Exchange Privileges: Investor A Shares of a Fund shall have such conversion features and exchange privileges, 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. 4. Other Shareholder Services: Investor A Shares of a Fund shall have such shareholder services, 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. O. Investor B Shares -- Money Market Funds Only. 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): 5.00% if redeemed within one 13 year of purchase, declining to 1.00% in the sixth year after purchase and eliminated thereafter. 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. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Investor B Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Investor B Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 7. Other Shareholder Services: Investor B Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. P. Investor B Shares -- LifeGoal Portfolios and Non-Money Market Funds Only. 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) Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations High Yield Bond Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Income and Growth Portfolio, Nations MidCap Value Fund, Nations LargeCap Value Fund, Nations Value Fund, Nations Capital Growth Fund, Nations MidCap Growth Fund, Nations 14 Strategic Growth Fund, Nations Small Company Fund, Nations Convertible Securities Fund, Nations Emerging Markets Fund, Nations International Value Fund, Nations International Equity Fund, Nations Strategic Income Fund, Nations Municipal Income Fund, Nations California Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations Research Fund and Nations SmallCap Value 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, Nations Intermediate Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, Nations Short-Intermediate Government Fund, Nations Intermediate Municipal Bond Fund and Nations Bond Fund: 3.00% if redeemed within one year of purchase, declining to 1.00% in the fourth year after purchase and eliminated thereafter. (c) Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund: None. 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/Exchange Privileges: Investor B Shares of a Fund shall have such conversion features and exchange privileges, 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. Other Shareholder Services: Investor B Shares of a Fund shall have such shareholder services, 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. 15 B. Investor C Shares -- Money Market Funds Only. 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. 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. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Investor C Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Investor C Shares of a Money Market Fund shall have such conversion features and exchange privileges, 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 Money Market Fund. 7. Other Shareholder Services: Investor C Shares of a Money Market Fund shall have such shareholder services, 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 Money Market Fund. Q. Investor C Shares -- LifeGoal Portfolios and Non-Money Market Funds Only. 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. 16 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/Exchange Privileges: Investor C Shares of a Fund shall have such conversion features and exchange privileges, 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. Other Shareholder Services: Investor C Shares of a Fund shall have such shareholder services, 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. R. Marsico Shares -- Nations Cash Reserves Only. 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: Pursuant to a Shareholder Servicing Plan, Marsico Shares of Nations Cash Reserves may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, Marsico Shares of each Money Market Fund may pay shareholder administration fees of up to 0.10% of the average daily net assets of such shares. 6. Conversion Features/Exchange Privileges: Marsico Shares of a Fund shall have such conversion features and exchange privileges, 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. 7. Other Shareholder Services: Marsico Shares of a Fund shall have such shareholder services, 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. 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, 17 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: May 17, 2002 18 EX-99.23P1 35 dex9923p1.txt NATIONS FUNDS FAMILY CODE OF ETHICS NATIONS FUNDS FAMILY CODE OF ETHICS This Code of Ethics (the "Code") shall apply to each investment company advised by an affiliate of Bank of America Corporation that adopts the Code by action of its Board of Directors (the "Board") (collectively, the "Company")./1/ A. Legal Requirements. Rule 17j-1(b) under the Investment Company Act of 1940, as amended, (the "1940 Act") makes it unlawful for any Officer or Director of the Company (as well as other persons), in connection with the purchase or sale, directly or indirectly, by such person of a security "held or to be acquired"/2/ by the Company: 1. To employ any device, scheme or artifice to defraud the Company; 2. To make any untrue statement of a material fact to the Company or omit to state a material fact necessary in order to make the statements made to the Company, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Company; or 4. To engage in any manipulative practice with respect to the Company. The policies, restrictions and procedures included in this Code are designed to prevent violations of these prohibitions. In addition, the Investment Company Institute (the "ICI") has suggested that investment companies adopt additional measures to obviate conflicts, prevent and detect abusive practices and preserve the confidence of investors. The policies, restrictions and procedures included in this Code substantially conform to the additional measures suggested by the ICI. ______________________ /1/ As used herein, "Director" shall mean a director or trustee and "Company" shall mean a corporation or trust. /2/ A security "held or to be acquired" by the Company means any "covered security" (defined below) which, within the most recent 15 days (i) is or has been held by the Company, or (ii) is being or has been considered by the Company or its investment adviser(s) for purchase by the Company; and any option to purchase or sell, and any security convertible into or exchangeable for, a covered security. 1 B. Company Policies. It is the policy of the Company that no "access person"/3/ of the Company shall engage in any act, practice or course of conduct that would violate the provisions of Rule 17j-1(b) set forth above. In this regard, each access person has a duty at all times to place the interests of Company shareholders first and is required to conduct all personal securities transactions consistent with the letter and spirit of this Code and in such a manner as to avoid any actual or potential conflicts of interest or any abuse of the access person's position of trust and responsibility. It is a fundamental standard that access persons should not take inappropriate advantage of their positions. C. Restrictions. 1. No access person shall purchase or sell, directly or indirectly, any "covered security"/4/ where he or she has, or by reason of such transaction acquires or disposes of, any direct or indirect beneficial ownership and where he or she knows or should have known, at the time of such purchase or sale, that the covered security: (a) is being considered for purchase or sale by the Company; or (b) is being purchased or sold by the Company. 2. This Code sets forth additional requirements and restrictions that "investment personnel"/5/ must comply with under this Code. To review such requirements and restrictions, please refer to Part A of this Code. 3. The restrictions set forth in Sections C.1. shall not apply to: (a) purchases or sales of any covered securities that are not eligible for purchase or sale by the Company; __________________ /3/ An "access person" includes: (a) each Director or Officer of the Company; (b) each employee (if any) of the Company (or of any company in a control relationship to the Company) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information about the purchase or sale of covered securities by the Company, or whose functions relate to the making of such recommendations; and (c) any natural person in a control relationship to the Company who obtains information concerning recommendations made to the Company with regard to the purchase or sale of covered securities by the Company. /4/ A "covered security" means a security as defined in section 2(a)(36) of the 1940 Act, other than (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by open-end investment companies. /5/ "Investment personnel" includes any employee of the Company (or of any company in a control relationship to the Company) who, in connection with his or her regular functions or duties, makes or partcipates in making recommendations regarding the purchase or sale of securties by the Company. Investment personnel also includes any natural person who controls the Company and who obtains information concerning recommendations made to the Company regarding the purchase or sale of secrities by the Company. 2 (b) purchases or sales which are non-volitional on the part of the access person; (c) purchases which are part of an automatic dividend investment plan; (d) purchases which are effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from the issuer, and sales of such rights; or (e) sales which are effected pursuant to a tender offer or similar transaction involving an offer to acquire all or a significant portion of a class of securities. In addition, the restrictions set forth in Section C.1. shall not apply to purchases or sales which are only remotely potentially harmful to the Company, because they would be very unlikely to affect a highly institutional market. D. Procedures. ---------- 1. In order to provide the Company with information to enable it to determine with reasonable assurance whether the provisions of Rule 17j-1(b) are being observed by its access persons, each access person shall file the following reports with the Company, unless the access person satisfies an exception from the reporting requirements as stated in paragraph (d) of this Section: (a) Initial Holdings Report Each access person of the Company shall submit a report in the form attached hereto as Appendix A to the Company's designated compliance person showing all holdings in covered securities in which the access person had any direct or indirect beneficial ownership/6/ and all accounts maintained at brokers, dealers, and/or banks that held any securities for the direct or indirect benefit of the access person as of the date the person became an access person. Such report shall be filed not later than 10 _____________________ /6/ A person will be treated as the "beneficial owner" of a security under this policy only if he or she has a direct or indirect pecuniary interest in the security. (1) A direct pecuniary interest is the opportunity, directly or indirectly, to profit, or to share the profit, from the transaction. (2) An indirect pecuniary interest is any nondirect financial interest, but is specifically defined in the rules to include securities held by members of the person's immediate family sharing the same household; securities held by a partnership of which the person is a general partner; securities held by a trust of which the person is a trustee and has both investment control and a pecuniary interest, the settlor if the person can revoke the trust, or a beneficiary if the person has or shares investment control with the trustee; and equity securities which may be acquired upon exercise of an option or other right, or through conversion. For interpretive guidance on whether a person has a direct or indirect pecuniary interest in a transaction, the person should consult the Company's designated compliance person. A report shall not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the security. 3 days after the person becomes an access person, but need not show holdings or accounts over which such person had no direct or indirect influence or control. In lieu of providing such a report, an access person may provide account statements to the Company's designated compliance person. (b) Quarterly Transaction Report Each access person of the Company shall submit a report in the form attached hereto as Appendix B to the Company's designated compliance person showing all transactions effected during the quarter in covered securities in which the person had any direct or indirect beneficial ownership and all accounts established at brokers, dealers, and/or banks that held any securities during the quarter for the direct or indirect benefit of the access person. Such report shall be filed not later than 10 days after the end of each calendar quarter, but need not show transactions over which such person had no direct or indirect influence or control. In lieu of providing such a report, an access person may arrange for broker trade confirmations and account statements to be provided directly to the Company's designated compliance person. (c) Annual Holdings Report Each access person of the Company shall submit a report in the form attached hereto as Appendix C to the Company's designated compliance person showing all holdings of covered securities in which the access person had direct or indirect beneficial ownership and all accounts maintained at brokers, dealers, and/or banks that held any securities for the direct or indirect benefit of the access person as of the calendar year end. Information in the annual report must be current as of a date no more than 30 days before the report is submitted to the Company. Such report shall be filed not later than 30 days after the end of each calendar year, but need not show holdings or accounts over which such person had no direct or indirect influence or control. In lieu of providing such a report, an access person may provide account statements to the Company's designated compliance person. (d) Exceptions from Reporting Requirements Each Director who is not an "interested person" of the Company and who would be required to make a report solely by reason of being a Company director, need not make an initial holdings report or annual holdings report, however, shall submit the same quarterly transaction report as required under paragraph (b), but only for a transaction in a covered security where the Director knew or, in the ordinary course of fulfilling the Director's official duties as a Company director, should have known that during the 15-day period immediately before or after the date of the Director's transaction in a covered security, the Company purchased or sold the covered security, or the Company or its investment adviser considered purchasing or selling the covered security. 4 2. Every access person of the Company shall provide an annual certification in the form of Appendix D to the Company's designated compliance person. This requirement applies to all Directors, including those who are not "interested persons" of the Company. 3. The Company's designated compliance person shall notify each access person of the Company who may be required to make reports pursuant to this Code that such person is subject to reporting requirements and shall deliver a copy of this Code to each such person. Any amendments to this Code shall be similarly furnished to each person to whom this Code is applicable. 4. The Board shall appoint a designated compliance person who will be responsible for administering this Code. In addition, an appropriate management or compliance person shall be responsible for reviewing the reports of the designated compliance person submitted pursuant to this Code. 5. Each year the Company must furnish to the Company's Board, and the Board must consider, a written "annual issues and certification report" that: (a) describes any issues arising under the Code or procedures since the last report to the Board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations, and (b) certifies that the Company has adopted procedures reasonably necessary to prevent access persons from violating the Code. 6. The Board shall consider reports made to it hereunder and shall determine whether the policies established in Paragraph B of this Code have been violated, and what sanctions, if any, should be imposed. The Board shall review the operation of this Code at least once a year, and shall make and approve such changes to the Code as it deems necessary. 7. This Code (as well as a copy of each code of ethics in effect within the past 5 years), a copy of each annual issues and certification report, a copy of each report by an access person, any written report hereunder by the Company's designated compliance person and lists of all persons required to make reports shall be preserved with the Company's records for the period required by Rule 17j-1. In addition, a record of any violation of this Code shall be preserved with the Company's records for the period required by Rule 17j-1. E. Adoption and Approval of Codes of Ethics. ---------------------------------------- The Board, including a majority of non-interested Directors, shall approve the Code of the Company, the code of ethics of each investment adviser and principal underwriter of the Company upon initial engagement of either, and any material changes to these codes no later than six months after the adoption of the material change. 5 F. Insider Trading and Conflicts of Interest. The Board of the Company has adopted a policy statement on insider trading and conflicts of interests (the "Policy Statement"), a copy of which is attached hereto as Appendix E. All access persons are required by this Code to read and familiarize themselves with their responsibilities under the Policy Statement. G. Interrelationship with Investment Adviser's and Sub-Adviser's Codes of Ethics. A person who is both an access person of the Company and an access person of either the adviser or a sub-adviser is only required to report under and otherwise comply with the adviser's or sub-adviser's Rule 17j-1 code of ethics, provided that such code has been adopted pursuant to and in compliance with Rule 17j-1 and that the Board of the Company has also approved such code pursuant to Rule 17j-1. Such persons, however, are still subject to the principles and prohibitions contained in Section A of this Code. H. Sanctions. Upon discovering a violation of this Code, the Board of the Company may impose such sanctions as it deems appropriate. 6 PART A Investment Personnel In addition to the requirements and restrictions contained in Sections A-H of this Code, investment personnel are also subject to the following requirements and restrictions: 1. Investment personnel are prohibited from purchasing any security in an initial public offering or in a private placement unless they obtain the prior written approval of the Company's designated compliance person. 2. Any profits realized by investment personnel from "short-term trading"7 of a covered security shall be disgorged to the Company. 3. Investment personnel are prohibited from receiving any gift or item valued at more than $100 per donor per year from any person or entity that does business with or on behalf of the Company. 4. Investment personnel are prohibited from serving on the board of directors of a company whose stock is publicly traded, absent prior authorization from the Company's designated compliance person based upon a determination that the board service would be consistent with the interests of the Company and its shareholders. 5. Investment personnel are required to provide copies of all brokerage statements and confirmations to the Company's designated compliance person. - -------------------- /7/ For purposes of this Code, "short-term trading" is defined as a purchase and sale, or sale and purchase, of the same (or equivalent) securities, which both occur within any 60-day period. Part A-1 APPENDIX A NATIONS FUNDS FAMILY Initial Holdings Report* To the Designated Compliance Person of Nations Funds Family: I have reported below** all holdings of covered securities in which I had any direct or indirect beneficial ownership and all accounts maintained at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit on _____________ ____, 200___, the day I became an access person. I understand that I am required to report my own holdings and accounts, and holdings and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficiary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control. Covered Securities (direct or indirect beneficial ownership)
- ----------------------------------------------------------------------------------------------------------------- Number of Shares (equity security) or Principal Amount Title of Security (debt security) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
Security Accounts (holding securities for my direct or indirect benefit)
- ------------------------------------------------------------------------------------------------------------------- Broker, Dealer or Bank Name Name(s) on Account - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
This report may exclude holdings and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect beneficial ownership in the holdings and accounts listed above. Dated:__________________________ Signature: _______________________ * Please complete and submit this form no later than 10 days after you became an access person. ** You may attach account statements instead of listing holdings and security accounts. Appendix A-1 APPENDIX B NATIONS FUNDS FAMILY Quarterly Transaction Report* To the Designated Compliance Person of Nations Funds Family: I have reported below** all transactions effected in covered securities in which I had any direct or indirect beneficial ownership and all accounts established at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit during the calendar quarter ended ____________ ____, 200___. I understand that I am required to report my own transactions and accounts, and transactions and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficiary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control. Covered Securities (direct or indirect beneficial ownership)
- -------------------------------------------------------------------------------------------------------------------------- Title of Security Date of Number of Shares Interest Rate and Nature of Price of Broker, Dealer Transaction (equity security) Maturity Date (if Transaction Covered or Bank Name or applicable) (Purchase, Sale Security Principal Amount Other) (debt security) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------
Security Accounts (holding securities for my direct or indirect benefit)
- ------------------------------------------------------------------------------------------------------------------------------ Broker, Dealer or Bank Name Name(s) on Account Date Account was Established ---------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
This report may exclude transactions and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect beneficial ownership in the securities and accounts listed above. Dated: __________________________ Signature: ___________________________ * Please complete and submit this form no later than 10 days after the end of each calendar quarter. ** You may attach account statements instead of listing transactions and security accounts. Appendix B-2 APPENDIX C NATIONS FUNDS FAMILY December 31, 200__ Annual Holdings Report* To the Designated Compliance Person of Nations Funds Family: I have reported below** all holdings of covered securities in which I had any direct or indirect beneficial ownership and all accounts maintained at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit on December 31, 200___. I understand that I am required to report my own holdings and accounts, and holdings and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficiary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control. Covered Securities (direct or indirect beneficial ownership)
- ----------------------------------------------------------------------------------------------------------------- Number of Shares (equity security) or Principal Amount Title of Security (debt security) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
Security Accounts (holding securities for my direct or indirect benefit)
- ------------------------------------------------------------------------------------------------------------------- Broker, Dealer or Bank Name Name(s) on Account - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
This report may exclude holdings and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect beneficial ownership in the holdings and accounts listed above. Dated: _____________________________ Signature: __________________________ * Please complete and submit this form no later than 30 days after the end of each calendar year. ** You may attach account statements instead of listing holdings and accounts. Appendix C-1 APPENDIX D NATIONS FUNDS FAMILY Annual Certification of Compliance for the Calendar Year Ended December 31, 200__. To the Designated Compliance Person of Nations Funds Family: I hereby certify that, during the calendar year specified above, I have complied with the requirements of the Code of Ethics and have disclosed or reported all accounts, holdings and personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code of Ethics. I have read and understand the Code of Ethics and recognize that I am subject thereto. Dated: ____________________________ Signature: __________________________ Appendix D-1 APPENDIX E POLICY STATEMENT ON INSIDER TRADING A. Introduction The Company seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in the Company is something we should value and endeavor to protect. To further that goal, this Policy Statement implements procedures to deter the misuse of material, nonpublic information in securities transactions. Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission ("SEC") can recover the profits gained or losses avoided through the volative trading, a penalty of up to three times the illicit windfall and an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations. Regardless of whether a government inquiry occurs, the Company views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal. B. Scope of the Policy Statement This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by Access Persons, as defined in the Company's Code of Ethics, (including spouses, minor children and adult members of their households). The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the Company's Compliance Person. You also must notify the Compliance Person immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur. C. Policy Statement No person to whom this Policy Statement applies, including you, may trade, either personally or on behalf of others, while in possession of material, nonpublic information; nor may the Company's Access Persons communicate material, nonpublic information to others in violation of the law. This section reviews principles important to the Policy Statement. Appendix E-1 1. What is Material Information? Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information whose disclosure will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the Compliance Person. Material information often relates to a company's results and operations including, for example, dividend changes, earning results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. For example, the Supreme Court upheld the criminal convictions of insider trading defendants who capitalized on prepublication information about the Wall Street Journal's "Heard on the Street" column. 2. What is Nonpublic Information? Information is "public" when it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other government agency, the Dow Jones "tape" or the Wall Street Journal or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely. 3. Identifying Inside Information Before executing any trade for yourself or others, including the Company, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps: (i) Report the information and proposed trade immediately to the Compliance Person. (ii) Do not purchase or sell the securities on behalf of yourself or others, including the Company. (iii) Do not communicate the information inside or outside the Company, other than to the Compliance Person. Appendix E-2 (iv) After the Compliance Person has reviewed the issue, the firm will determine whether the information is material and nonpublic and, if so, what action the Company should take. You should consult with the Compliance Person before taking any action. This degree of caution will protect you and the Company. 4. Contact with Public Companies The Company's contacts with public companies represent an important part of our research efforts. The Company may make investment decisions on the basis of the Company's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, a Company employee or other person subject to this Policy Statement becomes aware of material, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely disclosed quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, the Company must make a judgment as to its further conduct. To protect yourself and the Company, you should contact the Compliance Person immediately if you believe that you may have received material, nonpublic information. 5. Tender Offers Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule which expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offer, the target company or anyone acting on behalf of either. Company employees and others subject to this Policy Statement should exercise particular caution any time they become aware of nonpublic information relating to a tender offer. Appendix E-3 EX-99.23P4 36 dex9923p4.txt GARTMORE CODE OF ETHICS Title: GGP PERSONAL SECURITIES TRADING Section: EXHIBITS GUIDELINES - CHARLOTTE AND NEW YORK Adopted/Revised: 8/00 Ref. No. Exhibit D11-C GARTMORE GLOBAL PARTNERS INVESTMENT MANAGEMENT (Charlotte and New York Employees) PERSONAL SECURITIES TRADING GUIDELINES Each associate of Gartmore Global Partners (GGP) located in Charlotte and New York is subject to the GGP Codes of Ethics. This code specifically states that "Associates must never make changes in their personal investments on the basis of confidential information relating to GGP activity on behalf of its clients. The GGP Code of Ethics Policy also incorporates the GGP Policy on Insider Trading. No associate will trade for their personal account based on knowledge of trades by a style team or fund manager. GGP associates are expected to maintain the highest standards of personal integrity in regard to any personal securities activity. The mere appearance of impropriety is to be avoided due to the position of public trust in which GGP operates. I. GENERAL GUIDELINES A. PURPOSE. These guidelines are designed to provide rules governing the purchase and sale of individual securities by associates who have access to sensitive investment information. They apply to all purchases and sales of securities and their derivatives unless specifically exempted below. B. INDIVIDUAL TRADING. Associates are encouraged by management to use mutual funds for personal investment purposes. However, associates are permitted to trade in individual securities as long as they observe these guidelines. C. APPLICATION. All associates must report all securities transactions in which they have a direct or indirect beneficial interest. D. EXEMPT SECURITIES. These guidelines do not apply to individual purchases or sales in the following securities: 1. Open-end mutual funds whether proprietary or non proprietary. 2. Money market instruments. 3. U.S. Government securities. 4. Short term U.S. Government agency securities and short term securities guaranteed by the U.S. Government or its agencies. 5. Derivative securities of any of the above instruments. E. ORGANIZATION APPLICATION. 1. Sections F, G and H of these guidelines shall apply only to any investment associates located in Charlotte or New York, including any members of investment style teams and any senior portfolio managers as designated by the Chief Investment Officer, as well as any investment personnel who would be Exhibit D11-B Page 1 of 6 considered "access "/1/ persons under the Investment Company Act of l940, or "advisory representatives"/2/ under the Investment Advisers Act of l940, as well as other associates who might come into possession of sensitive investment information. F. STOCK PURCHASES. The first time a stock is added to any common trust fund or to a mutual fund (other than an index fund), managed by GGP, no personal purchases of the security will be permitted for 15 calendar days. 1. The first time a stock is added to a common trust fund or to a mutual fund, the clock starts to run anew. For example, if ABC was added to the International Equity Fund on March 3, the 15-day clock would begin. If on March 10, ABC was added to the Emerging Markets Fund, the 15-day clock would begin again. No one could buy ABC from March 3 until 15 days after March 10. G. STOCK SALES. When a final sales order is placed for elimination of a holding from any common trust fund or a mutual fund by GGP, (other than an index fund), no personal sale of the security can be made for 15 calendar days. 1. When a final sales order is placed for elimination of a holding from a fund, the clock starts to run anew. For example, if ABC was deleted from the International Equity Fund on March 3, the 15-day clock would begin. If on March 8, ABC was deleted from the Emerging Markets Fund, the 15-day clock would begin again. No one could sell ABC from March 3 until 15 days after March 8 or March 24. H. BLACK OUT PERIODS. In addition to the purchase and sale restrictions noted above, no Fund manager may purchase or sell a security for their own account within seven (7) calendar days before and after the fund he/she manages trades in that security. I. SHORT TERM TRADING. Associates may not profit from the purchase and sale, or sale and purchase, of the same securities within a period of 60 calendar days. This prohibition includes any derivative or market equivalent of the security. Profits recognized on short term trades (i.e., trades made within a 60 day period) will be required to be disgorged. This prohibition applies to any trade of the associate and is not contingent on the security being held by a fund. J. OTHER PROHIBITED TRANSACTIONS 1. Associates subject to these guidelines are prohibited from acquiring securities through private placements or initial public offerings. _____________________ /1/ Rule 17j-1(c)(1)(iii) of the Investment Company Act defines an "access" person as any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendation, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation shall be made to any registered investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser of any registered investment company. /2/ Advisory Representatives as defined under the Investment Advisers Act of 1940 means any person who, for compensation, engages in the business of advising, either directly or through publications, as to the value of securities or as to the advisability of investing in, purchasing or selling securities or who, for compensation and as a part of regular business issues or promulgates analyses or reports concerning securities. Exhibit D11-B Page 1 of 6 2. U.S. based associates may not purchase foreign securities, ADR's or GDR's traded on US exchanges, without the prior written approval of the Conshohocken Compliance Officer. 3. The provisions of section H, I, and J include transactions in corporate and municipal bonds. K. BROKERAGE STATEMENTS. Associates subject to these guidelines are required to provide the Compliance Office with copies of their brokerage statements and trading confirmations. L. ANNUAL LISTING OF ASSETS. In January of each year, all associates subject to these Guidelines will provide to the Compliance Office a statement of assets. Such a statement will also be obtained when an individual commences employment in these areas. II. MONITORING AND DISCLOSURE The Compliance Officer will monitor the observance of these guidelines and is authorized to modify these requirements upon proper disclosure and under appropriate circumstances. Exhibit D11-B Page 1 of 6 Title: GGP PERSONAL SECURITIES TRADING Section: EXHIBITS GUIDELINES - LONDON AND TOKYO Adopted/Revised: 8/00 Ref. No. Exhibit D11-B GARTMORE GLOBAL PARTNERS PERSONAL SECURITIES TRADING (DEALING) GUIDELINES (London and Tokyo Employees) 1. PERSONAL ACCOUNT DEALING RULES Quite apart from the need to put in place procedures which support the law on insider dealing, it is essential that the fund management groups such as Gartmore have comprehensive personal dealing rules to ensure that potential conflicts of interest are avoided wherever possible and correctly dealt with if they nevertheless occur. This section comprises the Gartmore group's personal dealing rules ("The Rules"). The Rules, which go beyond the statutory insider dealing provisions, apply to all directors and staff (together referred to here as "employees") of all UK Gartmore companies - including companies not authorized by the Financial Services Act. Even though a statutory offence may not be involved, an employee should not use for his own advantage, or pass on to others, information that has come into his possession which is likely upon publication to affect the market prices of securities. For example, an employee should regard as strictly confidential, information he has obtained concerning large dealings or projected dealings in securities. Aside from any other requirement of these rules, an employee should always satisfy himself that he is free to deal in a security before dealing in it. If any employee is in any doubt as to whether he should deal in a security, he must consult with the person pre-clearing the transaction, or the Compliance Department. The Rules: 1.1 Purpose These Rules were designed to provide rules governing the purchase and sale of individual securities by employees of all UK Gartmore companies. They apply to purchases and sales of securities and their derivatives including financial spread bets unless specifically exempted below. Exhibit D11-B Page 1 of 6 1.2 Pre-clearance of trading An employee must obtain specific prior consent every time he wished to deal for his own account (including applications for new issues and public offers not prohibited below and unless a general exception has been authorized by the Compliance department). Before dealing, your completed application for approval to deal form must be submitted to the appropriate dealing desk, e.g. US Securities - US Desk, UK Securities - UK Desk etc. Each trading desk will maintain a list of restricted securities and providing this trade does not conflict with Gartmore or it's clients, your application to deal form will be approved. Additional consent from the Gartmore Investment Management plc Board is required for all personal account trading and as such, will be given by individuals as designated from time to time by the Gartmore Investment Management plc Board (currently any member of that Board or alternatively, Jane Thornton, Colin Hodges and Paul Chavasse). All trades must be executed within 24 hours of the Dealer clearing the transaction (having also received approval of Main Board or its nominees as specified above). Exemption to the Pre-clearance of Trading Rule include discretionary managed accounts; receipt of windfall shares; and shares resulting from take-overs you are required to provide details to the Compliance department as soon as practicable. 1.3 Application Employees must report all securities transactions in which they have a direct or indirect beneficial interest and, in addition, dealings by persons whose judgement the employee can reasonably be expected to influence. This will include, for example, an employees' spouse or partner, all of their children under the age of 18, and any trust, private company or arrangements with another party in which the employee or spouse has an effective voice in investment decisions. (These persons are also referred to here as "employees"). 1.4 Exempt securities These rules do not apply to individual purchases or sales of the following securities: .. Units in UK authorized unit trusts, units or shares in overseas unit trusts and similar open-ended investment vehicles where the unit or share price is determined by reference to the net asset value rather than by supply and demand. .. Money market instruments. .. US and UK government securities .. Short term US government agency securities and short term securities guaranteed by the US government or its agencies .. Derivative securities of any of the above instruments. Exhibit D11-B Page 2 of 6 .. Investments (such as foreign exchange transactions) which are not securities. .. Spread Bets on sporting events only 1.5 Black Out Periods No fund manager may purchase or sell securities for their own account within seven calendar days before the fund he/she manages (or a member of his/her team manages) trades in that security. If it transpires a fund manager trades for his own account and is then required to trade in the best interests of the client for example, because of a subsequent corporate action, he must disclose the conflict and stand aside form making the subsequent investment decision for the client. 1.6 Short Term Trading Short term or speculative dealings are discouraged and securities bought or sold may not be sold or repurchased within 30 calendar days without specific permission from an authorized signatory. The giving of permission will normally only be considered in the case of windfall shares, certain corporate actions and in extreme personal circumstances. Employees failing to adhere to the Short Term Trading Rule will be required to disgorge all profits arising on purchase and sales within the 30 calendar days to a charity of their choice. This prohibition includes any derivative or market equivalent in that security and is not contingent on the security being held by a client fund. 1.7 Other Prohibited Transactions Employees may not acquire securities through initial public offerings except where the security being purchased is part of a tranche available for sale in the United Kingdom to individuals. Employees may not acquire investments in private placement securities (being both unquoted securities or other private placements conducted as part of initial public offering) unless the transaction is specifically pre-cleared by an executive member of the Gartmore Investment Management Board and, in addition, is countersigned by Compliance and provided that "The investment opportunity is not reserved for any clients of the firm the opportunity is not being offered to the employee by virtue of his position within the firm. In addition, if an employee is subsequently involved in the decision to purchase the security for any client, he must disclose his holding to senior management before investing on behalf of the client." Employees may, at certain times (such as the `closed period') be prohibited from dealing in certain specified securities such as National Westminster Bank Plc, and certain closed-end funds for which Gartmore acts as investment adviser or manager. You should note that the additional checks required may lead to delays in execution. An employee may not carry out transactions which he cannot afford to settle if called upon to do so at any time. Exhibit D11-B Page 3 of 6 1.8 Funds Managed by Gartmore Employees should avoid action, which involves, or might seem to involve, a conflict of interest between himself and a fund, which any Gartmore company manages. An employee must not deal in the securities of a company when he is aware that a fund managed by Gartmore is currently buying or selling a security of that company or that consideration is being given as to whether or not to do so. Once the fund has completed its order or decided not to deal, the employee may, subject to complying with the other provision of these Rules, deal. Note: These restrictions apply to an offer of a placing if there is an unsatisfied demand for the securities among client funds under management. An employee must not undertake personal deals directly with a fund Gartmore is managing nor execute put-throughs between himself and any such fund. Employees should not deal in the securities of a company whose funds are managed by Gartmore in the two-month period prior to the announcement of interim figures or the preliminary announcement of the annual figures. (Please note that `a company whose funds we manage' does not include `a company whose pension scheme's fund we manage'.) Of course, if the employee has unpublished price sensitive information about the company he must not deal at all. 1.9 Broker to be Used Employees will be responsible for setting up their own brokerage and settlement accounts and after clearance of any proposed investment should execute their personal dealing instructions via their nominated broker(s). Note: Settlement will remain the responsibility of each employee. Employees may not request or receive from a broker financial accommodation or special dealing facilities. The employees may not request or receive from a broker financial accommodation or special dealing facilities. The employee must arrange that the broker(s) or other dealer(s) through whom he effects personal dealings immediately sends, on each occasion on which the employee deals, a duplicate contract note to Compliance. This provision must be confirmed with the broker by way of sending the attached letter, a copy of which should be signed and dated by the broker and returned direct to the Compliance Officer. 1.10 Disciplinary Procedures for non-compliance Failure by an employee to ensure the reporting of a personal transaction or a breach of these rules in any other way will be treated as a matter, which may result in summary dismissal. Exhibit D11-B Page 4 of 6 1.11 Confidentiality Please note that all personal deals will remain confidential between the employee, the executive members of the Gartmore Investment Management plc Board, Jane Thornton, Colin Hodges or Paul Chavasse together with the Compliance Department. No details will be disclose to anyone else unless one or other of these persons is required by law or a regulator to disclose such information. 1.12 Gartmore Global Partners Annual Listing of Assets Quarterly, all employees of Gartmore Global Partners subject to these Rules will provide to the Compliance officer a statement of securities held. Such a statement will also be obtained when an individual commences employment in these areas. 1.13 Monitoring and Disclosure The London based Compliance Officer will monitor the observance of these rules and is authorized to modify these requirements upon proper disclosure and under appropriate circumstances. Exhibit D11-B Page 5 of 6 2 PERSONAL ACCOUNT DEALING PROCEDURES IN SUMMARY PERSONAL ACCOUNT DEALING PROCEDURES (i) Employees wishing to deal must arrange their own brokerage and settlement accounts, ensuring that a standard confirmation is provided to the broker who should sign, date and return the confirmation to the London Compliance Officer. (ii) The employee must complete the proforma "PA Approval to Deal" slip for approval to deal in securities, including confirmation that he or she has complied with the Personal Account Dealing Rules, and, in the case of Fund Mangers, that the transaction does not conflict with other client transactions and submit the PA Approval to deal slip to the appropriate Dealing Desk, e.g. US Securities - US Desk, UK Securities - UK Desk, etc. (iii) The dealer will check and disclose if he is aware of any proposed dealing in the security of any other known conflict. (iv) The employee must then seek written approval from a member of the Main Board or its nominees (currently, Jane Thornton, Colin Hodges and Paul Chavasse) (v) Approval will be effective for 24 hours from the time the dealer clears the transaction in (iii) above. (vi) The complete PA Approval to Deal Slip must be sent to the Head of Compliance where it will be matched with the contract note from the broker. (vii) The employee is then free to execute the deal with his nominated broker. Please note (v) above. Exhibit D11-C Page 9 of 12 Title: PERSONAL DEALING (PERSONAL Section: COMPLIANCE SECURITIES TRANSACTIONS) Adopted/Revised: 8/00 Ref. No. D-11 Pertinent Regulation: Investment Advisers Act Rule 204-2(a)(13) Investment Company Act of 1940 17(j)-1 Investment Advisers Act of 1940 204A, 203(e) and (f) All staff must follow the GGP Code of Ethics, and the GGP Personal Securities Trading Guidelines (`the Guidelines'). 1. All associates in Charlotte and New York must provide the Compliance Office in Conshohocken, PA with duplicate copies of their brokerage statements and confirmations of trades (deals), and must comply the GGP Personal Securities Trading Guidelines set forth in Exhibit D11-C. 2. All associates in London and Tokyo must conduct their personal deals through the Gartmore Trading Desk, and must comply with the Gartmore Code of Ethics, and Personal Account Trading (Dealings) Guidelines set forth in Exhibit D11-B. 3. All associates must complete quarterly Personal Securities Statements and annual reports. Charlotte and New York associates shall report to Conshohocken, and London and Tokyo associates shall report to London. The Rules extend not only to your share dealing (trading) but also to the share dealing (trading) of persons and companies connected with you. Refer to: .. Policy A-2 GGP Code of Ethics .. Exhibit D11-B GGP Personal Securities Trading Guidelines - London and Tokyo .. Exhibit D11-C GGP Personal Securities Trading Guidelines - Charlotte and New York Exhibit D11-C Page 10 of 12 Title: CODE OF ETHICS Section: COMPLIANCE Adopted/Revised: 3/97 Ref. No. A-2 Pertinent Regulation: The Code of Ethics shall govern all associates of Gartmore Global Partners. General Policy Associates shall conduct themselves with integrity and act ethically in dealings with clients, the public and fellow associates. In addition, associates are subject to their respective parent employer's code of ethics and managers of Nations Funds mutual fund portfolios must abide by the Nations Funds code of ethics. Compliance with Laws and Regulations An associate 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 and/or financial organizations. Prohibition Against Use of Material Nonpublic Information An associate shall comply with all government laws and regulations and GGP policies and procedures relating to the use and communication of material nonpublic information. An associate shall not trade securities while in possession of, nor communicate, material nonpublic information. Responsibility of Management Management of GGP 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. Exhibit D11-C Page 11 of 12 Investment Management Associates of GGP 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 investment in which associates have beneficial interests. Management of GGP 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 GGP policies and procedures. Conflicts of Interest Associates shall make every effort to avoid even the appearance of conflict of interest in their arrangements with clients. Associates and GGP shall disclose to clients any material conflict of interest that would impair the ability to render unbiased and objective advice. Preservation of Confidentiality Associates shall preserve the confidentiality of information communicated by the client concerning matters within the scope of the confidential relationship. Professional Misconduct An associate shall not commit a criminal act that upon conviction materially reflects adversely on his honesty or trustworthiness, nor shall he or she engage in conduct involving dishonesty, fraud, deceit or misrepresentation. Exhibit D11-C Page 12 of 12 -----END PRIVACY-ENHANCED MESSAGE-----