The following items are hereby incorporated by reference:
Nations Fund Trust ("Nations")
From Post-Effective Amendment No. 49 of the Nations Registration Statement,
filed July 31, 1997 (SEC File Nos. 2-97817; 811-4305):
Prospectuses for the Primary A and Investor A Shares of the Nations
Balanced Assets Fund, Nations Disciplined Equity Fund, Nations Florida
Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic
Fixed Income Fund and Nations Value Fund, dated August 1, 1997.
Prospectuses for the Primary A, Investor A and Daily Shares of the
Nations Tax Exempt Fund, dated August 1, 1997.
Statement of Additional Information for the Primary A and Investor A
Shares of the Nations Balanced Assets Fund, Nations Disciplined Equity
Fund, Nations Florida Municipal Bond Fund, Nations Short-Term Income
Fund, Nations Strategic Fixed Income Fund and Nations Value Fund, dated
August 1, 1997.
Statement of Additional Information for the Primary A, Investor A and
Daily Shares of the Nations Tax Exempt Fund, dated August 1, 1997.
Emerald Funds ("Emerald")
<PAGE>
From Post-Effective Amendment No. 23 of the Emerald Registration Statement,
filed January 30, 1998 (SEC File Nos. 33-20658; 811-5515):
Prospectuses for the Institutional and Retail Shares of the Emerald
Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald
Florida Tax-Exempt Fund, Emerald Managed Bond Fund and Emerald
Short-Term Fixed Income Fund, dated April 1, 1997, as supplemented,
and redated March 25, 1998.
Prospectuses for the Institutional, Retail and Service Shares of the
Emerald Tax-Exempt Fund, dated April 1, 1997, as supplemented, and
redated March 25, 1998.
Statement of Additional Information for the Institutional and Retail
Shares of the Emerald Balanced Fund, Emerald Equity Fund, Emerald
Equity Value Fund, Emerald Florida Tax-Exempt Fund, Emerald Managed
Bond Fund and Emerald Short-Term Fixed Income Fund, dated April 1,
1997, as supplemented, and redated March 25, 1998.
Statement of Additional Information for the Institutional, Retail and
Service Shares of the Emerald Tax-Exempt Fund, dated April 1, 1997,
as supplemented, and redated March 25, 1998.
<PAGE>
EMERALD FUNDS
Emerald Balanced Fund
Emerald Equity Fund
Emerald Equity Value Fund
Emerald Florida Tax-Exempt Fund
Emerald Managed Bond Fund
Emerald Short-Term Fixed Income Fund
Emerald Tax-Exempt Fund
3435 Stelzer Road
Columbus, Ohio 43219-3035
March 25, 1998
Dear Shareholder:
On behalf of the Board of Trustees of Emerald Funds ("Emerald"), we are
pleased to invite you to a special meeting of shareholders of the Emerald Funds
named above (each an "Emerald Fund" and together, the "Emerald Funds") to be
held at 10:00 a.m. Eastern time on May 4, 1998 at Emerald's offices located at
3435 Stelzer Road, Columbus, Ohio (the "Meeting"). At the Meeting, you will be
asked:
(1) to ratify and approve an interim investment advisory agreement
between Emerald and Barnett Capital Advisors, Inc. ("Barnett Capital") for
the period from January 9, 1998 forward (an "Interim Advisory Agreement"),
and, with respect to the Emerald Tax-Exempt Fund, to ratify and approve an
interim investment sub-advisory agreement between Barnett Capital and
Rodney Square Management Corporation ("Rodney Square") for the period from
January 9, 1998 forward (the "Interim Sub-Advisory Agreement"); and
(2) to consider a proposed reorganization of your Emerald Fund into a
corresponding portfolio of Nations Fund Trust (each a "Nations Fund" and
together the "Nations Funds"), including the reorganization of Emerald as a
whole.
Background. As you may recall, Barnett Banks, Inc. ("Barnett") recently
merged into a wholly-owned subsidiary of NationsBank Corporation
("NationsBank"). As a result of the merger, Barnett Capital, the investment
adviser to the Emerald Funds, became an indirect wholly-owned subsidiary of
NationsBank. This merger may have caused the Emerald Funds' then current
investment advisory agreements with Barnett Capital and, with respect to the
Emerald Tax-Exempt Fund, the then current investment sub-advisory agreement
with Rodney Square, to terminate automatically. To avoid any potential
disruption in the advisory and sub-advisory services provided to the Emerald
Funds as a result of these potential automatic terminations, the Board of
Trustees of Emerald approved two separate Interim Advisory Agreements with
Barnett Capital, and an Interim Sub-Advisory Agreement with Rodney Square
(relevant to Emerald Tax-Exempt Fund shareholders only). The terms and
conditions of each Interim Advisory Agreement and the Interim Sub-Advisory
Agreement (including fee rates) are identical to those of the prior investment
advisory and sub-advisory agreements, except for the effective dates,
termination dates and certain fee escrow provisions.
At the upcoming Meeting, you also will be asked to approve a
reorganization of your Emerald Fund into a corresponding Nations Fund. The
Nations Funds are portfolios of an open-end investment company advised by
NationsBanc Advisors, Inc., a subsidiary of NationsBank, N.A. If all approvals
are obtained, the Emerald Funds will be reorganized into the corresponding
Nations Funds in May 1998, when your Emerald Funds portfolio shares will be
exchanged for shares of the corresponding Nations Funds portfolio of equal
value.
EMERALD'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE AN INTERIM ADVISORY AGREEMENT, THE INTERIM SUB-ADVISORY AGREEMENT (WITH
RESPECT TO EMERALD TAX-EXEMPT FUND SHAREHOLDERS ONLY) AND THE PROPOSED
REORGANIZATION.
Please note that Emerald shareholders who hold shares of Emerald funds
other than those listed above will receive additional proxy materials under
separate cover with respect to similar proposals affecting those funds. Each
Emerald Fund shareholder is voting on a reorganization agreement that
contemplates the reorganization of that shareholder's Fund into a corresponding
Nations Fund, and also contemplates the reorganization of Emerald as a whole.
Shareholders should fill out the proxy card(s) for each of the Emerald funds in
which they hold shares in order to vote those shares.
EMPROXY-NFT
<PAGE>
In considering the proposed reorganization, you should note:
o Similar Objectives and Policies
The Emerald Funds are proposed to be reorganized into Nations Funds portfolios
with investment policies and objectives that are comparable to those of the
corresponding Emerald Funds.
o Similar Access Arrangements
Following the reorganization, you will enjoy access to Nations Funds through
distribution, transaction and shareholder servicing arrangements that are
substantially similar to the Emerald Funds' current arrangements.
o Same Value of Shares
The total dollar value of the Nations Fund shares you receive in the
reorganization will be the same as the total dollar value of the Emerald Fund
shares that you held immediately before the reorganization. The reorganization
will be tax-free under federal law, and no front-end or contingent deferred
sales load will be charged in connection with the exchange of Emerald Fund
shares for Nations Fund shares.
o Operating Expense Ratios
The annual fund operating expense ratio (after voluntary waivers) for the
corresponding Nations Fund classes after the reorganization is expected, in
most, but not all cases, to be no higher than the annual fund operating
expense ratio of your Emerald Fund class. However, in a few instances, with
respect to certain classes of shares, the total operating expense ratios
(after waivers) are expected to be higher after the reorganization. Please see
the enclosed materials for further detail.
The proposed reorganization is expected to benefit Emerald Funds shareholders
by:
o providing continuity of investment management services by affiliates of
NationsBank, Barnett's successor;
o offering shareholders the opportunity to exchange their shares within a
larger and more diverse family of more than 50 mutual fund portfolios; and
o providing opportunities for enhanced returns through combined investment
portfolios.
The formal Notice of Special Meeting, a Combined Proxy
Statement/Prospectus and a Proxy Ballot are enclosed. If you own shares in more
than one of the Emerald Funds named above, more than one Proxy Ballot
accompanies these materials. If you own shares in one or more of the Emerald
funds not named above, you will be receiving separately a set of proxy
materials (including Proxy Ballot(s)) for the other fund(s).
Whether or not you plan to attend the Special Meeting, you may vote by
proxy in either of the following ways:
1. Mark, sign, date and return the enclosed Proxy Ballot in the enclosed
postage-paid envelope; or
2. Mark, sign, date and fax the enclosed Proxy Ballot to ADP Proxy Services
at (904) 519-8466.
Please fax or mail your Proxy Ballot to us so that your vote will be
counted.
YOUR VOTE IS IMPORTANT TO US REGARDLESS OF THE NUMBER OF SHARES THAT YOU
OWN. PLEASE VOTE BY RETURNING YOUR PROXY BALLOT TODAY, EITHER IN THE ENCLOSED
POSTAGE-PAID ENVELOPE OR BY TELEFACSIMILE AT (904) 519-8466.
The interim advisory and sub-advisory arrangements with Barnett Capital
and Rodney Square, the proposed reorganization and the reasons for the Emerald
Board's unanimous recommendations are discussed in detail in the enclosed
materials, which you should read carefully. If you have any questions about
interim advisory and sub-advisory arrangements or the reorganization, please do
not hesitate to call toll free at 1-888-422-2710.
We look forward to seeing you at the Meeting or receiving your proxy so
that your shares may be voted at the Meeting.
Sincerely,
MARSHALL M. CRISER
Chairman of the Board of Trustees
<PAGE>
EMERALD FUNDS
Emerald Balanced Fund
Emerald Equity Fund
Emerald Equity Value Fund
Emerald Florida Tax-Exempt Fund
Emerald Managed Bond Fund
Emerald Short-Term Fixed Income Fund
Emerald Tax-Exempt Fund
3435 Stelzer Road
Columbus, Ohio 43219
--------------------------------------
NOTICE OF SPECIAL SHAREHOLDERS MEETING
To Be Held On May 4, 1998
--------------------------------------
To Emerald Funds Shareholders:
NOTICE IS GIVEN THAT a special meeting of the shareholders (the "Meeting")
of the Emerald Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund,
Emerald Florida Tax-Exempt Fund, Emerald Managed Bond Fund, Emerald Short-Term
Fixed Income Fund and Emerald Tax-Exempt Fund (each an "Emerald Fund" and
together, the "Emerald Funds"), each of which is a series of Emerald Funds
("Emerald"), will be held at the Emerald offices located at 3435 Stelzer Road,
Columbus, Ohio, on May 4, 1998 at 10:00 a.m., Eastern time, for the purpose of
considering and voting upon:
ITEM 1. A proposal to ratify and approve interim investment advisory
agreements between Emerald and Barnett Capital Advisors, Inc.
("Barnett Capital"), and, with respect to the Emerald Tax-Exempt
Fund only, to ratify and approve an interim investment sub-advisory
agreement between Barnett Capital and Rodney Square Management
Corporation, for the period from January 9, 1998 forward.
ITEM 2. A proposal to approve an Agreement and Plan of Reorganization
that provides for the transfer of the assets and liabilities of
each Emerald Fund to a corresponding fund of Nations Fund Trust in
exchange for shares of designated classes of the corresponding
Nations fund, and which also contemplates the reorganization of
Emerald.
ITEM 3. Such other business as may properly come before the Meeting or
any adjournment(s).
Item 1 and Item 2 are described in the attached Combined Proxy
Statement/Prospectus. YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN
FAVOR OF THE PROPOSALS.
Shareholders of record as of the close of business on March 12, 1998 are
entitled to notice of, and to vote at, the Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE EACH ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE
EMERALD BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
SHAREHOLDERS ALSO MAY RETURN PROXIES BY TELEFAX. PROXIES MAY BE REVOKED AT ANY
TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO EMERALD A WRITTEN NOTICE OF
REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND
VOTING IN PERSON.
By Order of the Trustees,
JEFFREY A. DALKE
Secretary
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
March 25, 1998
EMERALD FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
1-800-637-3759
NATIONS FUND TRUST
One NationsBank Plaza, 33rd Floor
Charlotte, North Carolina 28255
1-888-422-2710
In connection with the solicitation of proxies by the Board of Trustees of
Emerald Funds ("Emerald"), this combined proxy statement/prospectus
("Proxy/Prospectus") is furnished to shareholders of the Emerald Balanced Fund,
Emerald Equity Fund, Emerald Equity Value Fund, Emerald Florida Tax-Exempt
Fund, Emerald Managed Bond Fund, Emerald Short-Term Fixed Income Fund and
Emerald Tax-Exempt Fund (each an "Emerald Fund" and collectively, the "Emerald
Funds"). The Board of Trustees has called a Special Meeting of Shareholders
(the "Meeting") at 10:00 a.m. (Eastern time) on May 4, 1998 at Emerald's
offices located at 3435 Stelzer Road, Columbus, Ohio. At the Meeting,
shareholders will be asked:
(1) to ratify and approve interim investment advisory agreements (the
"Interim Advisory Agreements") between Emerald and Barnett Capital Advisors,
Inc. ("Barnett Capital") for the period from January 9, 1998 forward, and, with
respect to the Emerald Tax-Exempt Fund, to ratify and approve an interim
investment sub-advisory agreement (the "Interim Sub-Advisory Agreement")
between Barnett Capital and Rodney Square Management Corporation for the period
from January 9, 1998 forward; and
(2) to approve a proposed Agreement and Plan of Reorganization dated as of
March 25, 1998 (the "Reorganization Agreement") by and between Emerald and
Nations Fund Trust ("Nations"), which also contemplates the reorganization of
Emerald into the Nations Funds Family (as defined below).
Copies of the Interim Advisory Agreements and Interim Sub-Advisory
Agreement, sometimes collectively referred to as the "Interim Agreements," are
attached as Appendix I. The Reorganization Agreement is attached as Appendix
II.
Emerald and Nations are both registered open-end management investment
companies (mutual funds). Emerald and the Nations Funds Family offer money
market, bond, equity and international equity investment portfolios. The
Reorganization Agreement provides for the transfer of Fund Assets and
Liabilities (as those terms are defined in the Reorganization Agreement) of
each Emerald Fund to a corresponding investment portfolio of Nations (each a
"Nations Fund" and collectively the "Nations Funds") in exchange for shares
("Shares") of designated classes of the corresponding Nations Fund having equal
value (the "Reorganization").
In addition to offering shares in the Nations Funds and Emerald Funds,
Nations and Emerald each also offer shares in other series not part of this
Proxy/Prospectus. Emerald shareholders of those series are voting on similar
agreements and plans of reorganization that, in a like manner, would provide
for the reorganization of those series of Emerald into designated classes of
corresponding portfolios of two other registered investment companies --
Nations Fund, Inc. and Nations Institutional Reserves (together with Nations,
the "Nations Funds Family"). If the Reorganization Agreement and the agreements
and plans of reorganization affecting the other series of Emerald are approved
and the reorganization contemplated therein are consummated, Emerald will have
transferred all of its assets and liabilities and will deregister as a
registered investment company.
1
<PAGE>
As a result of the Reorganization, shareholders of the Emerald Funds will
become shareholders of the Nations Funds. Table I below shows each class of
each Emerald Fund and the designated class of each corresponding Nations Fund:
TABLE I
<TABLE>
<CAPTION>
Emerald Fund/Share Class Corresponding Nations Fund/Share Class
- --------------------------------------------- ---------------------------------------
<S> <C>
Emerald Balanced Fund Nations Balanced Assets Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Equity Fund Nations Disciplined Equity Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Equity Value Fund Nations Value Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Florida Tax-Exempt Fund Nations Florida Municipal Bond Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Managed Bond Fund Nations Strategic Fixed Income Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Short-Term Fixed Income Fund Nations Short-Term Income Fund
Retail Shares Investor A Shares
Institutional Shares Primary A Shares
Emerald Tax-Exempt Fund Nations Tax Exempt Fund
Retail Shares Daily Shares
Institutional Shares Primary A Shares
Service Shares Investor A Shares
</TABLE>
This Proxy/Prospectus sets forth concisely the information that an Emerald
Fund shareholder should know before voting, and should be retained for future
reference. It is both Emerald's proxy statement for the Meeting and also a
prospectus for the Nations Funds. Shareholders of the Emerald Equity Fund
particularly should see "Summary -- Special Considerations Relating to the
Emerald Equity Fund."
Additional information is set forth in the statement of additional
information relating to this Proxy/Prospectus which is incorporated herein by
reference, and in the prospectuses dated April 1, 1997, as supplemented and
redated March 25, 1998, for the Emerald Funds. Each of these documents is on
file with the Securities and Exchange Commission (the "SEC"), and is available
without charge by calling or writing Emerald or Nations at the respective
telephone numbers or addresses stated on the cover page of this
Proxy/Prospectus. The information contained in the Nations Funds prospectuses,
dated August 1, 1997 and in the prospectuses for the Emerald Funds is
incorporated by reference into this Proxy/Prospectus. In addition, a copy of
the current prospectus for the designated share class of the corresponding
Nations Fund accompanies this Proxy/ Prospectus. The Annual Report for the
year ended March 31, 1997 and the Semi-Annual Report for the period ended
September 30, 1997 for the Nations Funds are available at no charge by calling
or writing Nations at the toll-free telephone number or address stated on the
cover of this Proxy/Prospectus.
The following summarizes the proposals to be voted on by Emerald Fund
shareholders at the Meeting:
<TABLE>
<CAPTION>
Proposal Shareholders Solicited
- ------------------------------------------------------------- ------------------------------------------------------
<S> <C>
1. To ratify and approve Interim Advisory Agreements Shareholders of each Emerald Fund voting separately
and, with respect to the Emerald Tax-Exempt Fund only, on the Interim Advisory Agreements that applies to
an Interim Sub-Advisory Agreement, for the period from that Fund, and shareholders of the Emerald
January 9, 1998 forward. Tax-Exempt Fund voting separately on the Interim
Sub-Advisory Agreement.
2. To approve a Reorganization Agreement, which Each Emerald Fund voting separately on the
provides for the transfer of the Fund Assets and Reorganization Agreement and, with respect to the
Liabilities of the Emerald Funds to corresponding Nations reorganization of Emerald, shareholders of all series
Funds in exchange for Shares of designated classes of the of Emerald voting in the aggregate.
corresponding Nations Funds, and which also
contemplates for the reorganization of Emerald into the
Nations Funds Family.
</TABLE>
This Proxy/Prospectus is expected to be first sent to shareholders on or
about March 30, 1998.
2
<PAGE>
THE SECURITIES OF THE NATIONS FUNDS OFFERED HEREBY HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY/PROSPECTUS AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY EMERALD, NATIONS OR THEIR RESPECTIVE DISTRIBUTORS.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER
SHARE. AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF EMERALD AND NATIONS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, NATIONSBANK, N.A. OR ANY OF ITS AFFILIATES OR ANY
OTHER BANK. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE DISTRIBUTOR OF THE EMERALD FUNDS
IS EMERALD ASSET MANAGEMENT, INC. THE DISTRIBUTOR OF THE NATIONS FUNDS IS
STEPHENS INC.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FEE TABLES ............................................................................ 6
SUMMARY ............................................................................... 6
PROPOSAL 1 -- APPROVAL OF THE INTERIM AGREEMENTS .................................... 6
Interim Agreements ................................................................. 6
Emerald Board Consideration ........................................................ 7
PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION AGREEMENT .............................. 7
Proposed Reorganization ............................................................ 7
Overview of Emerald and Nations .................................................... 7
Special Considerations Relating to the Emerald Equity Fund ......................... 8
Federal Income Tax Consequences .................................................... 8
Nations and Emerald Board Consideration ............................................ 9
Principal Risk Factors ............................................................. 9
Voting Information ................................................................. 10
Management Discussion and Analysis ................................................. 10
INFORMATION RELATING TO PROPOSAL 1 -- APPROVAL OF THE INTERIM AGREEMENTS .............. 10
The Merger of Barnett Banks, Inc. into NB Holdings Corporation ..................... 10
The Interim Advisory Agreements and Interim Sub-Advisory Agreement ................. 11
Information Regarding Barnett Capital and Rodney Square ............................ 12
Payments to Barnett Capital or Rodney Square Affiliates ............................ 14
Affiliated Broker Commissions ...................................................... 14
Approval of Emerald's Board of Trustees ............................................ 14
INFORMATION RELATING TO PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION AGREEMENT ........ 15
Description of the Reorganization Agreement ........................................ 15
Emerald Board Consideration ........................................................ 16
Capitalization ..................................................................... 17
Federal Income Tax Considerations .................................................. 19
Other Information .................................................................. 20
COMPARISON OF EMERALD AND NATIONS ..................................................... 20
Investment Objectives and Policies ................................................. 20
Investment Adviser and Other Service Providers ..................................... 20
Emerald Funds' Advisory and Sub-Advisory Agreements ................................ 21
Nations Funds' Advisory Agreements ................................................. 21
Other Service Providers for the Emerald Funds and Nations Funds .................... 23
Share Structure .................................................................... 24
Distribution Plan and Shareholder Servicing Arrangements for the Emerald Funds ..... 25
Distribution Plan and Shareholder Servicing Arrangements for the Nations Funds ..... 25
Administration Agreements .......................................................... 26
Shareholder Transactions and Services .............................................. 26
INFORMATION RELATING TO VOTING MATTERS ................................................ 27
General Information ................................................................ 27
Shareholder and Board Approvals .................................................... 27
Quorum ............................................................................. 36
Annual Meetings and Shareholder Meetings ........................................... 37
ADDITIONAL INFORMATION ABOUT NATIONS .................................................. 37
ADDITIONAL INFORMATION ABOUT EMERALD .................................................. 37
FINANCIAL STATEMENTS .................................................................. 37
OTHER BUSINESS ........................................................................ 38
SHAREHOLDER INQUIRIES ................................................................. 38
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
APPENDICES I INTERIM INVESTMENT ADVISORY AGREEMENTS AND INTERIM SUB-ADVISORY
AGREEMENT
II AGREEMENT AND PLAN OF REORGANIZATION
III EXPENSE SUMMARIES OF EMERALD FUNDS AND THE CORRESPONDING
NATIONS FUNDS
IV INVESTMENT OBJECTIVES, LIMITATIONS AND CERTAIN SIGNIFICANT INVESTMENT
POLICIES OF THE NATIONS FUNDS AND THE
CORRESPONDING EMERALD FUNDS
V SHAREHOLDER TRANSACTIONS AND SERVICES OF THE NATIONS FUNDS AND THE
CORRESPONDING EMERALD FUNDS
VI MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE NATIONS FUNDS
</TABLE>
5
<PAGE>
FEE TABLES
Retail Class shareholders of all seven Emerald Funds, along with
Institutional Class shareholders of the Emerald Short-Term Fixed Income Fund
and Institutional and Service Class shareholders of the Emerald Tax-Exempt
Fund, are projected to experience lower annualized per share total operating
expense ratios after the Reorganization. Institutional Class shares of the
other Emerald Funds are projected to experience higher annualized per share
total operating expense ratios after the Reorganization. Such projections take
into account voluntary fee waivers and/or expense reimbursements, both of which
may be terminated at any time. For detailed information regarding pro forma
expense information, see both Table III and Appendix III to this
Proxy/Prospectus.
SUMMARY
The following is a summary of certain information relating to the Interim
Agreements and the proposed Reorganization, and is qualified by reference to
the more complete information contained elsewhere in this Proxy/Prospectus, the
prospectuses and statements of additional information of Emerald and Nations,
and the Appendices attached hereto.
PROPOSAL 1 -- APPROVAL OF THE INTERIM AGREEMENTS
Interim Agreements. On January 9, 1998, Barnett Banks, Inc. merged with
and into NB Holdings Corporation, a subsidiary of NationsBank Corporation (the
"Holding Company Merger"). As a result of the Holding Company Merger, Barnett
Capital Advisors, Inc. ("Barnett Capital"), the investment adviser to the
Emerald Funds, became an indirect wholly-owned subsidiary of NationsBank
Corporation. As of January 9, 1998, Barnett Capital served as the Emerald
Funds' investment adviser pursuant to two separate investment advisory
agreements between Barnett Capital and Emerald, and Rodney Square Management
Corporation ("Rodney Square"), a wholly-owned subsidiary of Wilmington Trust
Company, served as the investment sub-adviser to the Emerald Tax-Exempt Fund
pursuant to an investment sub-advisory agreement between Barnett Capital and
Rodney Square. Barnett Capital, Rodney Square and Emerald considered the effect
that the Holding Company Merger would have on Emerald, and the possibility that
under Emerald and Barnett Capital's investment advisory agreements with Emerald
and, with respect to the Emerald Tax-Exempt Fund, Rodney Square's investment
sub-advisory agreement with Barnett Capital, with respect to the Emerald
Tax-Exempt Fund, and under the Investment Company Act of 1940, as amended (the
"1940 Act"), the Holding Company Merger might result in the automatic and
immediate termination of the investment advisory agreements and investment
sub-advisory agreement. See "Information Relating to Proposal 1 -- Approval of
the Interim Agreements."
To ensure that these potential automatic terminations would not disrupt
the investment advisory and sub-advisory services provided to the Emerald
Funds, Emerald, Barnett Capital and Rodney Square obtained an exemptive order
from the SEC (the "Order") permitting Barnett Capital to continue to act as
investment adviser to the Emerald Funds, and Rodney Square to continue to act
as investment sub-adviser to the Emerald Tax-Exempt Fund, under the Interim
Agreements. In accordance with the Order, the Interim Agreements are subject to
ratification and approval by the shareholders of the Emerald Funds, at a
meeting to be held within 120 days of January 9, 1998 (the "Interim Period"),
or no later than May 9, 1998.
The Trustees of Emerald propose that the shareholders of each Emerald Fund
ratify and approve an Interim Advisory Agreement, and that shareholders of the
Emerald Tax-Exempt Fund ratify and approve the Interim Sub-Advisory Agreement.
The advisory and sub-advisory fee rates payable under the Interim Agreements
are identical to those under the corresponding former agreements. Pending
ratification and approval of the Interim Agreements, all fees payable to
Barnett Capital and Rodney Square are being held in escrow. The fees escrowed
for a particular Emerald Fund will be received by Barnett Capital and Rodney
Square only if the Interim Advisory Agreement for the relevant Fund and Interim
Sub-Advisory Agreement, (for the Emerald Tax-Exempt Fund) are ratified and
approved by the Fund's shareholders. See "Information Relating to Proposal 1 --
Approval of the Interim Agreements -- Approval of Emerald's Board of Trustees."
If the Interim Agreements are ratified and approved by an Emerald Fund's
shareholders and the Reorganization of that Fund is approved and consummated,
the Interim Agreements will remain in effect through the consummation of the
Reorganization (as defined below). If the Interim Agreements are ratified and
approved by an Emerald Fund's shareholders and the Reorganization is not
approved or consummated, the Interim Agreements will remain in effect until
November 30, 1998, and thereafter, for so long as the Board of Trustees of
Emerald continues to renew and approve such agreements at least annually. If an
Interim Agreement for an Emerald Fund is not ratified and approved by that
Emerald Fund's shareholders, the fees held in escrow with respect to that
Emerald Fund will be returned to the Fund, and Emerald's Board of Trustees will
consider what actions should be taken with respect to management of the assets
of that Fund until new investment advisory arrangements are approved by the
Fund's shareholders.
6
<PAGE>
Emerald Board Consideration. A meeting of the Board of Trustees of Emerald
was held on November 13-14, 1997, at which time the Holding Company Merger and
its implications for the Emerald Funds were discussed. The Board met again on
December 8, 1997, and, after a full evaluation unanimously approved the Interim
Agreements. EMERALD'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF THE EMERALD FUNDS APPROVE THE INTERIM ADVISORY AGREEMENTS AND
THAT SHAREHOLDERS OF THE EMERALD TAX-EXEMPT FUND APPROVE THE INTERIM
SUB-ADVISORY AGREEMENT.
At the December 8, 1997 meeting, the Board determined that payment of the
advisory fees to be earned during the Interim Period by Barnett Capital under
the Interim Advisory Agreements and by Rodney Square under the Interim Sub-
Advisory Agreement would be fair, based on the fact that (1) the fees that are
payable under these Interim Agreements, and the services to be provided
therefor, would be unchanged from the fees payable under the former investment
advisory agreements and investment sub-advisory agreement, (2) the fees will be
maintained in an interest-bearing escrow account until payment is approved or
disapproved by shareholders of a particular Emerald Fund, and (3) the
nonpayment of fees earned during that period would constitute an extreme
inequity to Barnett Capital and Rodney Square in view of the substantial
services to be provided by Barnett Capital to the Emerald Funds, and by Rodney
Square to the Emerald Tax-Exempt Fund, and the expenses incurred in connection
with such provision of services, under the Interim Agreements.
PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION AGREEMENT
Proposed Reorganization. The Reorganization Agreement provides for: (1)
the transfer of all of the Fund Assets and Liabilities of each Emerald Fund to
a corresponding Nations Fund in exchange for Shares of designated classes of
the corresponding Nations Fund; and (2) the distribution of Nations Fund Shares
to the shareholders of the Emerald Funds in liquidation of the Emerald Funds.
The Reorganization is subject to a number of conditions with respect to each
Emerald Fund, including Emerald Fund shareholder approval. As noted above, the
Reorganization Agreement also contemplates the reorganization of Emerald into
the Nations Funds Family, so a vote for or against the approval of the
Reorganization Agreement includes a vote for or against the reorganization of
Emerald into the Nations Funds Family. Following the Reorganization, Emerald
will wind up its affairs and deregister as an investment company under the 1940
Act. It is possible that a majority of an Emerald Fund's shareholders may
approve the Reorganization Agreement while a sufficient majority of all
shareholders of all Emerald series voting does not approve the reorganization
of Emerald. In such a case, the Board of Trustees will contemplate what further
action is appropriate.
As a result of the proposed Reorganization, an Emerald Fund shareholder
will become a shareholder of the corresponding Nations Fund and will hold,
immediately after the Closing (as defined in the Reorganization Agreement),
Shares of the designated classes of the corresponding Nations Fund having a
total dollar value equal to the total dollar value of the shares of the Emerald
Fund that the shareholder held immediately before the Closing. The exchange of
each Emerald Fund's Fund Assets and Liabilities is expected to occur in May
1998, or such later date as may be determined pursuant to the Reorganization
Agreement.
Overview of Emerald and Nations. The investment objectives, policies and
restrictions of the Emerald Funds are, in general, comparable to those of their
corresponding Nations Fund. There are, however, differences. For example, the
Emerald Equity Fund invests in securities based upon fundamental evaluations,
while the corresponding Nations Disciplined Equity Fund uses a quantitative
analysis. The Emerald Balanced Fund may invest up to 15% of its total assets in
convertible securities rated below investment grade, while the corresponding
Nations Balanced Assets Fund invests in obligations rated investment grade.
Additionally, the average weighted maturity of the Emerald Short-Term Fixed
Income Fund will not exceed three years, while the average weighted maturity of
the corresponding Nations Short-Term Income Fund will not exceed five years.
For additional information, see "Summary -- Special Considerations Relating to
the Emerald Equity Fund;" "Comparison of Emerald and Nations -- Investment
Objectives and Policies," and Appendix IV to this Proxy/ Prospectus.
NationsBanc Advisors, Inc. ("NBAI") currently serves as the investment
adviser to the Nations Funds. TradeStreet Investment Associates, Inc.
("TradeStreet") currently serves as investment sub-adviser to the Nations
Funds. The Emerald Funds and Nations Funds have a different administrator,
distributor, transfer agent, independent auditor and different trustees. See
"Comparison of Emerald and Nations -- Investment Adviser and Other Service
Providers."
Table III, under "Comparison of Emerald and Nations -- Investment Adviser
and Other Service Providers," shows the current annualized per share total
operating expense ratio for each class of each Emerald Fund along with the pro
forma total operating expense ratios that could be expected for each designated
class of shares of the corresponding Nations Fund after the Reorganization.
Appendix III to this Proxy/Prospectus provides additional information about the
fees and expenses
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for each of the Emerald Funds and corresponding Nations Funds. As shown in
Table III and Appendix III, Institutional class shareholders of the Emerald
Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald Florida
Tax-Exempt Fund and Emerald Managed Bond Fund will experience an increase in
total operating expense ratios (after voluntary waivers) as a result of the
Reorganization. As shown in Appendix III, shareholders of the Emerald Balanced
Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald Managed Bond Fund
and Emerald Tax-Exempt Fund will experience an increase in investment advisory
fees (after voluntary waivers), although total expense ratios except as noted
are not expected to increase.
Nations Balanced Assets Fund, Nations Disciplined Equity Fund, Nations
Florida Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic
Fixed Income Fund and Nations Value Fund will each issue two classes of Shares
in the Reorganization: Investor A Shares and Primary A Shares. Nations Tax
Exempt Fund will issue three classes of Shares in the Reorganization: Daily
Shares, Investor A Shares and Primary A Shares. See "Comparison of Emerald and
Nations -- Share Structure."
The purchase, redemption, dividend and other policies and procedures of
the Emerald Funds and the Nations Funds are generally similar. See "Comparison
of Emerald and Nations -- Shareholder Transactions and Services" and Appendix V
to this Proxy/Prospectus. Similarly, the Nations Funds share classes being
issued in the Reorganization and the Emerald Funds' share classes are sold at
net asset value per share, with no front-end or contingent deferred sales load.
In addition, no front-end or contingent deferred sales loads will be imposed on
any of the shareholders of the Emerald Funds in connection with the
Reorganization.
Special Considerations Relating to the Emerald Equity Fund. Although the
investment objectives and policies of the Emerald Equity Fund and the Nations
Disciplined Equity Fund are comparable, there are some differences in the stock
selection process used by each Fund. In particular, the Nations Disciplined
Equity Fund places a greater emphasis on quantitative analysis of potential
portfolio securities than does the Emerald Equity Fund. Partly as a result of
these differences, NBAI and TradeStreet, as investment adviser and investment
sub-adviser, respectively, to the Nations Disciplined Equity Fund, believe that
it is appropriate to sell many of the securities currently held by the Emerald
Equity Fund (up to one-half of its portfolio), and reinvest the proceeds in
securities that meet applicable quantitative standards, prior to the
Reorganization. NBAI and TradeStreet believe that repositioning the portfolio
in this manner will cause the two Funds to be in closer alignment when the
Reorganization occurs.
The sale of these securities is expected to result in the realization of
capital gains, which will be distributed to the Emerald Equity Fund's
shareholders before the Closing. The amount of these capital gains, which will
be taxable to the persons who hold Fund shares on the distribution record date
(with the exception of those investors who hold shares through tax-deferred
accounts), will depend, in part, on the price at which the securities are sold
and cannot be determined in advance. However, based on market valuations as of
the date of this Proxy/Prospectus, the amount of taxable capital gains
distributions are expected to be approximately 11% of the Funds' total assets.
The actual percentage of Fund assets distributed prior to Closing may be more
or less than 11% depending upon various factors, including the level of
redemptions prior to the Closing. In this regard, NBAI advised the Board that
some repositioning would have occured as a result of the change in control of
Barnett Capital, even in the absence of the proposed Reorganization.
The Emerald Board of Trustees, in approving the proposal to reorganize the
Emerald Equity Fund into the Nations Disciplined Equity Fund, considered
various aspects of such Reorganization, including the likelihood that Emerald
Equity Fund shareholders will experience a significant taxable gain
distribution as a result of portfolio security sales. The Emerald Board of
Trustees also considered the viability of various alternatives for the Fund.
After consideration of these and other matters discussed further below, the
Board approved the reorganization of the Emerald Equity Fund into Nations
Disciplined Equity Fund as described herein. Shareholders should consult their
tax advisors regarding the effect this expected distribution will have in light
of their individual circumstances. See "Information Relating to Proposal 2 --
Approval of the Reorganization Agreement -- Emerald Board Consideration."
Federal Income Tax Consequences. The Reorganization is not expected to
result in the recognition, for federal income tax purposes, of gain or loss by
the Emerald Funds, the Nations Funds or their respective shareholders. Each
Emerald Fund may sell securities by the Emerald Funds prior to the Closing,
which either in the ordinary course of business or in anticipation of the
Closing, could result in a taxable capital gains distribution prior to the
Closing. See "Information Relating to Proposal 2 -- Approval of the
Reorganization Agreement -- Federal Income Tax Considerations" for additional
information.
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Nations and Emerald Board Consideration. In considering the Reorganization
Agreement, the Board of Nations, including the non-interested Trustees thereof,
were advised by legal counsel, as well as by separate legal counsel, as to
their fiduciary duties under the 1940 Act and the required determinations that
the Board should make under the 1940 Act in connection with the Reorganization.
After considering the relevant factors, the Nations Board, on behalf of the
Nations Funds, including a majority of the non-interested Trustees, found that
participation in the Reorganization, as contemplated by the Reorganization
Agreement, is in the best interests of the Nations Funds and that the interests
of the shareholders of the Nations Funds will not be diluted as a result of the
Reorganization.
In reviewing the proposed Reorganization, the Board of Emerald considered
the potential impact of the Reorganization on its shareholders, including: (1)
the terms and conditions of the Reorganization Agreement, including provisions
intended to avoid the dilution of shareholder interests; (2) the capabilities,
practices and resources of the organizations that provide investment advisory
and certain other services to the Nations Funds, and the terms on which these
services are provided; (3) the shareholder services provided to Emerald
shareholders, compared with the shareholder services provided to Nations
shareholders; (4) the investment objectives, policies and limitations of the
Emerald Funds and the Nations Funds; (5) the historical investment performance
of the Emerald Funds and the Nations Funds; (6) the historical and projected
operating expenses of the Emerald Funds and the Nations Funds; and (7) the
anticipated tax consequences of the Reorganization. See "Information Relating
to Proposal 2 -- Approval of the Proposed Reorganization -- Emerald Board
Consideration."
Based upon their evaluation of the information presented to them, and in
light of their fiduciary duties under federal and state law, the Board of
Trustees of Emerald, including all of the non-interested members of the Board,
have determined that the proposed Reorganization is in the best interests of
the shareholders of each class of each Emerald Fund, and that the interests of
such shareholders will not be diluted as a result of the Reorganization.
EMERALD'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT EACH EMERALD FUND'S
SHAREHOLDERS APPROVE THE REORGANIZATION AGREEMENT.
Principal Risk Factors. Because of the comparability of the investment
objectives, policies and restrictions of the Emerald Funds and their
corresponding Nations Funds, an investment in a Nations Fund involves risks
that are comparable to those of the corresponding Emerald Fund. These
investment risks, in general, are those typically associated with investing in
a portfolio of common stocks in the case of the Emerald and Nations equity
funds, a portfolio of fixed-income securities in the case of the Emerald and
Nations fixed-income funds, a portfolio of municipal obligations in the case of
the Emerald and Nations municipal bond funds, and a portfolio of high quality,
short-term money market instruments in the case of the Emerald and Nations
money market funds.
The risks associated with the Nations Disciplined Equity Fund (and its
corresponding Emerald Equity Fund) and Nations Value Fund (and its
corresponding Emerald Equity Value Fund) are those associated with investments
in common stocks and other equity securities, which are generally stock market
risks. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. The U.S. stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. As
of the date of this Proxy/Prospectus, domestic stock markets were trading at or
close to record high levels and there can be no guarantee that such levels will
continue.
An investment in the Nations Strategic Fixed Income Fund (and its
corresponding Emerald Managed Bond Fund) and Nations Short-Term Income Fund
(and its corresponding Emerald Short-Term Fixed Income Fund) involves risks
typically associated with investing in a portfolio of fixed-income securities,
which is the risk that the value of that security will tend to decrease when
interest rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than shorter-term
debt instruments in response to interest rate movements. For example, because
the maximum average weighted maturity of the Emerald Short-Term Fixed Income
Fund is less than that of the Nations Short-Term Income Fund, the share price
of the Nations Fund may fluctuate more in response to interest rate changes
than that of the Emerald Fund.
An investment in the Nations Florida Municipal Bond Fund (and its
corresponding Emerald Florida Tax-Exempt Fund) involves risks associated with
investing in a non-diversified portfolio of securities. Because each Fund
invests primarily in securities issued by entities located in Florida, such
Funds are more susceptible to changes in value due to political or economic
changes affecting Florida or its authorities, agencies and political
subdivisions.
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An investment in the Nations Tax Exempt Fund (and its corresponding
Emerald Tax-Exempt Fund) involves risks typically associated with investing in
a portfolio of high quality, short-term money market instruments. In addition,
these money market funds attempt to maintain a stable net asset value of $1.00,
although there is no assurance that they will be able to do so.
An investment in the Nations Balanced Assets Fund (and its corresponding
Emerald Balanced Fund) involves risks typically associated with both a
fixed-income fund and an equity fund. The respective investment advisers
typically will allocate these Funds' assets among equities, fixed income
securities and cash equivalents, although a Fund's investment returns may be
strongly influenced by the investment adviser's outlook for future returns on
each asset class. Although the investment adviser for each Fund will attempt to
take advantage of changing economic conditions by increasing or decreasing the
ratio of stocks to fixed income securities or cash equivalents, there can be no
assurance that the investment adviser will maximize returns.
Voting Information. This Proxy/Prospectus is being furnished in connection
with the solicitation of proxies by Emerald's Board of Trustees at the Meeting.
Only shareholders of record at the close of business on March 12, 1998 will be
entitled to vote at the Meeting. Each whole or fractional share is entitled to
a whole or fractional vote, respectively. Shares represented by a properly
executed proxy will be voted in accordance with the instructions thereon or, if
no specification is made, the persons named as proxies will vote in favor of
each proposal set forth in the Notice of Meeting. Proxies may be revoked at any
time before they are exercised by submitting to Emerald a written notice of
revocation or a subsequently executed proxy or by attending the Meeting and
voting in person. For additional information, see "Information Relating to
Voting Matters."
Management Discussion and Analysis. A discussion of NBAI's management of
the Nations Funds (except Nations Tax-Exempt Fund) and an analysis of their
performance can be found at Appendix VI to this Proxy/Prospectus.
INFORMATION RELATING TO PROPOSAL 1 -- APPROVAL OF THE INTERIM AGREEMENTS
The Merger of Barnett Banks, Inc. into NB Holdings Corporation. On January
9, 1998, Barnett Banks, Inc. merged into NB Holdings Corporation, a
wholly-owned subsidiary of NationsBank Corporation. As a result of this Holding
Company Merger, Barnett Capital became a wholly-owned subsidiary of NationsBank
Corporation. Barnett Capital and Emerald considered the effect that the Holding
Company Merger would have on Emerald, and the possibility that under the terms
of the Emerald Funds' investment advisory agreements and the Emerald Tax-Exempt
Fund's investment sub-advisory agreement, and under the 1940 Act, the Holding
Company Merger might result in the automatic and immediate termination of those
agreements.
Prior to the Holding Company Merger, Barnett Capital served as investment
adviser to the Emerald Funds pursuant to two separate investment advisory
agreements. The investment advisory agreement with respect to the Emerald
Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald Florida
Tax-Exempt Fund, Emerald Managed Bond Fund and Emerald Short-Term Fixed Income
Fund was dated June 28, 1991 (as subsequently amended), was approved by the
shareholders of each of the Emerald Equity Fund and Emerald Florida Tax-Exempt
Fund on October 16, 1992 for the purpose of complying with certain conditions
imposed by the 1940 Act as well as by the SEC at that time in connection with
the registration of such Funds under the federal securities laws, by the sole
shareholder of each of the Emerald Balanced Fund, Emerald Managed Bond Fund and
Emerald Short-Term Fixed Income Fund on April 6, 1994 prior to each such Fund's
initial public offering, and by the shareholders of the Emerald Equity Value
Fund on August 19, 1996 prior to that Fund's initial public offering, and was
last approved by the Emerald Board of Trustees on November 13, 1997. Under the
agreement, Barnett Capital was entitled to receive advisory fees at the annual
rates of 0.60% of the average net assets of the Emerald Balanced Fund, 0.60% of
the average net assets of the Emerald Equity Fund, 0.60% of the average net
assets of the Emerald Equity Value Fund, 0.40% of the average net assets of the
Emerald Florida Tax-Exempt Fund, 0.40% of the average net assets of the Emerald
Managed Bond Fund and 0.40% of the average net assets of the Emerald Short-Term
Fixed Income Fund. For the fiscal year ended November 30, 1997, Barnett Capital
received advisory fees (after waivers) at the effective annual rates of 0.60%,
0.60%, 0.55%, 0.40%, 0.40%, and 0.40% of the average net assets of the Emerald
Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald Florida
Tax-Exempt Fund, Emerald Managed Bond Fund and Emerald Short-Term Fixed Income
Fund, respectively, representing $560,612 with respect to the Emerald Balanced
Fund, $1,598,533 with respect to the Emerald Equity Fund, $61,495 with respect
to the Emerald Equity Value Fund, $464,431 with respect to the Emerald Florida
Tax-Exempt Fund, $347,005 with respect to the Emerald Managed Bond Fund and
$299,547 with respect to the Emerald Short-Term Fixed Income Fund.
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<PAGE>
The investment advisory agreement with respect to the Emerald Tax-Exempt
Fund was dated April 22, 1992, was last approved by shareholders of the Fund on
April 21, 1992 for the purpose of revising the Agreement to permit entities
other than the Fund's sub-adviser at such time (which had determined to resign
as sub-adviser) to serve as sub-adviser to the Fund, and was last approved by
the Emerald Board of Trustees on November 13, 1997. Under the agreement,
Barnett Capital was entitled to receive advisory fees at the annual rate of
0.25% of the Fund's average net assets. The advisory fees payable to Barnett
Capital are not subject to reduction as the assets of the Emerald Tax-Exempt
Fund increase. However, Barnett Capital has voluntarily agreed, until further
notice to Emerald, to waive all fees payable to it with respect to the
Tax-Exempt Fund in excess of the sub-advisory fees payable by Barnett Capital
as described below. For the fiscal year ended November 30, 1997, Barnett
Capital received advisory fees (after waivers) at the effective annual rate of
0.15% of the average net assets of the Tax-Exempt Fund, representing $262,233.
All of the fees received by Barnett Capital were paid to Rodney Square pursuant
to the fee arrangements described above.
The investment sub-advisory agreement with respect to the Emerald
Tax-Exempt Fund was dated April 22, 1992, was approved by shareholders of the
Fund on April 21, 1992 for the purpose of approving Rodney Square as the Fund's
new sub-adviser, and was last approved by the Emerald Board of Trustees on
November 13, 1997. Under the agreement, Rodney Square was entitled to receive
sub-advisory fees from Barnett Capital at the annual rate of 0.15% of the
Tax-Exempt Fund's average net assets. For the fiscal year ended November 30,
1997, Rodney Square received sub-advisory fees (after waivers) at the effective
annual rate of 0.15% of the Tax-Exempt Fund's average net assets, representing
$262,233.
To ensure that the Holding Company Merger would not disrupt the investment
advisory and sub-advisory services provided to the Emerald Funds, Emerald,
Barnett Capital and Rodney Square obtained an exemptive Order from the SEC
permitting Barnett Capital and Rodney Square to continue to act as investment
adviser and sub-adviser, respectively, through the Interim Period, but prior to
obtaining the approval of the Interim Advisory Agreements by the shareholders
of the Emerald Funds and approval of the Interim Sub-Advisory Agreement by the
shareholders of the Emerald Tax-Exempt Fund. The Order also permits Barnett
Capital and Rodney Square to receive fees for the Interim Period from each
Emerald Fund, subject to approval by the Emerald Fund shareholders entitled to
vote at a meeting to be held during the Interim Period. In applying for the
Order, Barnett Capital agreed to take steps to ensure that the scope and
quality of the investment advisory services will be the same during the Interim
Period as previously provided to the Emerald Funds.
The Interim Advisory Agreements and Interim Sub-Advisory Agreement. The
terms and conditions of the Interim Advisory Agreements and Interim
Sub-Advisory Agreement (including fee ratio) are the same as those of the prior
investment advisory agreements between Emerald and Barnett Capital and
investment sub-advisory agreement between Barnett Capital and Rodney Square,
respectively, except for provisions relating to (1) the effective date (January
9, 1998), (2) the termination date (May 9, 1998 of the particular Agreement is
not approved by shareholders or November 30, 1998 if the agreement is approved
by shareholders) and (3) certain escrow provisions, that are described above.
Under the Interim Advisory Agreements, Barnett is responsible for
providing a continuous investment program for each Emerald Fund, including
investment research and management with respect to all securities, investments,
cash and cash equivalents in the Funds, and is responsible for determining what
securities and other investments will be purchased, retained or sold by each
Fund and for maintaining all books and records with respect to each Fund's
securities transactions.
With respect to the Emerald Tax-Exempt Fund, some of Barnett Capital's
responsibilities under the Interim Advisory Agreement pertaining to that Fund
are performed by a sub-adviser. Subject to the oversight and supervision of
Barnett Capital and the Emerald Board of Trustees, Rodney Square provides a
continuous investment program for the Tax-Exempt Fund, including investment
management and research with respect to all securities, investments, cash and
cash equivalents. Rodney Square provides sub-advisory services to the Emerald
Tax-Exempt Fund in accordance with investment criteria and policies established
from time to time by Barnett Capital and the Fund's investment objective,
policies and restrictions.
The Interim Agreements also include provisions relating to other matters,
such as portfolio trading practices, expenses and standard of care. For
example, the Interim Agreements provide that in executing portfolio
transactions and selecting brokers or dealers, Barnett Capital and Rodney
Square are to seek the best overall terms available, and that investment
decisions for the Emerald Funds are to be made independently from those for
other investment companies and accounts managed by Barnett Capital and Rodney
Square. Such other investment companies and accounts may, however, invest in
the same securities as the Funds. In such cases, simultaneous transactions are
inevitable. Under the Interim Agreements, Barnett Capital and Rodney Square may
aggregate, to the extent permitted by law, the securities to be sold or
purchased for the Funds with those to be sold or purchased by other investment
companies or accounts in executing transactions. In addition, the Interim
Agreements provide that to the extent the purchase or sale of securities or
other investments of the same issuer
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<PAGE>
may be deemed to be suitable for two or more accounts managed by Barnett
Capital or Rodney Square, the available securities or investments may be
allocated in a manner believed by Barnett Capital or Rodney Square to be
equitable to each account. In some instances, this investment 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.
Although expected to be infrequent, Barnett Capital and Rodney Square are
allowed under the Interim Agreements to consider the amount of Emerald Fund
shares sold by broker-dealers and others (including those who may be connected
with Barnett Capital or Rodney Square) in allocating orders for purchases and
sales of portfolio securities. This allocation may involve the payment of
brokerage commissions or dealer concessions. Barnett Capital and Rodney Square
will not engage in this practice unless the execution capability of, and the
amount received by, such broker-dealer or other company is believed to be
comparable to what another qualified firm could offer. Portfolio securities may
not be purchased from or sold to Barnett Capital, Rodney Square, the Emerald
Funds' distributor, or any affiliated person of any of them or Emerald, acting
as principal in the transaction, except as permitted by the SEC.
The Interim Agreements provide that Barnett Capital and Rodney Square will
pay all expenses incurred by them in connection with their activities under the
respective Agreements other than the cost of securities and other investments
(including brokerage commissions and other transaction costs, if any) purchased
or sold for the Emerald Funds. Barnett Capital and, with respect to the Emerald
Tax-Exempt Fund, Rodney Square also agree that if, in any fiscal year, the
aggregate expenses of any Fund (as defined under the securities regulations of
any state having jurisdiction over such Fund) exceed the expense limitations of
any such state, Emerald may deduct from the fees to be paid to Barnett Capital,
or, in the case of the Tax-Exempt Fund, Rodney Square, and will bear a portion
of any excess to the extent required by state law. To Emerald's knowledge, as
of the date of this Proxy/Prospectus, the Emerald Funds are not subject to any
state expense limitations.
The Interim Agreements provide that Barnett Capital and Rodney Square will
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Emerald Funds in connection with the performance of the
respective Agreements, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or loss resulting from
willful misfeasance, bad faith or negligence on their part in the performance
of their duties or from reckless disregard by them of their obligations and
duties thereunder.
Each Interim Agreement provides that, if approved by the shareholders of
an Emerald Fund, the Interim Agreement will continue in effect with respect to
that Fund until November 30, 1998. Thereafter, the Interim Agreement will
continue in effect with respect to that Fund for successive annual periods,
provided that its continuance is approved at least annually (1) by the vote of
a majority of those members of Emerald's Board of Trustees who are not
"interested persons" (as that term is defined in the 1940 Act) of any party to
the Agreement cast in person at a meeting called for the purpose of voting on
such approval and (2) by the Board of Trustees or by vote of a majority of the
outstanding shares of the Fund.
Each Interim Advisory Agreement will terminate automatically in the event
of its assignment or, with respect to the Interim Sub-Advisory Agreement, upon
termination of Barnett Capital's Interim Advisory Agreement with respect to the
Emerald Tax-Exempt Fund. Each Interim Agreement also provides that it is
terminable with respect to any Emerald Fund, without payment of any penalty, by
Emerald (by vote of Emerald's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund), by Barnett Capital or, in the case
of the Interim Sub-Advisory Agreement, by Rodney Square on 60 days' written
notice.
The Interim Advisory Agreements permit Barnett Capital (subject to any
shareholder approval required by law) to retain a sub-adviser in connection
with the performance of its advisory services, as stated above. Except with
respect to the Emerald Tax-Exempt Fund for which Barnett Capital has retained a
sub-adviser as described above, Barnett Capital intends to provide all of the
services stated in the Interim Advisory Agreements. In addition, the Interim
Advisory Agreement with respect to the Emerald Balanced Fund, Emerald Equity
Fund, Emerald Equity Value Fund, Emerald Florida Tax-Exempt Fund, Emerald
Managed Bond Fund and Emerald Short-Term Fixed Income Fund expressly permits
the Interim Advisory Agreement to be amended without shareholder approval to
the extent allowed by the 1940 Act.
The advisory fees payable by each Emerald Fund under the Interim Advisory
Agreements, as described above, are the separate obligation of that particular
Fund (and not the joint obligation of all Emerald Funds). Sub-advisory fees
payable to Rodney Square under the Interim Sub-Advisory Agreement with respect
to the Emerald Tax-Exempt Fund are paid by Barnett Capital and not by the Fund.
Information Regarding Barnett Capital and Rodney Square. Prior to the
Holding Company Merger, Barnett Capital was a wholly-owned subsidiary of
Barnett Bank, N.A. which, in turn, was a wholly-owned subsidiary of Barnett
Banks, Inc.,
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<PAGE>
which was a publicly-held bank holding company located in Jacksonville,
Florida. Upon consummation of the Holding Company Merger, Barnett Capital
became a wholly-owned subsidiary of NB Holdings Corporation which, in turn, is
an indirect wholly-owned subsidiary of NationsBank Corporation. As of February
15, 1998, no persons owned beneficially or of record 10% or more of any class
of issued and outstanding voting securities of NationsBank Corporation.
Barnett Capital is organized as a corporation under the laws of the State
of Florida and is registered as an investment adviser with the SEC under the
Investment Advisers Act of 1940. In addition to serving as investment adviser
to the Emerald Funds, Barnett Capital acts as investment adviser to
individuals, trusts, estates and institutions and as investment adviser to
Emerald's other investment portfolios, including the Emerald Prime Advantage
Institutional, Emerald Treasury Advantage Institutional, Emerald Prime and
Emerald Treasury Funds, four other money market portfolios whose net assets at
March 12, 1998 were $127,826,813, $146,851,435, $2,322,140,526 and
$,919,316,135 respectively. Under the terms of the investment advisory
agreements relating to these portfolios, Barnett Capital is entitled to an
advisory fee at the annual rate of 0.10% of the average net assets of each of
the Emerald Prime Advantage Institutional Fund and Emerald Treasury Advantage
Institutional Fund and at the annual rate of 0.25% of the average net assets of
each of the Emerald Prime Fund and Emerald Treasury Fund, which fees are not
subject to reduction as the value of each portfolio's net assets increases.
Barnett Capital has informed Emerald, however, of its intention to reduce the
annual rate of its advisory fees with respect to each of the Emerald Prime Fund
and Emerald Treasury Fund to the following rates: 0.25% of the first $600
million of each Fund's net assets; 0.23% of each Fund's net assets over $600
million but not exceeding $1 billion; 0.21% of the next $1 billion of each
Fund's net assets; and 0.19% of each Fund's net assets over $2 billion.
As of March 12, 1998, Barnett Capital had approximately $11 billion of
assets under management. Barnett Capital's principal offices are located at
9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256. The name
and principal occupation of the principal executive officer and each director
of Barnett Capital as of March 12, 1998 were as follows: Jack A. Ablin,
Director, President and Chief Executive Officer; Holly D. Deem, Director;
Martin E. Galt, III, Director; and Richard S. Gershin, Director and Edward J.
Stark, Secretary; and Jill B. Stewart, Treasurer. All of the above persons may
be reached c/o Barnett Capital Advisers, Inc., 9000 Southside Boulevard,
Building 100, Jacksonville, Florida 32256.
Rodney Square is organized as a Delaware corporation and is registered as
an investment adviser with the SEC under the Investment Advisers Act of 1940.
In addition to serving as sub-adviser to the Emerald Tax-Exempt Fund, Rodney
Square also serves as investment adviser or sub-adviser to the following U.S.
registered investment companies that have similar investment objectives: Rodney
Square Tax-Exempt Fund, which, as of March 12, 1998, had net assets equal to
$343,105,685. Under the terms of the investment advisory agreement for the
Rodney Square Tax-Exempt Fund, Rodney Square receives management fees at the
annual rate of 0.47% of the average daily net assets of the fund.
As of March 12, 1998, Rodney Square had approximately $2.7 billion in
assets under management. Rodney Square's principal offices are located at
Rodney Square North, Wilmington, Delaware 19890. All of the capital stock of
Rodney Square is owned by Wilmington Trust Company, a Delaware banking
corporation, which is, in turn, a wholly-owned subsidiary of Wilmington Trust
Corporation, a publicly-held bank holding corporation ("WTC"). Wilmington Trust
Company and WTC also maintain their principal offices in Wilmington, Delaware.
As of March 12, 1998, to Emerald's knowledge, no person owned beneficially or
of record 10% or more of any class of issued and outstanding voting securities
of WTC.
The name and principal occupation of the chief executive officer and each
director of Rodney Square as of March 12, 1998 were as follows: Robert J.
Christian, Director, President and Chief Executive Officer of Rodney Square and
Senior Vice President and Chief Investment Officer of Wilmington Trust Company;
Joseph M. Fahey, Jr. Director, Vice President and Secretary of Rodney Square;
and Nina Miller Webb, Director of Rodney Square and Vice President of
Wilmington Trust Company. All of the above persons may be reached c/o Rodney
Square Management Corporation, Rodney Square North, Wilmington, Delaware,
19890.
At the time of their approval of the Interim Advisory Agreements, three of
the six members of Emerald's Board of Trustees were considered to be
"interested" Trustees within the meaning of the 1940 Act for the following
reasons. Marshall M. Criser, Chairman of the Emerald Board of Trustees, was a
director of Barnett Banks, Inc., owned shares of Barnett Banks, Inc. and
maintained money market deposit accounts with a Barnett Banks, Inc. banking
subsidiary, and is currently of counsel (and was formerly a shareholder) of a
law firm which has represented Barnett Capital and its affiliates within the
preceding two years. John G. Grimsley, Emerald's President and a member of the
Board, is a partner of a law firm which has represented Barnett Capital and its
affiliates within the preceding two years and also owned shares of Barnett
Banks, Inc. Albert D. Ernest, Jr., a member of the Board, owned shares of
Barnett Banks, Inc.
13
<PAGE>
Payments to Barnett Capital or Rodney Square Affiliates. During the fiscal
year ended November 30, 1997, affiliates of Barnett Capital have received fees
pursuant to certain distribution and/or shareholder servicing plans that have
been in effect during such year. The table below sets forth the amounts of the
payments made to such affiliates by the Emerald Funds under these plans. All of
these payments were by the Emerald Funds Retail and Service Shares.
<TABLE>
<CAPTION>
Shareholder
Emerald Fund Distribution Fees Servicing Fees
- ------------------------------------ ------------------- ---------------
<S> <C> <C>
Balanced Fund ............ $ 17,860 $ 17,992
Equity Fund .............. $101,197 $103,711
Equity Value Fund ........ $ 2,788 $ 2,789
Florida Tax-Exempt Fund .. $194,467 $199,924
Managed Bond Fund ........ $ 4,824 $ 4,836
Short-Term Fixed Income Fund $ 4,597 $ 4,928
Tax-Exempt Fund .......... $140,188 $143,310
</TABLE>
During the fiscal year ended November 30, 1997, the Emerald Funds paid no
such fees to affiliates of Rodney Square.
Affiliated Broker Commissions. During the fiscal year ended November 30,
1997, the Emerald Funds paid no brokerage commissions in connection with
purchases and sales of portfolio securities to any party that would be treated
as an affiliated broker as defined in Item 22(a)(1)(ii) of Schedule 14A under
the Securities Exchange Act of 1934.
For the services provided and expenses assumed pursuant to the Interim
Advisory Agreements, the Emerald Fund pays Barnett Capital fees which range
from 0.25% to 1.00% of the average daily net assets of a particular Emerald
Fund. Barnett Capital, under the Interim Sub-Advisory Agreement, with respect
to the Emerald Tax-Exempt Fund, pays Rodney Square a fee equal to 0.15% of the
Tax-Exempt Fund's average daily net assets. However, pending ratification and
approval of the Interim Advisory Agreements, all fees payable to Barnett
Capital and Rodney Square under the Interim Agreements are being held in
escrow. These escrowed fees will be received by Barnett Capital and Rodney
Square only if the respective Interim Agreements are ratified and approved by
the Emerald Fund shareholders entitled to vote. The fees payable to Barnett
Capital are not subject to reduction as the value of each Fund's net assets
increases. From time to time, however, Barnett Capital and/or Rodney Square may
waive fees or reimburse the Emerald Funds for expenses voluntarily, although
there is no guarantee that such waivers would continue.
Approval of Emerald's Board of Trustees. At a meeting on December 8, 1997,
the Emerald Board of Trustees, including all of the Trustees who are not
interested persons (as that term is defined in the 1940 Act) of Emerald (other
than as Trustees), Barnett Capital, Rodney Square or NationsBank, N.A.
("NationsBank"), approved the Interim Advisory Agreements and Interim
Sub-Advisory Agreement, which became effective upon the consummation of the
Holding Company Merger on January 9, 1998. In considering whether to approve
the Interim Agreements and to submit such agreements to shareholders for their
approval, the Board of Trustees considered the following factors: (1) Barnett
Capital's representations that it would provide investment advisory services
and other services to the Emerald Funds of a scope and quality at least
equivalent, in the Board's judgment, to the scope and quality of services
previously provided to the Emerald Funds; (2) the identical terms and
conditions contained in the Interim Agreements as compared to the prior
investment advisory agreements and investment sub-advisory agreement; and (3)
Barnett Capital's representation that in the event of any material change in
personnel providing services under the Interim Agreements during the Interim
Period, the Board of Trustees of Emerald would be consulted for the purpose of
assuring themselves that the services provided would not be diminished in scope
or quality. Additionally, the Trustees considered the benefits that would be
obtained by the Emerald Funds in maintaining continuity in investment advisory
services for the Funds during the Interim Period, and determined that
continuity was advantageous to the Funds as it would serve to minimize
uncertainty and confusion, and would minimize any potential disruption
resulting from the Holding Company Merger in the advisory services provided to
the Emerald Funds.
Based upon the foregoing factors, which were considered material by the
Emerald Board of Trustees, the Trustees concluded that approval of the Interim
Agreements was in the best interests of the Emerald Funds' shareholders and
Emerald. The Board of Trustees further concluded that payment of the advisory
fees under the Interim Agreements would be appropriate and fair considering
that: (1) the fees that are payable under the Interim Agreements, and the
services to be provided therefor, would be unchanged from the fees payable
under the former agreements, (2) the fees will be maintained in an
interest-bearing escrow account until payment is approved or disapproved by
shareholders of a particular Emerald Fund, and (3) the nonpayment of fees
earned during that period would constitute an extreme inequity to Barnett
Capital and Rodney Square in view of the substantial services provided by
Barnett Capital to the Emerald Funds and by Rodney Square to the
14
<PAGE>
Emerald Tax-Exempt Fund during the Interim Period, and the expenses incurred in
connection with such provision of services, under the Interim Agreements.
With respect to the approval of the Interim Advisory Agreements, each
Emerald Fund will vote separately. With respect to the approval of the Interim
Sub-Advisory Agreement, the Emerald Tax-Exempt Fund will vote separately.
EMERALD'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT EMERALD FUND
SHAREHOLDERS RATIFY AND APPROVE THE INTERIM ADVISORY AGREEMENTS, AND THAT
SHAREHOLDERS OF THE EMERALD TAX-EXEMPT FUND RATIFY AND APPROVE THE INTERIM
SUB-ADVISORY AGREEMENT, FOR THE PERIOD FROM JANUARY 9, 1998 FORWARD.
INFORMATION RELATING TO PROPOSAL 2 --
APPROVAL OF THE REORGANIZATION AGREEMENT
The terms and conditions of the Reorganization are set forth in the
Reorganization Agreement. Significant provisions of the Reorganization
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Reorganization Agreement, a copy of which is
attached as Appendix II to this Proxy/Prospectus.
Description of the Reorganization Agreement. The Reorganization Agreement
provides that at the Closing(s) the Fund Assets and Liabilities (as those terms
are defined in the Reorganization Agreement) of the Emerald Funds will be
transferred to Nations, as shown in Table I (see page 2 of this
Proxy/Prospectus), in exchange for full and fractional Shares of the designated
classes of the corresponding Nations Funds.
The Shares issued by each Nations Fund in the Reorganization will have an
aggregate dollar value equal to the aggregate dollar value of the shares of the
respective Emerald Fund that are outstanding immediately before the Closing.
Immediately after the Closing, each Emerald Fund will distribute the Shares of
the Nations Fund received in the Reorganization to its shareholders in
liquidation of the Emerald Fund. Each shareholder owning shares of a particular
Emerald Fund at the Closing will receive Shares of the designated class of the
corresponding Nations Fund, and will receive any unpaid dividends or
distributions that were declared before the Closing on Emerald Fund shares.
Nations will establish an account for each former shareholder of the Emerald
Funds reflecting the appropriate number of Nations Fund Shares distributed to
that shareholder. These accounts will be substantially identical to the
accounts currently maintained by Emerald for each shareholder. Shares of the
Nations Funds are in uncertificated form.
As indicated above, Emerald shareholders of those series of Emerald not
part of this Proxy/Prospectus are voting on similar agreements and plans of
reorganization that, in a like manner, would provide for the reorganization of
those series of Emerald into designated classes of corresponding portfolios of
Nations Fund, Inc. and Nations Institutional Reserves -- other registered
investment companies in the Nations Funds Family. If the Reorganization
Agreement and the agreements and plans of reorganization affecting the other
series of Emerald are approved by a majority of all series of Emerald voting in
the aggregate and the reorganization contemplated therein are consummated,
Emerald will have transferred all of its assets and liabilities as of the
Closing, and all outstanding shares of the Emerald Funds will be redeemed and
canceled in exchange for Shares of the Nations Funds distributed, and Emerald
will wind up its affairs and apply to be deregistered as an investment company
under the 1940 Act. Emerald would permanently close its stock transfer books as
of the close of business on the business day immediately preceding the
Closing).
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement and the related matters described in
this Proxy/Prospectus by Emerald shareholders at the Meeting; approval by a
majority of all series of Emerald voting in the aggregate of the Reorganization
of Emerald; the receipt of certain legal opinions described in the
Reorganization Agreement (which include an opinion of Nations' counsel
addressed to Emerald that the Nations Fund Shares issued in the Reorganization
will be validly issued, fully paid and non-assessable); the receipt of certain
certificates from the parties concerning the continuing accuracy of the
representations and warranties in the Reorganization Agreement; the receipt of
certain letters from the independent auditors of Emerald and independent
accountants of Nations regarding various financial matters; the receipt of any
necessary exemptive relief or no-action assurances requested from the SEC or
its Staff with respect to Section 17(a) and 17(d) of the 1940 Act and Rule
17d-1 thereunder; and the parties' performance in all material respects of
their respective covenants and undertakings in the Reorganization Agreement.
The Reorganization Agreement also provides that if the difference between the
per share net asset value of the Emerald Tax-Exempt Fund and its corresponding
Nations Fund equals or exceeds $.0025 at the close of business on the day
preceding the time at which the Reorganization is to be effective, as computed
using the market values of each such Fund's assets, either party may postpone
the Closing with respect to such Fund until such time as the per share
difference is less than $.0025.
15
<PAGE>
The Reorganization Agreement provides that Emerald and Nations will each
be responsible for its own expenses in connection with the Reorganization.
However, NBAI has agreed to assume all ordinary expenses associated with the
Reorganization. The Reorganization Agreement also provides, among other things,
that the Reorganization may be abandoned at any time prior to the Closing upon
the mutual consent of both Emerald and Nations, or by either Nations or Emerald
under certain conditions; and that officers of Nations and of Emerald may
amend, modify or supplement the Reorganization Agreement, provided however,
that following the Meeting, no such amendment may have the effect of changing
the provisions for determining the number of Shares of the corresponding
Nations Fund to be issued to the shareholders of any Emerald Fund without
obtaining the Emerald Fund shareholders' further approval.
Emerald Board Consideration. At meetings held on November 13-14, 1997, and
December 8, 1997, the Emerald Board of Trustees was advised that Barnett
Capital and NBAI were considering the possibility of recommending a
consolidation of Emerald with the Nations Funds Family following the Holding
Company Merger. The Emerald Board then met again on January 15, 1998 and on
February 12, 1998 to consider a reorganization proposal by NBAI and its
affiliates. In preparation for the meetings, the Trustees were provided with
information about the Reorganization, the Nations Funds and NationsBank. These
materials summarized the principal features of the Reorganization including the
intention that the Reorganization be consummated on a tax-free basis for each
Emerald Fund and its shareholders. In addition, the Emerald Trustees received
comparative information for the Emerald Funds and their corresponding Nations
Funds, as well as information about NationsBank and its investment advisory
organizations, including information regarding those individuals with
responsibility for each Nations Fund.
The proposal that the Emerald Funds be reorganized into the Nations Funds
as set forth in the Reorganization Agreement, including the contemplation that
Emerald would be reorganized into the Nations Funds Family was unanimously
approved by the Board of Trustees on February 12, 1998.
During its deliberations, Emerald's Board of Trustees (with the advice and
assistance of its counsel) reviewed, among other things: (1) the potential
effect of the Reorganization on the shareholders of the Emerald Funds; (2) the
capabilities, practices and resources of NBAI and Nation Funds' other service
providers; (3) the investment advisory and other fees paid by the Nations
Funds, and the historical and projected expense ratios of the Nations Funds as
compared with those of the Emerald Funds and industry peer groups; (4) the
expected cost-savings for certain of the Emerald Funds, including Emerald funds
not part of this Proxy/Prospectus, as a result of the reorganization of
Emerald; (5) the investment objectives, policies and limitations of the Nations
Funds and their relative compatibility with those of the Emerald Funds; (6) the
historical investment performance records of the Emerald fund, including the
Emerald Funds described in this Proxy/Prospectus moving into the Nations Funds,
and the investment performance record of the Nations Funds relative to peer
groups; (7) the shareholder services offered by Nations; (8) the terms and
conditions of the Reorganization Agreement, including those provisions that
were intended to avoid dilution of the interests of Emerald's shareholders; (9)
the anticipated tax consequences of the Reorganization for the respective
Emerald Funds and their shareholders; (10) the number of investment portfolio
options that would be available to shareholders after the Reorganization; (11)
the resolution of matters relating to the termination of Emerald's
administration and transfer agency agreements without cost to Emerald; and (12)
the potential benefits of the Reorganization to other persons, especially NBAI
and its affiliates. The Board also considered NBAI's belief that the
Reorganization would eliminate certain duplicative shareholder costs and market
overlap, facilitate consolidation of NBAI's managerial resources and generally
enhance operational efficiencies and focus with respect to the mutual funds
advised by NBAI. In connection with the foregoing, Emerald's Board of Trustees
noted that NBAI would assume all customary expenses associated with the
Reorganization.
With respect to each Nations Fund, Emerald's Trustees further noted that
the per share annualized total operating expense ratios after the
Reorganization, taking into account voluntary fee waivers, would be equal to or
lower than those of the corresponding Emerald Funds before the Reorganization
with the following exceptions. As shown in Appendix III, after voluntary
waivers or reimbursements, the pro forma post Reorganization per share total
operating expense ratios for Primary A Shares of the following Nations Funds
are expected to be higher than the comparable ratios for Institutional Shares
of the corresponding Emerald Funds: Nations Balanced Assets Fund -- 0.22%
higher; Nations Disciplined Equity Fund -- 0.24% higher; Nations Value Fund --
0.15% higher; Nations Florida Municipal Bond Fund -- 0.02% higher; and Nations
Strategic Fixed Income Fund -- 0.13% higher. In considering the anticipated
higher per share expense ratios for these share classes, the Trustees reviewed
the information referred to above relating to the reasonableness of the
investment advisory fees and other expenses paid by the Nations Funds. The
Trustees also considered the benefits that were expected to result from the
Reorganization, including the continuity of investment management services
after the Reorganization by affiliates of NationsBank, Barnett's successor. In
this regard, the Trustees noted that the Funds were an integral part of other
trust and institutional services provided by NationsBank and its affiliates to
their customers who have invested in the Funds.
16
<PAGE>
With respect to the Reorganization of each Emerald Fund, the Trustees also
considered the taxable capital gains that each Fund may realize before the
Closing(s) that will be distributed to shareholders. With respect to Emerald
Equity Fund, in particular, the Trustees reviewed with NBAI different possible
reorganization alternatives.
After consideration of the foregoing and other factors set forth in this
Proxy/Prospectus, the Emerald Trustees unanimously determined that the
Reorganization is in the best interest of the shareholders of each class of
each Emerald Fund, and that the interest of such shareholders will not be
diluted as a result of such Reorganization.
Capitalization. As proposed, the seven Emerald Funds would be reorganized
into seven corresponding Nations Funds. The following table sets forth, as of
November 30, 1997: (1) the capitalization of each of the Emerald Funds; (2) the
capitalization of each of the corresponding Nations Funds; and (3) the pro
forma capitalization of each of the Nations Funds as adjusted to give effect to
the Reorganization of the Emerald Funds. The capitalization of each Emerald
Fund and Nations Fund is likely to be different at the Closing as a result of
daily share purchase and redemption activity in the Emerald Funds and Nations
Funds as well as the effects of the other ongoing operations of the respective
Funds prior to Closing.
TABLE II
Capitalization (as of November 30, 1997)
1. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Balanced Fund with the Nations
Balanced Assets Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Balanced Fund ................ $ 8,291,845 595,508 $ 13.92
(Retail) (Retail) (Retail)
$ 76,868,196 5,564,606 $ 13.81
(Institutional) (Institutional) (Institutional)
Nations Balanced Assets Fund ......... $ 14,232,673 1,337,198 $ 10.64
(Investor A) (Investor A) (Investor A)
$ 103,695,913 9,714,217 $ 10.67
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund .............. $ 22,524,518 2,116,239 $ 10.64
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$ 180,564,109 16,915,218 $ 10.67
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
2. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Equity Fund with the Nations
Disciplined Equity Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Equity Fund ..................... $ 48,442,554 2,692,460 $ 17.99
(Retail) (Retail) (Retail)
$ 233,977,362 12,894,783 $ 18.15
(Institutional) (Institutional) (Institutional)
Nations Disciplined Equity Fund ......... $ 18,895,922 978,068 $ 19.32
(Investor A) (Investor A) (Investor A)
$ 99,127,639 5,116,031 $ 19.38
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund ................. $ 67,338,476 3,485,493 $ 19.32
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$ 333,105,001 17,191,730 $ 19.38
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
17
<PAGE>
3. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Equity Value Fund with the
Nations Value Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Equity Value Fund ......... $ 4,100,737 269,391 $ 15.22
(Retail) (Retail) (Retail)
$ 18,164,157 1,190,578 $ 15.26
(Institutional) (Institutional) (Institutional)
Nations Value Fund ................ $ 125,670,308 7,126,688 $ 17.63
(Investor A) (Investor A) (Investor A)
$2,324,178,774 131,769,865 $ 17.64
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund ........... $ 129,771,045 7,359,238 $ 17.63
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$2,342,342,931 132,799,686 $ 17.64
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
4. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Florida Tax-Exempt Fund with the
Nations Florida Municipal Bond Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Florida Tax-Exempt Fund ............ $ 80,399,223 7,143,927 $ 11.25
(Retail) (Retail) (Retail)
$ 39,064,802 3,467,292 $ 11.27
(Institutional) (Institutional) (Institutional)
Nations Florida Municipal Bond Fund ........ $ 1,956,226 197,738 $ 9.89
(Investor A) (Investor A) (Investor A)
$ 28,780,232 2,909,136 $ 9.89
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund .................... $ 82,355,449 8,324,601 $ 9.89
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$ 67,845,034 6,857,868 $ 9.89
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
5. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Managed Bond Fund with the
Nations Strategic Fixed Income Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Managed Bond Fund ................. $ 2,278,409 220,220 $ 10.35
(Retail) (Retail) (Retail)
$ 99,067,439 9,619,825 $ 10.30
(Institutional) (Institutional) (Institutional)
Nations Strategic Fixed Income Fund ....... $ 20,267,619 2,023,006 $ 10.02
(Investor A) (Investor A) (Investor A)
$1,810,022,262 180,661,651 $ 10.02
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund ................... $ 22,546,028 2,250,424 $ 10.02
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$1,909,089,701 190,549,754 $ 10.02
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
18
<PAGE>
6. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Short-Term Fixed Income Fund
with the Nations Short-Term Income Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Short-Term Fixed Income Fund ....... $ 4,452,311 445,111 $ 10.00
(Retail) (Retail) (Retail)
$ 93,446,918 9,339,203 $ 10.01
(Institutional) (Institutional) (Institutional)
Nations Short-Term Income Fund ............. $ 11,627,453 1,191,943 $ 9.76
(Investor A) (Investor A) (Investor A)
$ 406,941,023 41,715,554 $ 9.76
(Primary A) (Primary A) (Primary A)
Pro Forma Combined Fund .................... $ 16,079,764 1,648,354 $ 9.76
(Retail/ (Retail/ (Retail/
Investor A) Investor A) Investor A)
$ 500,387,941 51,294,804 $ 9.76
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
</TABLE>
7. The table below reflects current and pro forma capitalization
information for the combination of the Emerald Tax-Exempt Fund with the Nations
Tax Exempt Fund.
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Total Net Assets Shares Outstanding Per Share
------------------ -------------------- -------------------
<S> <C> <C> <C>
Emerald Tax-Exempt Fund ......... $ 59,172,862 59,185,380 $ 1.00
(Retail) (Retail) (Retail)
$ 129,886,489 129,924,939 $ 1.00
(Institutional) (Institutional) (Institutional)
$ 554,880 555,707 $ 1.00
(Service) (Service) (Service)
Nations Tax Exempt Fund ......... $ 10,076,375 10,077,827 $ 1.00
(Daily) (Daily) (Daily)
$1,791,573,148 1,791,831,354 $ 1.00
(Primary A) (Primary A) (Primary A)
$ 157,495,739 157,518,438 $ 1.00
(Investor A) (Investor A) (Investor A)
Pro Forma Combined Fund ......... $ 69,249,237 69,263,207 $ 1.00
(Retail/Daily) (Retail/Daily) (Retail/Daily)
$1,921,459,637 1,921,756,293 $ 1.00
(Institutional/ (Institutional/ (Institutional/
Primary A) Primary A) Primary A)
$ 158,050,619 158,074,145 $ 1.00
(Service/ (Service/ (Service/
Investor A) Investor A) Investor A)
</TABLE>
Federal Income Tax Considerations. Each Nations Fund and each Emerald Fund
qualifies and intends to qualify as of the Closing, as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, each Emerald Fund and each corresponding Nations Fund has
been, and expects to continue to be, relieved of federal income tax liability.
Consummation of the Reorganization with respect to each Emerald Fund and
the corresponding Nations Fund is subject to the condition that Emerald and
Nations receive an opinion from Morrison & Foerster LLP to the effect that, for
federal income tax purposes: (i) the transfer of all of the Fund Assets and
Liabilities (as each term is defined in the Reorganization Agreement) of an
Emerald Fund to the corresponding Nations Fund in exchange for the Nations Fund
Shares, and the distribution of those Nations Fund Shares to shareholders of
the Emerald Fund, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Emerald Fund and the Nations Fund will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by the Emerald Fund upon the
transfer of its Fund Assets and Liabilities to the Nations Fund solely in
exchange for the Nations Fund Shares; (iii) no gain or loss will be recognized
by the Nations Fund upon the receipt of the Fund Assets and assumption of
Liabilities of
19
<PAGE>
the Emerald Fund solely in exchange for the Nations Fund Shares; (iv) the basis
of the Emerald Fund's assets received by the Nations Fund pursuant to the
Reorganization will be the same as the basis of those assets in the hands of
the Emerald Fund immediately prior to the Reorganization; (v) the holding
period of the Emerald Fund's assets in the hands of the Nations Fund will
include the period for which such assets have been held by the Emerald Fund;
(vi) no gain or loss will be recognized by the Emerald Fund on the distribution
to its shareholders of the Nations Fund Shares to be received by the Emerald
Fund in the Reorganization; (vii) no gain or loss will be recognized by the
shareholders of the Emerald Fund upon their receipt of the Nations Fund Shares
in exchange for such shareholders' shares of the Emerald Fund; (viii) the basis
of the Nations Fund Shares received by the shareholders of the Emerald Fund
will be the same as the basis of the Emerald Fund shares surrendered by such
shareholders pursuant to the Reorganization; (ix) the holding period for the
Nations Fund Shares received by the Emerald Fund shareholders will include the
period during which such shareholders held the Emerald Fund shares surrendered
in exchange therefor, provided that such Emerald Fund shares are held as a
capital asset in the hands of the Emerald Fund shareholders on the date of the
exchange; and (x) each Nations Fund will succeed to and take into account the
tax attributes described in Section 381(c) of the Code of the Emerald Fund as
of the Closing Date, subject to the conditions and limitations specified in the
Code. Shareholders of the Emerald Funds should note, however, that the sale of
securities by the Emerald Funds prior to the Closing whether in the ordinary
course of business or in anticipation of the Closing, could result in a taxable
capital gains distribution prior to the Closing.
Nations and Emerald have not sought, and will not seek, a private ruling
from the Internal Revenue Service ("IRS") with respect to the tax consequences
of the Reorganization. The opinion of Morrison & Foerster LLP with respect to
the tax consequences of the Reorganization is not binding on the IRS and does
not preclude the IRS from adopting a contrary position. Shareholders should
consult their own advisers concerning the potential tax consequences of the
Reorganization to them, including any applicable foreign, state and local
income tax consequences.
Other Information. Information about the similarities and differences
between the Nations Funds and the Emerald Funds to which they correspond
regarding: investment objectives and policies; the identity and compensation of
the investment adviser; the voting rights of shareholders; any restrictions or
material obligations associated with ownership of Shares; the share structure;
the identity of the principal underwriter; any minimum initial or subsequent
investment; Rule 12b-1 plans, including associated fees and expenses; and
shareholder redemption, repurchase and exchange rights, is included in other
appropriately titled sections within this Proxy/Prospectus and the Appendices
hereto.
COMPARISON OF EMERALD AND NATIONS
Investment Objectives and Policies. The investment objectives, policies
and restrictions of the Emerald Funds are, in general, comparable to those of
their corresponding Nations Fund. There are, however, certain differences. For
example, the Emerald Equity Fund invests in securities selected on the basis of
fundamental investment value and growth prospects that Barnett Capital believes
exceed those of the general economy, while the corresponding Nations
Disciplined Equity Fund selects stock for its portfolio using a quantitative
analysis. Also, the Emerald Balanced Fund may invest up to 15% of its total
assets in convertible securities rated below investment grade, while the
corresponding Nations Balanced Assets Fund invests in obligations rated
investment grade. Additionally, the average weighted maturity of the Emerald
Short-Term Fixed Income Fund will not exceed three years, while the average
weighted maturity of the corresponding Nations Short-Term Income Fund will not
exceed five years. In addition, unlike the Emerald Treasury Fund, Nations
Treasury Fund may invest up to 25% of its assets in obligations that are issued
by banks.
Other differences are more fully discussed in Appendix IV to this
Proxy/Prospectus. Shareholders of the Emerald Equity Fund should see "Summary
- -- Special Considerations Relating to the Emerald Equity Fund." Additional
information with respect to the investment policies and restrictions of the
Nations Funds and the Emerald Funds is included in their respective
prospectuses, which have been incorporated herein by reference.
Investment Adviser and Other Service Providers. Currently, Barnett Capital
serves as investment adviser to the Emerald Funds and Rodney Square serves as
investment sub-adviser to the Emerald Tax-Exempt Fund. NBAI serves as the
investment adviser to the Nations Funds and TradeStreet serves as the
investment sub-adviser to the Nations Funds.
The following table shows, as of November 30, 1997, (i) the current
annualized total expense ratios of the Emerald Funds before and after fee
waivers and/or expense reimbursements and (ii) the pro forma annualized total
expense ratios of the corresponding Nations Funds, based upon the fee
arrangements, before and after fee waivers and/or expense reimbursements, that
will be in place upon consummation of the Reorganization. Detailed pro forma
expense information for each proposed reorganization is included in Appendix
III to this Proxy/Prospectus.
20
<PAGE>
TABLE III
Total Expense Information
<TABLE>
<CAPTION>
Total Total
Operating Operating
Expenses Corresponding Expenses
Emerald Fund/ Before/After Nations Fund/ Before/After
Share Class Waivers Share Class Waivers
- ------------------------------- ---------------- ---------------------------------------------------
<S> <C> <C> <C>
Emerald Balanced Fund Nations Balanced Assets Fund
Retail Shares 1.32%/1.31% Investor A Shares 1.27%/1.27%
Institutional Shares 0.79%/0.79% Primary A Shares 1.02%/1.02%
Emerald Equity Fund Nations Disciplined Equity Fund
Retail Shares 1.32%/1.32% Investor A Shares 1.26%/1.26%
Institutional Shares 0.76%/0.76% Primary A Shares 1.01%/1.01%
Emerald Equity Value Fund Nations Value Fund
Retail Shares 2.10%/1.54% Investor A Shares 1.21%/1.21%
Institutional Shares 0.93%/0.79% Primary A Shares 0.96%/0.96%
Emerald Florida Tax-Exempt Nations Florida Municipal Bond Fund
Fund Retail Shares 1.11%/0.93% Investor A Shares 1.09%/0.80%
Institutional Shares 0.58%/0.58% Primary A Shares 0.89%/0.60%
Emerald Managed Bond Fund Nations Strategic Fixed Income Fund
Retail Shares 2.01%/1.10% Investor A Shares 1.03%/0.93%
Institutional Shares 0.57%/0.57% Primary A Shares 0.83%/0.73%
Emerald Short-Term Fixed Income Nations Short-Term Income Fund
Fund Retail Shares 1.22%/1.03% Investor A Shares 1.01%/0.71%
Institutional Shares 0.61%/0.61% Primary A Shares 0.81%/0.51%
Emerald Tax-Exempt Fund Nations Tax Exempt Fund
Retail Shares 0.97%/0.87% Daily Shares 1.04%/0.80%
Institutional Shares 0.41%/0.31% Primary A Shares 0.54%/0.30%
Service Shares 1.71%/0.73% Investor A Shares 0.89%/0.65%
<CAPTION>
Pro Forma
Total
Combined Fund/Share Operating
Class Post-Reorganization Expenses
--------------------------- ----------------
<S> <C>
Nations Balanced Assets Fund
Investor A Shares 1.26%/1.26%
Primary A Shares 1.01%/1.01%
Nations Disciplined Equity Fund
Investor A Shares 1.25%/1.25%
Primary A Shares 1.00%/1.00%
Nations Value Fund
Investor A Shares 1.19%/1.19%
Primary A Shares 0.94%/0.94%
Nations Florida Municipal Bond Fund
Investor A Shares 1.00%/0.80%
Primary A Shares 0.80%/0.60%
Nations Strategic Fixed Income Fund
Investor A Shares 1.00%/0.90%
Primary A Shares 0.80%/0.70%
Nations Short-Term Income Fund
Investor A Shares 1.00%/0.70%
Primary A Shares 0.80%/0.50%
Nations Tax Exempt Fund
Daily Shares 1.04%/0.80%
Primary A Shares 0.54%/0.30%
Investor A Shares 0.89%/0.65%
</TABLE>
Emerald Funds' Advisory and Sub-Advisory Agreements. For a description of
the Interim Agreements, see "Information Relating to Proposal 1 -- Approval of
the Interim Agreements."
Nations Funds' Advisory Agreements. NBAI serves as investment adviser to
the Nations Funds. Subject to the general supervision of Nations' Board of
Trustees, and in accordance with the investment policies of each Nations Fund,
NBAI has discretionary authority to manage each Nations Fund. The investment
advisory agreement provides that in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties thereunder on
the part of NBAI or any of its officers, directors, employees or agents, NBAI
shall not be subject to liability to Nations or to any shareholder of a Nations
Fund for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. For the services provided and expenses
assumed, NBAI is entitled to a fee calculated at the annual rate of: 0.40% of
the average daily net assets of Nations Tax Exempt Fund; 0.60% of the average
daily net assets of Nations Florida Municipal Bond Fund, Nations Strategic
Fixed Income Fund and Nations Short-Term Income Fund; and 0.75% of the average
daily net assets of Nations Balanced Assets Fund, Nations Disciplined Equity
and Nations Value Fund. From time to time, however, NBAI and its affiliates
voluntarily may waive fees or reimburse the Nations Funds for expenses,
although there is no guarantee that such waivers or reimbursements would
continue.
TradeStreet serves as investment sub-adviser for the Nations Funds. For
the services provided and expenses assumed by TradeStreet, NBAI pays, out of
the fees it receives from the Nations Funds, fees to TradeStreet at the annual
rate of: 0.055% of the average daily net assets of Nations Tax Exempt Fund;
0.20% of the average daily net assets of Nations Balanced Assets Fund, Nations
Disciplined Equity Fund and Nations Value Fund; 0.15% of the average daily net
assets of
21
<PAGE>
Nations Short-Term Income Fund and Nations Strategic Fixed Income Fund; and
0.07% of the average daily net assets of Nations Florida Municipal Bond Fund.
For the fiscal period from April 1, 1996 to March 31, 1997, after fee
waivers, Nations Fund Trust paid NBAI under an investment advisory agreement,
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- 0.75%, Nations Disciplined Equity Fund -- 0.75%, Nations
Balanced Assets Fund -- 0.75%, Nations Short-Term Income Fund -- 0.30%, Nations
Strategic Fixed Income Fund -- 0.50%, Nations Florida Municipal Bond Fund --
0.27% and Nations Tax Exempt Fund -- 0.16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after fee
waivers, NBAI paid TradeStreet under an investment sub-advisory agreement, fees
at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- 0.25%, Nations Disciplined Equity Fund -- 0.25%, Nations
Balanced Assets Fund -- 0.25%, Nations Short-Term Income Fund -- 0.15%, Nations
Strategic Fixed Income Fund -- 0.15%, Nations Florida Municipal Bond Fund --
0.07% and Nations Tax Exempt Fund -- 0.055%.
Both NBAI and TradeStreet are wholly-owned subsidiaries of NationsBank,
which in turn is a wholly-owned banking subsidiary of NationsBank Corporation,
a bank holding company organized as a North Carolina corporation. Both NBAI and
TradeStreet have their principal offices at One NationsBank Plaza, Charlotte,
North Carolina 28225.
The principal portfolio managers of the Nations Funds, along with their
positions with NBAI and/or TradeStreet and a brief summary of their business
experience and education are set forth below.
Nations Balanced Assets Fund -- Julie L. Hale is a Senior Product Manager,
Equity Management for TradeStreet and Senior Portfolio Manager for Nations
Balanced Assets Fund. Ms. Hale has been Portfolio Manager for the Nations
Balanced Assets Fund since 1995. Prior to assuming her position with
TradeStreet, she was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. She has worked in the investment
community since 1981. Her past experience includes research analysis and
portfolio management for Mercantile Safe Deposit and Trust Company and National
City Bank. Ms. Hale received a B.S. in Business and Finance from Mount St.
Mary's College and an M.B.A. from Kent State University. She holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Security Analysts, Inc. She is also a member of the National Association for
Petroleum Investment Analysts and the World Affairs Council of Washington, D.C.
Nations Disciplined Equity Fund -- Jeffrey C. Moser, a Chartered Financial
Analyst, is a Senior Product Manager, Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Disciplined Equity Fund. Mr. Moser has
been Portfolio Manager of Nations Disciplined Equity Fund since 1995. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Moser
has worked for the Investment Management Group at NationsBank since 1983 where
his responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Nations Value Fund -- Sharon M. Herrmann, a Chartered Financial Analyst,
is a Director of Equity Management for Trade Street and Senior Portfolio
Manager for Nations Value Fund. Ms. Herrmann has been the Portfolio Manager of
Nations Value Fund since 1989. Prior to assuming her position with TradeStreet,
she was Senior Vice President and Portfolio Manager for the Investment
Management Group at NationsBank. Ms. Herrmann has worked for the Investment
Management Group at NationsBank since 1981 where her responsibilities included
fund management and institutional portfolio management. She attended Virginia
Wesleyan College. Ms. Herrmann is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Nations Strategic Fixed Income Fund -- Gregory H. Cobb is a Senior Product
Manager, Fixed Income Management for TradeStreet and Senior Portfolio Manager
for Nations Strategic Fixed Income Fund. Mr. Cobb has been Portfolio Manager
for Nations Strategic Fixed Income Fund since 1995. Prior to assuming his
position with TradeStreet, he was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Mr. Cobb has worked in the
investment community since 1987. His past experience includes portfolio
management of intermediate duration and insurance products for Trust Company
Bank and Barnett Bank Trust Company Inc. Mr. Cobb received a B.A. in Economics
from the University of North Carolina at Chapel Hill.
22
<PAGE>
Nations Florida Municipal Bond Fund -- Michele M. Poirier is a Director,
Municipal Fixed Income Management for TradeStreet and Senior Portfolio Manager
for Nations Florida Municipal Bond Fund. Ms. Poirier has been Portfolio Manager
for the Fund since 1993. Prior to assuming her position with TradeStreet, she
was Senior Vice President and Senior Portfolio Manager for the Investment
Management Group at NationsBank. She has worked in the investment community
since 1974. Her past experience includes serving as Director of Trading,
Institutional Sales, and Municipal Trader for Financial Service Corporation,
Bankers Trust Company and The Robinson-Humphrey Company respectively. Ms.
Poirier received a B.B.A. in Marketing from Georgia State University.
Nations Short-Term Income Fund -- J. Patrick Frith is a Portfolio Manager,
Fixed Income Management for TradeStreet and Portfolio Manager of Nations
Short-Term Income Fund. Mr. Frith has been the Portfolio Manager of Nations
Short-Term Income Fund since October 1997. Previously he was Vice President and
Senior Portfolio Manager of the Investment Management Group at NationsBank. Mr.
Frith received a B.S. from the University of Virginia with a double-major in
Marketing and Management Information Systems. He also received an M.B.A. from
the Colgate Darden Graduate School of Business Administration at the University
of Virginia. Mr. Frith holds the Chartered Financial Analyst designation and is
a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Nations Tax Exempt Fund -- Melinda Allen Crosby is a Product Manager,
Municipal Fixed Income Management for TradeStreet and Portfolio Manager for
Nations Tax Exempt Fund. She has been Portfolio Manager for Nations Tax Exempt
Fund since 1991. Prior to assuming her position with TradeStreet, she was Vice
President and Portfolio Manager for the Investment Management Group at
NationsBank. She has worked in the investment community since 1973. Her past
experience includes consulting and municipal credit analysis for NationsBank
Capital Markets. Ms. Crosby received a B.A. in Business Administration from the
University of North Carolina at Charlotte and an M.B.A. from the McColl School
of Business, Queens College. She was a founding member and past president of
the Southern Municipal Finance Society and participated in the establishment of
the National Federation of Municipal Analysts.
Morrison & Foerster LLP, counsel to Nations and special counsel to
NationsBank, has advised Nations and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the advisory contracts
described above and in the prospectuses for the Nations Funds without violation
of the Glass-Steagall Act or other applicable laws or regulations. Such counsel
has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and the future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any of such services, it is expected that the
new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
Other Service Providers. The other service providers for the Emerald Funds
and the Nations Funds are different, as forth in the table below.
Other Service Providers
for the Emerald Funds and Nations Funds
<TABLE>
<CAPTION>
Emerald Funds Nations Funds
----------------------------------------- -----------------------------------------
<S> <C> <C>
Distributor Emerald Asset Management, Inc. Stephens Inc. ("Stephens")
Administrator BISYS Fund Services Limited Partnership Stephens
Co-Administrator Not Applicable First Data Investor Services Group, Inc.
("First Data")
Sub-Administrator Not Applicable NationsBanc Advisors, Inc.
Transfer Agent BISYS Fund Services, Inc. First Data
Sub-Transfer Agent Not Applicable NationsBank of Texas N.A.
Custodian The Bank of New York NationsBank of Texas N.A.
Sub-Custodian Not Applicable The Bank of New York
Independent Auditors and KPMG Peat Marwick LLP Price Waterhouse LLP
Independent Accountants,
respectively
</TABLE>
23
<PAGE>
Emerald Asset Management Inc. and BISYS Fund Services Limited Partnership
("BISYS") maintain offices at 3435 Stelzer Road, Columbus, Ohio 43219. Stephens
Inc. maintains offices at 111 Center Street, Little Rock, Arkansas 72201 and
First Data Investor Services Group, Inc. maintains offices at One Exchange
Place, Boston, Massachusetts 02109.
Share Structure. Both Emerald and Nations are registered as open-end
management investment companies under the 1940 Act. Currently, Emerald offers
fourteen funds. The Nations Fund complex, which includes several registered
investment companies, will offer over sixty funds immediately after the
Reorganization.
Emerald is organized as a Massachusetts business trust and is subject to
the provisions of its Agreement and Declaration of Trust and Code of
Regulations. Nations also is organized as a Massachusetts business trust and is
subject to the provisions of its Declaration of Trust, as amended and
supplemented, and Code of Regulations. Shares of the Emerald Funds have a par
value of $.001. Shares of Nations Funds are sold without par value. Shares of
both the Emerald Funds and Nations Funds are entitled to one vote for each full
share held and fractional votes for fractional shares held.
Emerald Fund shareholders will vote in the aggregate and not by portfolio
or class subject to certain notable exceptions. In particular, when a proposal
affects less than all Emerald portfolios or classes, only the affected
portfolios or classes may vote on that proposal. Each portfolio votes
separately with respect to any proposal to approve its investment advisory
agreement, to change its fundamental investment objective or policies, or to
adopt a plan of reorganization. Similarly, a portfolio or class of a portfolio
votes separately with respect to any proposal to approve a plan of distribution
for that portfolio or class. In addition, shares of the Emerald Fund may not be
cumulatively voted.
In accordance with Nations' Declaration of Trust, all shares of a series
of Nations are entitled to vote by individual series, except (1) when required
by the 1940 Act, shares will be voted in the aggregate and not by individual
series, and (2) when the Trustees have determined that the matter affects only
the interests of one or more series, then only shareholders of such series
shall be entitled to vote thereon. There is no cumulative voting in the
election of Trustees for Nations and shares may be voted in person or by proxy.
Shares of the Emerald Funds and Nations Funds have no pre-emptive rights
and have only such conversion and exchange rights as the Board of Trustees of
Emerald or the Board of Trustees of Nations, respectively, may grant in their
discretion. When issued for payment as described in their respective
prospectuses, Nations Fund Shares and Emerald Fund Shares are fully paid and
non-assessable by either Nations or Emerald.
Both Emerald and Nations are authorized to create multiple investment
portfolios and to create multiple share classes representing interests in a
single portfolio. Currently Nations offers Investor A shares, Investor B
shares, Investor C shares, Primary A shares, Primary B shares and Daily shares.
Each share class has varying pricing structures and distribution channels.
Each share of a class of a Nations Fund represents an equal proportionate
interest in a particular portfolio with other shares of the same class and is
entitled to cash dividends and distributions earned on such shares as are
declared in the discretion of the Nations Board of Trustees.
The accrued expenses of the Nations Funds, as well as certain expenses
attributable to each class of Shares (including those that are not relevant to
this Proxy/Prospectus), are deducted from accrued income before dividends are
declared. The Nations Funds' expenses include, but are not limited to: fees
paid to NBAI, The Bank of New York, NationsBank of Texas, Stephens and First
Data; interest; trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the custodian and transfer agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by NBAI,
NationsBank, Stephens or First Data under their respective agreements with
Nations Funds; and any extraordinary expenses. Each class of Shares may bear
certain class specific costs associated with retail transfer agency,
shareholder servicing, sales support and distribution. Any general expenses of
Nations that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations or in such other
manner as the Board of Trustees deems appropriate.
Additional information concerning the attributes of the shares issued by
the Emerald Funds and Nations Funds is included in their respective
prospectuses, which are incorporated herein by reference. Information about the
dividend and distribution policies of both the Emerald Funds and Nations Funds
can be found in Appendix V.
24
<PAGE>
Distribution Plan and Shareholder Servicing Arrangements for the Emerald
Funds. Shares of the Emerald Funds are distributed by Emerald Asset Management,
Inc. ("EAM"), a wholly-owned subsidiary of The BISYS Group, Inc. The Emerald
Funds have adopted a Combined Amended and Restated Distribution and Service
Plan pursuant to Rule 12b-l under the 1940 Act for their Retail Class shares.
Under this Plan, the Emerald Funds pay service organizations (such as
securities dealers, financial institutions and other industry professionals)
for distribution assistance and/or the provision of shareholder liaison
services at an annual rate not to exceed 0.25% of the average daily net asset
value of each Emerald Fund's outstanding Retail Class shares.
The Emerald Funds also have adopted a Shareholder Processing Plan for
their Retail Class shares. Under such Plan, service organizations agree to
provide various shareholder processing services, such as providing necessary
personnel and facilities to establish and maintain shareholders accounts and
records for clients; assisting in aggregating and processing purchase, exchange
and redemption orders with EAM; arranging for wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem shares;
processing dividends payments; providing the information to the Funds necessary
for accounting or subaccounting; and providing such other similar services as
may reasonably be requested. Payments for these services may not exceed 0.25%
(on an annual basis) of the average daily net asset value of a Fund's
outstanding Retail Class shares.
The Emerald Funds also have adopted a Shareholder Processing and Services
Plan pursuant to which Service Class Shares of the Emerald Tax-Exempt Fund are
sold to institutional investors which enter into service agreements with the
Emerald Funds. The service agreements require the service organizations, which
may include Barnett Capital, BISYS and their affiliates, to provide support
services to their customers who are beneficial owners of Service shares in
return for payment by a Fund which may not exceed 0.35% (on an annualized
basis) of the average daily net asset value of the Service Class shares
beneficially owned by their customers. Holders of the Emerald Tax-Exempt Funds'
Service Class shares bear all fees paid to service organizations for their
services under the Plan. The Plan does not cover, and the fees thereunder are
not payable to service organizations with respect to, Institutional Class
shares or Retail Class shares. All fees payable under the Combined Amended and
Restated Distribution and Service Plan and the Shareholder Processing Plan are
borne by the holders of the Emerald Funds' Retail Class shares. These Plans do
not cover, and the fees payable thereunder are not payable with respect to
Institutional or Service Class shares.
Distribution Plans and Shareholder Servicing Arrangements for the Nations
Funds. Shares of the Nations Funds are distributed by Stephens, a broker-dealer
registered with the SEC under the Securities and Exchange Act of 1934, pursuant
to a Distribution Agreement.
Primary A Shares: Stephens receives no compensation in connection with the
distribution of Primary A Shares of the Nations Funds.
Investor A Shares: The Nations Funds have adopted an Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A Shares.
The Investor A Plan provides that each Fund may pay Stephens or banks,
broker/dealers or other financial institutions that offer Shares of the Fund
and that have entered into a Sales Support Agreement with Stephens ("Selling
Agents") or a Shareholder Servicing Agreement with Nations ("Servicing
Agents"), up to 0.10% (on an annualized basis) of the average daily net asset
value of 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 in the Nations Funds Family.
In addition, the Nations Funds have adopted a shareholder servicing plan
("Servicing Plan") with respect to Investor A shares of Nations Tax-Exempt
Fund, pursuant to which the Funds may pay servicing agents that have entered
into a servicing agreement with Nations for certain shareholder support
services that are provided by the servicing agents. Payments under the
Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by Nations, provided that the annual rate may not exceed
0.25% of the average daily net asset value of each Fund's Investor A shares.
Daily Shares: In addition, the Nations Funds have adopted an Amended and
Restated Shareholder Servicing Plan ("Servicing Plan") with respect to the
Daily Shares of the Nations Tax Exempt Fund. Pursuant to the Servicing Plan,
the Fund may compensate servicing agents for shareholder support services that
are provided by the servicing agents to their customers that own Daily Shares.
Payments under the Servicing Plan will be calculated daily and paid monthly at
a rate set from time to time by the Board of Trustees, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Fund's
Daily Shares. The shareholder services provided by servicing agents may include
general shareholder liaison services; processing purchase, exchange and
redemption requests from customers and placing orders with Stephens
25
<PAGE>
or the transfer agent; processing dividend and distribution payments; providing
sales information; arranging for bank wires; and providing such other services
as may be reasonably requested.
Pursuant to Rule 12b-1 of the 1940 Act, the Nations Funds also have
adopted a distribution plan ("Distribution Plan") with respect to Daily Shares
of the Nations Tax Exempt Fund. Under the Distribution Plan, the Fund may
compensate or reimburse Stephens for any activities or expenses primarily
intended to result in the sale of Daily Shares. Payments to Stephens under the
Fund's Distribution Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Trustees, provided that the annual
rate may not exceed 0.45% of the average daily net asset value of the Fund's
Daily Shares. Payments to Stephens under the Distribution Plan will be used
primarily to compensate or reimburse Stephens for distribution services
provided by Stephens and related expenses incurred by Stephens, including
payments by Stephens to compensate or reimburse selling agents for sales
support services provided by such selling agents.
Administration Agreements. The Emerald Funds have entered into an
Administration Agreement with BISYS. Administrative services are provided to
the Nations Funds by Stephens and First Data as co-administrators and NBAI as
sub-administrator to Stephens. The types of administrative services provided to
the Emerald Funds and Nations Funds by their respective Administrators (and, in
the case of the Nations Funds, Co-Administrators) are substantially similar.
Shareholder Transactions and Services. The Emerald Funds and the
corresponding Nations Funds offer similar shareholder services and
transactions. There are however, some differences. For example, the minimum
initial and subsequent investment amount for Emerald Funds' Institutional
shares is generally $5,000, while the minimum amount for the corresponding
Primary A shares of the Nations Funds is $250,000. For a detailed comparison of
shareholder transactions and services see Appendix V.
26
<PAGE>
INFORMATION RELATING TO VOTING MATTERS
General Information. This Proxy/Prospectus is being furnished in
connection with the solicitation of proxies for the Meeting by the Board of
Trustees of Emerald. It is expected that the solicitation of proxies will be
primarily by mail. Officers and service contractors of Emerald and Nations also
may solicit proxies by telefacsimile. In this connection, Emerald has retained
ADP Proxy Services to assist in the solicitation of proxies for the
Reorganization. Shareholders may vote (1) by mail, by marking, signing, dating
and returning the enclosed Proxy Ballot in the enclosed postage-paid envelope;
or (2) by telefacsimile, by marking, signing, dating and faxing the enclosed
Proxy Ballot to ADP Proxy Services at (904) 519-8466. Any shareholder giving a
proxy may revoke it at any time before it is exercised by submitting to Emerald
a written notice or revocation of a subsequently executed proxy or by attending
the Meeting and voting in person.
Any expenses incurred as a result of hiring ADP Proxy Services or any
other proxy solicitation agent will be borne by NBAI.
Only shareholders of record at the close of business on March 12, 1998
will be entitled to vote at the Meeting. On that date, the following Emerald
Shares were outstanding and entitled to be voted.
<TABLE>
<CAPTION>
Name of Emerald Fund and Class Shares Entitled to Vote
- ------------------------------------------------ ------------------------
<S> <C>
Emerald Balanced Fund --
Retail Shares ......................... 698,137
Institutional Shares .................. 6,102,032
Total Shares .......................... 6,800,169
Emerald Equity Fund --
Retail Shares ......................... 3,213,910
Institutional Shares .................. 14,055,695
Total Shares .......................... 17,269,605
Emerald Equity Value Fund --
Retail Shares ......................... 402,527
Institutional Shares .................. 1,307,039
Total Shares .......................... 1,709,566
Emerald Florida Tax-Exempt Fund --
Retail Shares ......................... 7,743,454
Institutional Shares .................. 3,578,362
Total Shares .......................... 11,321,816
Emerald Managed Bond Fund --
Retail Shares ......................... 319,829
Institutional Shares .................. 9,337,747
Total Shares .......................... 9,657,576
Emerald Short-Term Fixed Income Fund --
Retail Shares ......................... 441,322
Institutional Shares .................. 9,713,192
Total Shares .......................... 10,154,514
Emerald Tax-Exempt Fund --
Retail Shares ......................... 67,158,906
Institutional Shares .................. 119,661,410
Service Shares ........................ 559,500
Total Shares .......................... 187,379,816
</TABLE>
Each whole and fractional share of an Emerald Fund is entitled to a whole
or fractional vote.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Meeting.
Shareholder and Board Approvals. The Interim Advisory Agreements, the
Interim Sub-Advisory Agreement and the Reorganization Agreement are being
submitted for approval at the Meeting by Emerald's shareholders pursuant to the
Order
27
<PAGE>
and the provisions of Emerald's Agreement and Declaration of Trust. With
respect to each Emerald Fund, approval and ratification of the applicable
Interim Advisory Agreement requires the approval of a majority of the
outstanding shares of that Emerald Fund voting separately on a
portfolio-by-portfolio basis. With respect to the Emerald Tax-Exempt Fund,
approval of the Interim Sub-Advisory Agreement requires the approval of a
majority of the outstanding shares of that Emerald Fund voting separately. The
Reorganization Agreement must be approved by a majority of the outstanding
shares of the Emerald Funds voting separately on a portfolio-by-portfolio basis
and the reorganization of Emerald contemplated therein must be approved by a
majority of the shares outstanding and entitled to vote, voting in the
aggregate, of all of the series of Emerald, including those funds that are not
part of this Proxy/Prospectus. A vote for the Reorganization Agreement includes
a vote for the reorganization of Emerald; correspondingly, a vote against the
Reorganization Agreement is a vote against the reorganization of Emerald.
Separate proxy solicitation materials are being mailed to the shareholders of
all other series of Emerald seeking the approval of similar agreements and
plans of reorganization and, consequently, also Emerald's reorganization.
The Reorganization Agreement provides that in the event the Reorganization
Agreement is approved with respect to less than all of the Emerald Funds, the
failure of an Emerald Fund to consummate the transactions contemplated by the
Reorganization Agreement shall not affect the consummation or validity of the
Reorganization with respect to any other Emerald Funds. It is possible that a
majority of an Emerald Fund's shareholders may approve the Reorganization
Agreement while a sufficient majority of all shareholders of all Emerald series
voting in the aggregate does not vote to approve the reorganization of Emerald.
In such a case, the Board of Trustees will contemplate what further action is
appropriate.
With respect to the approval of the Interim Agreements, the term "majority
of the outstanding shares" of an Emerald Fund means the lesser of (i) 67% of
the shares of the particular Fund present at the Meeting if the holders of more
than 50% of the outstanding shares of such Fund are present or (ii) more than
50% of the outstanding shares of the particular Fund. With respect to the
approval of the Reorganization Agreement and the reorganization contemplated
therein, the term "majority of the outstanding shares" of Emerald or an Emerald
Fund means more than 50% of the outstanding shares of Emerald or the particular
Emerald Fund, as applicable. The vote of the shareholders of the Nations Funds
is not being solicited, since their approval or consent is not necessary for
the Reorganization.
The approval of the Interim Advisory Agreements by the Board of Trustees
of Emerald is discussed above under "Information Relating to Proposal 1 --
Approval of the Interim Agreements-approval of Emerald's Board of Trustees."
The approval of the Reorganization Agreement by the Board of Trustees of
Emerald is discussed above under "Information Relating to Proposal 2 --
Approval of the Reorganization Agreement -Emerald Board Consideration." The
Reorganization Agreement was approved by the Board of Trustees of Nations at a
meeting held on January 16, 1998.
As of March 12, 1998, the officers and Trustees of Emerald as a group
owned less than 1% of any of the Emerald Funds. As of March 12, 1998, the
officers and Trustees of Nations as a group owned less than 1% of any of the
Nations Funds, except that individually, Charles Walker, a Nations Trustee,
owns 1.03% of the Investor B Class of shares in Florida Municipal Bond Fund.
Table IV(A) shows the name, address and share ownership of each person known to
Emerald to have beneficial or record ownership with respect to 5% or more of a
class of an Emerald Fund as of March 12, 1998. Table IV(B) shows the name,
address and share ownership of each person known to Nations to have beneficial
or record ownership with respect to 5% or more of a class of a Nations Fund as
of March 12, 1998.
TABLE IV(A)
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- --------------- ------------------------------------- ------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balanced Fund BBTC N.A. Trst BBI & Its Affiliates Institutional: 17.92% 16.08% 6.82%
401H Plan 1,093,483 Shares;
Attn: Income Collections Record Holder
P.O. Box 40200
Jacksonville, FL 32203-0200
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- -------------- --------------------------------------- ------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BBTC N.A. Institutional: 19.37% 17.38% 7.42%
Trst BB of FL Emp Disability Pl & Tr 1,189,106 Shares;
Attn: Income Collections Record Holder
P.O. Box 40200
Jacksonville, FL 32203-0200
Barnett Banks Trust Company N.A. Institutional: 6.92% 6.21% 2.63%
for Disability Pl & Employee Barnett 422,507 Shares;
Attn: Income Collections Record Holder
P.O. Box 40200
Jacksonville, FL 32203-0200
Barnett Banks Trust Company N.A. Institutional: 12.63% 11.34% 4.81%
FBO Barnett Emp Savings & Thrift 770,966 Shares;
Plan Record Holder
Attn: Income Collections
P.O. Box 40200
Jacksonville, FL 32203-0200
Corelink Financial Inc. Institutional: 11.51% 10.33% 4.38%
P.O. Box 4054 702,590 Shares;
Concord, CA 94524 Record Holder
Equity BBTC N.A. Institutional: 28.14% 22.90% 13.66%
Trst Barnett Employee Svgs and Thrift 3,954,801 Shares;
Plan Record Holder
Attn: Income Collections
P.O. Box 40200
Jacksonville, FL 32203-0200
BBTC N.A. Institutional: 16.99% 13.83% 8.25%
Trst Retirement Pl & Tr of 2,387,925 Shares;
BBI & Affiliates Record Holder
Attn: Income Collections
P.O. Box 40200
Jacksonville, FL 32203-0200
Corelink Financial Inc. Institutional: 5.20% 4.23% 2.52%
P.O. Box 4054 730,795 Shares;
Concord, CA 94524 Record Holder
Wendel & Co. Retail: 6.10% 1.13% .67%
c/o Bank of New York Mutual FD 195,925 Shares;
Reorg Dpt. Record Holder
P.O. Box 1066 Wall Street Station
New York, NY 10268
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- -------------------- --------------------------------------- ------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Equity Value BBTC N.A. Institutional: 5.29% 4.05% 0.00%
Trst Winderweedle Haines 69,174 Shares;
Ward & Woodman Record Holder
Profit Sharing Plan
Attn: Income Collections
P.O. Box 40200
Jacksonville, FL 32203-0200
Florida Tax-Exempt Barnett Banks Trust Company N.A. Institutional: 9.20% 2.91% 2.14%
Fund FBO 329,246 Shares;
Gene J. Dodson Record Holder
Attn: Income Collections
P.O. Box 40200
Jacksonville, FL 32203-0200
National Financial Services Retail: 71.14% 48.66% 35.86%
Corporation for the Exclusive 5,508,930 Shares;
Benefit of Our Customers Record Holder
P. O. Box 3908
Church Street Station
New York, NY 10008
Managed Bond Barnett Banks Trust Company N.A. Institutional: 8.45% 8.17% .45%
Barnett Employee Thrift & Savings 789,178 Shares;
Attn: Income Collections Record Holder
P.O. Box 40200
Jacksonville, FL 32203-0200
Barnett Banks Trust Company N.A. Institutional: 8.54% 8.26% .46%
Trst of North Florida Foundation Inc. 797,905 Shares;
Attn: Income Collections Record Holder
P.O. Box 40200
Jacksonville, FL 32203-0200
National Financial Services Retail: 6.08% 0.20% 0.00%
Corporation for the Exclusive 19,448 Shares;
Benefit of Our Customers/FBO Record Holder
John C. Agent
2937 South Atlantic Ave 1603
Daytona Beach, FL 32118
Short-Term Fixed Barnett Bank N.A. Institutional: 5.09% 4.86% 1.03%
Income Cust Florida Bar Fdn Coa 493,936 Shares;
P.O. Box 40200 Record Holder
Jacksonville, FL 32203-0200
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- -------------- -------------------------------- ------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
National Financial Services Retail: 6.33% 0.28% 0.00%
Corporation for the Exclusive 27,936 Shares;
Benefit of Our Customers Record Holder
Evergreen Club Inc.
4225 SW Bimini Circle
Palm City, FL 34990
National Financial Services Retail: 5.10% 0.22% 0.00%
Corporation for the Exclusive 22,504 Shares;
Benefit of Our Customers Record Holder
Wild Brothers Inc.
3111 Old Edwards Rd.
Ft. Pierce, FL 34981
Tax Exempt Barnett Banks Trust Company NA Institutional: 100% 63.86% 4.45%
Funds Management 119,661,410
Attn: Bill Lendzian Shares;
P.O. Box 40200 Record Holder
Jacksonville, FL 32203-0200
Barnett Service: 97.94% 0.29% 0.00%
M/C576-1215 Investment Ops 547,955 Shares;
Mutual Funds Desk Record Holder
P.O. Box 45147
Jacksonville, FL 32232-5147
National Financial Services Retail: 99.89% 35.80% 0.00%
Corporation for the Exclusive 67,083,709
Benefit of Our Customers Shares;
P. O. Box 3752 Record Holder
Church Street Station
New York, NY 10008-3752
</TABLE>
TABLE IV(B)
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- ----------------- -------------------------------- -------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balanced Assets The Bank of New York TTEE Primary A: 30.52% 5.01% 2.93%
Hitachi Semiconductors Pension 521,836.385 Shares;
Plan Record Holder
Attn: Stella Brown
One Wall Street 12th Floor
New York, NY 10286
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- -------------------- -------------------------------- ----------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
NationsBank Of Texas NA Primary A: 26.58% 4.43% 2.55%
Attn: Adrian Castillo 454,537.725 Shares;
1401 Elm Street 11th Floor Record Holder
Dallas, TX 75202-2911
Bankers Trust FBO Primary A: 15.80% 2.63% 1.52%
Gardner Denver 192257 270,112.554 Shares;
P.O. Box 9014 Record Holder
Church Street Station
New York, NY 10008
Reliance Trust Co. Primary A: 12.65% 2.11% 1.21%
P.O. Box 48449 216,407.497 Shares;
Atlanta, GA 30362 Record Holder
Carn & Co. 02176101 Primary A: 6.59% 1.10% .63%
Metal Industries 401K Plan 112,648.360 Shares;
Attn: Mutual Funds-Star Record Holder
P.O. Box 96211
Washington, DC 20090-6211
FTC & Co. TBG Primary A: 5.81% .97% .56%
Virkler 401K Plan 99,297.337 Shares;
U/A DTD 10/13/1997 Record Holder
P.O. Box 17748
Denver, CO 80217-0748
NFSC FEBO # 279-053856 Investor A: 13.55% 1.81% 1.04%
American Industries Trust Comp 185,602.541 Shares;
American I Trust Company TTEE Record Holder
U/A 08/22/97
5700 NW Central Dr. FL 4
Houston, TX 77092-2037
DWR Cust For Thomas E Roberts Investor A: 7.62% 1.01% .58%
FBO Pooled Account 104,314.459 Shares;
VIP Plus PFT Sharing DTD Record Holder
09/08/97
2929 Carlisle Suite 250
Dallas, TX 75204-1079
Disciplined Equity NationsBank Of Texas NA Primary A: 96.30% 66.21% 26.79%
Attn: Adrian Castillo 5,715,241.238
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- ------------------- -------------------------------------- ----------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
MAC & Co. A/C MMHF2002032 Investor A: 35.90% 3.85% 1.56%
Memorial Mission Hospital 333,356.538 Shares;
Attn: Mutual Funds Operations Record Holder
P.O. Box 3198
Pittsburgh, PA 15230-3198
Value NationsBank Of Texas NA Primary A: 80.61% 70.93% 70.16%
Attn: Adrian Castillo 92,886,815.560
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
NationsBank of Texas TTEE Primary A: 14.18% 12.47% 12.34%
NB 401K Plan 16,335,792.585
U/A DTD 01/01/1983 Shares;
P.O. Box 2518 Record Holder
Houston, TX 77252-2518
MAC & Co. A/C MMHF2002032 Investor A: 7.51% .42% .42%
Memorial Mission Hospital 554,941.089 Shares;
Attn: Mutual Funds Operations Record Holder
P.O. Box 3198
Pittsburgh, PA 15230-3198
Florida Municipal NationsBank Of Texas NA Primary A: 99.87% 58.73% 15.47%
Bond Attn: Adrian Castillo 2,711,878.177
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
Jacqueline Bailes & Charles E Investor A: 64.91% 2.40% .63%
Bailes Jr. & Charles E. Bailes III & 110,819.023 Shares;
J D Bailes - Bailes Investment Acct Record Holder
6212 Dartmoor Ct
Orlando, FL 32819
Eskel K & Patricia E Buckland As Investor A: 7.32% .27% 0.00%
Co-Trustees of the Eskel K and 12,500 Shares;
Patricia Buckland Living Trust Record Holder
U/A DTD 02/10/95
631 SW 6th Street LGV 1001
Pompano Beach, FL 33060
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- ----------------- -------------------------------- ---------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Harold A Dargel and Phyllis A Investor A: 7.25% .27% 0.00%
Dargel Co-TTEES 12,383.273 Shares;
Harold A Dargel Rev TR DTD Record Holder
10-20-89
5721 SW 16th Court
Plantation, FL 33317-5901
NFSC FEBO #X92-083593 Investor A: 6.01% .22% 0.00%
Joseph G Minde 10,260.957 Shares;
Sarina Achter Record Holder
8390 Sands Point Blvd
Tamarac, FL 33321
Arthur W Ihle Trustee Investor A: 6.00% .22% 0.00%
Arthur W Ihle Revoc Liv Trust 10,239.713 Shares;
DTD 11-21-94 Record Holder
910 Dogwood Dr Apt 447
Delray Beach, FL 33483
Strategic Fixed NationsBank Of Texas NA Primary A: 93.16% 91.62% 86.57%
Income Attn: Adrian Castillo 155,287,576.298
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
Bankers Trust Co Cust FBO Investor A: 9.60% .14% .13%
Dimensions Health Corp 230,532.053 Shares;
9200 Basil Court Suite 500 Record Holder
Landover, MD 20785
Mercantile Safe Dep & Trust Co Investor A: 8.50% .12% .11%
TTEE 204,014.638 Shares;
Case Communications Defined Record Holder
Benefit Plan A/C#3400306
U/A DTD 05/28/1984
766 Old Hammonds Ferry Rd
Linthicum, MD 21090
Farm Equipment Co of Asheville Investor A: 5.20% .07% 0.00%
Inc 124,849.776 Shares;
Profit Sharing Plan & Trust Record Holder
P.O. Box 2745
Asheville, NC 28802
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- ------------------- ------------------------------- --------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Short Term Income NationsBank Of Texas NA Primary A: 93.97% 88.84% 70.08%
Attn: Adrian Castillo 34,560,491.002
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
Bankers Trust Co Cust FBO Investor A: 26.40% .92% .73%
Dimensions Health Corp 359,123.26 Shares;
9200 Basil Court Suite 500 Record Holder
Landover, MD 20785
Michael D Shea Investor A: 6.93% .24% .19%
4770 South Atlanta Road 94,200.249 Shares;
Smyrna, GA 30080 Record Holder
DWR Cust For Thomas J Klug Investor A: 6.83% .24% .19%
MD 92,943.659 Shares;
FBO Thomas J Klug Record Holder
VIP Plus Mon Purch Pl DTD
02/02/98
1802 S Parkwood
Harlinger, TX 78550-8035
Roger W Sant Investor A: 6.66% .23% .18%
1001 N 19th Street Suite 2000 90,655.115 Shares;
Arlington, VA 22209-0000 Record Holder
Southern Gas Association Investor A: 6.20% .22% .17%
Investment Fund 84,316.469 Shares;
Attn: Dotty Thornhill Record Holder
3030 LBJ Freeway #1300 LB 60
Dallas, TX 75234
Tax Exempt NationsBank Of Texas NA Primary A: 95.91% 76.31% 70.99%
Attn: Adrian Castillo 1,909,434,735.57
1401 Elm Street 11th Floor Shares;
Dallas, TX 75202-2911 Record Holder
H J Freede Daily Shares: 15.17% 0.00% 0.00%
Operating Account 1,774,869.75
430 NW 13th St Shares;
Oklahoma City, OK 73103-3711 Record Holder
Arkansas Valley Petroleum Daily Shares: 14.15% 0.00% 0.00%
Attn: Karen 1,655,447.38
8316 E 73rd St Shares;
Tulsa, OK 74133-2926 Record Holder
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Percentage Percentage Percentage
Name and Shares Owned; of of of Fund
Emerald Fund Address Type of Ownership Class Fund Post-Closing
- -------------- ---------------------------------- -------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
National Financial For the Daily Shares: 10.16% 0.00% 0.00%
Exclusive Benefit of Our 1,189,534.68
Customers Shares;
200 Liberty St Record Holder
1 World Financial Ctr
Attn: Mutual Funds 5th Flr
New York, NY 10281
L D Supply, Inc Daily Shares: 6.58% 0.00% 0.00%
P.O. Box 12070 770,513.15 Shares;
Wichita, KS 67277-2070 Record Holder
H J Freede Inc Daily Shares: 6.51% 0.00% 0.00%
430 NW 13th St 761,448.97 Shares;
Oklahoma City, OK 73103-3711 Record Holder
Autocraft Industries Inc Daily Shares: 5.72% 0.00% 0.00%
Fred Jones Manufacturing Co 669,733.98 Shares;
Attn Maya Balan Record Holder
123 S Hudson Ave
Oklahoma City, OK 73102-5050
David O Cordell Daily Shares: 5.24% 0.00% 0.00%
1805 Drury Ln 613,777.070 Shares;
Oklahoma City, OK 73116-5311 Record Holder
Fred Jones Ford of Oklahoma City Daily Shares: 5.20% 0.00% 0.00%
Finance & Real Estate Division 608,329.98 Shares;
123 S. Hudson Ave Record Holder
Oklahoma City, OK 73102-5020
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class, or is identified as the holder of record of
more than 25% of a class and has voting and/or investment power, it may be
presumed to control such class.
Nations and Emerald have been advised by NationsBank that the shares of
each Emerald Fund over which NationsBank and its affiliates have voting power
may be voted: by NationsBank itself in its capacity as fiduciary; by
NationsBank pursuant to instructions from underlying beneficial holders; or by
one or more independent fiduciaries. In certain cases, NationsBank and its
affiliates may have the power to vote, as record holder of Emerald Fund shares,
50% or more of the outstanding shares of an Emerald Fund.
Quorum. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Interim Agreements and/or the Reorganization Agreement are not
received by one or more of the Emerald Funds, one or more adjournment(s) may be
proposed to permit further solicitation of proxies. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting. Any such adjournment(s) will require the affirmative vote of
a majority of those shares affected by the adjournment(s) that are present and
voting at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to
vote FOR the particular proposal for which a quorum exists in favor of such
adjournment(s),
36
<PAGE>
and will vote those proxies required to be voted AGAINST such proposal against
any adjournment(s). A shareholder vote may be taken with respect to one or more
Emerald Funds (but not the other Emerald Funds) on some or all matters before
any such adjournment(s) if sufficient votes have been received for approval. A
quorum is constituted with respect to Emerald or an Emerald Fund by the
presence in person or by proxy of the holders of more than 50% of the
outstanding shares of Emerald or the Emerald Fund entitled to vote at the
Meeting. For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions will be treated as shares that are present
at the Meeting but which have not been voted. Abstentions will have the effect
of a "no" vote for purposes of obtaining the requisite approvals. Broker "non-
votes" (that is, proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owners or other persons
entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will not be treated as
shares that are present at the Meeting and, accordingly, could make it more
difficult to obtain the requisite approvals.
Annual Meetings and Shareholder Meetings. Neither Nations nor Emerald
presently intends to hold annual meetings of shareholders for the election of
trustees and other business unless otherwise required by the 1940 Act. Under
certain circumstances, however, holders of at least 10% of the outstanding
shares of either Emerald or Nations have the right to call a meeting of
shareholders.
ADDITIONAL INFORMATION ABOUT NATIONS
Additional information about the Nations Funds is included in their
prospectuses and statements of additional information dated August 1, 1997, as
supplemented through the date hereof copies of which, to the extent not
included herewith, may be obtained without charge by writing or calling Nations
at the address and telephone number set forth on the first page of this
Proxy/Prospectus. Nations is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in
accordance therewith it files reports, proxy materials and other information
with the SEC. Reports and other information filed by Nations can be inspected
and copied at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the offices of Nations listed
above. In addition, these materials can be inspected and copied at the SEC's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
Officers of Nations are elected by, and serve at the pleasure of, the
Board of Trustees. Officers of Nations receive no remuneration from Nations for
their services in such capacities.
Information included in this Proxy/Prospectus concerning Nations was
provided by Nations.
ADDITIONAL INFORMATION ABOUT EMERALD
Additional information about the Emerald Funds is included in their
prospectuses and statements of additional information, dated April 1, 1997 as
supplemented through the date hereof and redated March 25, 1998, which have
been filed with the SEC. Copies of these prospectuses and the related
statements of additional information may be obtained without charge by writing
or calling Emerald at the address and telephone number set forth on the first
page of this Proxy/Prospectus. Reports and other information filed by Emerald
can be inspected and copied at the Public Reference Facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the offices of
Emerald listed above. In addition, these materials can be inspected and copied
at the SEC's Regional Offices at 7 World Trade Center, Suite 1300, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials also can be obtained
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates.
Information included in this Proxy/Prospectus concerning Emerald was
provided by Emerald.
FINANCIAL STATEMENTS
The unaudited financial statements and financial highlights for shares of
the Nations Funds for the semi-annual period ended September 30, 1997 are
included or incorporated by reference in their prospectuses or statements of
additional information, or in the statement of additional information related
to this Proxy/Prospectus. The audited financial statements and
37
<PAGE>
financial highlights for shares of the Emerald Funds for the annual period
ended November 30, 1997 are included or incorporated by reference in their
prospectuses or statements of additional information or in the statement of
additional information related to this Proxy/Prospectus.
The annual financial statements and financial highlights of the Nations
Funds which have been audited by Price Waterhouse LLP, independent accountants
as stated in their reports thereon, also are incorporated by reference or
included in such prospectuses and statements of additional information, and
have been incorporated herein by reference in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The audited financial statements and financial highlights of the Nations
Funds as of and for the year ended March 31, 1997, have been incorporated by
reference herein and in the statement of additional information in reliance
upon the report of Price Waterhouse LLP, independent accountants, which is also
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The audited financial statements and financial highlights of the Emerald
Funds for the year ended November 30, 1997, have been incorporated by reference
herein and in the statement of additional information in reliance upon the KPMG
Peat Marwick LLP, independent auditors, which have also been incorporated by
reference herein, upon the authority of such firm as experts in accounting and
auditing.
OTHER BUSINESS
Emerald's Board of Trustees knows of no other business to be brought
before the Meeting. However, if any other matters properly come before the
Meeting, it is the intention that proxies which do not contain specific
instructions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Emerald or to Nations in writing
at the address(es), or by phone at the phone number(s), on the cover page of
this Proxy/Prospectus.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SHAREHOLDERS
ALSO MAY RETURN PROXIES BY TELEFACSIMILE.
EMERALD WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS NOVEMBER 30, 1997
ANNUAL REPORTS TO ANY SHAREHOLDER UPON REQUEST ADDRESSED TO: EMERALD FUNDS 3435
STELZER ROAD, COLUMBUS, OHIO 43219-3035 OR BY TELEPHONE AT 1-800-637-3759.
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APPENDIX I
INTERIM INVESTMENT ADVISORY AGREEMENTS AND
INTERIM SUB-ADVISORY AGREEMENT
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INVESTMENT ADVISORY AGREEMENT
(Equity Fund, Short-Term Fixed Income
Fund, U.S. Government Securities Fund, Florida
Tax-Exempt Fund, Small Capitalization Fund, Balanced Fund,
Managed Bond Fund, International Equity Fund,
Equity Value Fund, Prime Advantage Institutional Fund
and Treasury Advantage Institutional Fund)
AGREEMENT made as of January 9, 1998 between EMERALD FUNDS, a
Massachusetts business trust (herein called the "Trust"), and BARNETT CAPITAL
ADVISORS, INC., a wholly-owned indirect subsidiary of Barnett Banks, Inc.
(herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and other services to the Trust for certain of the Trust's
portfolios, including its Equity Fund, Short-Term Fixed Income Fund, U.S.
Government Securities Fund, Florida Tax-Exempt Fund, Small Capitalization Fund,
Balanced Fund, Managed Bond Fund, International Equity Fund, Equity Value Fund,
Prime Advantage Institutional Fund and Treasury Advantage Institutional Fund
("the Funds") and the Investment Adviser is willing to so furnish such
services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Appointment.
(a) The Trust hereby appoints the Investment Adviser to act as investment
adviser to the Trust's Equity Fund, Short-Term Fixed Income Fund, U.S.
Government Securities Fund, Florida Tax-Exempt Fund, Small Capitalization Fund,
Balanced Fund, Managed Bond Fund, International Equity Fund, Equity Value Fund,
Prime Advantage Institutional Fund and Treasury Advantage Institutional Fund,
for the period and on the terms set forth in this Agreement. The Investment
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
(b) In the event that the Trust establishes one or more portfolios other
than the Funds with respect to which it desires to retain the Investment
Adviser to act as investment adviser hereunder, it shall notify the Investment
Adviser in writing. If the Investment Adviser is willing to render such
services under this Agreement it shall notify the Trust in writing whereupon
such portfolio shall become a Fund hereunder and shall be subject to the
provisions of this Agreement to the same extent as the Funds named above in
subparagraph (a) except to the extent that said provisions (including those
relating to the compensation payable by the Fund to the Investment Adviser) are
modified with respect to such Fund in writing by the Trust and the Investment
Adviser at the time.
(c) It is understood that the Investment Adviser may from time to time
employ or associate with such person or persons as the Investment Adviser may
believe to be particularly fitted to assist it in the performance of this
Agreement with respect to the International Equity Fund, Equity Value Fund,
Prime Advantage Institutional Fund and Treasury Advantage Institutional Fund;
provided, however, that the compensation of such person or persons shall be
paid by the Investment Adviser. In addition, notwithstanding any such
employment or association, the Investment Adviser shall itself (i) in the case
of all such Funds (A) establish and monitor general investment criteria and
policies for such Funds, (B) review and analyze on a periodic basis such Funds'
portfolio holdings and transactions in order to determine their appropriateness
in light of such Funds' shareholder base, and (C) review and analyze on a
periodic basis the policies established by any sub-adviser for such Funds with
respect to the placement of orders for the purchase and sale of portfolio
securities; and (ii) in the case of the International Equity Fund and Equity
Value Fund (D) provide for the investment of such Funds' cash balances to the
extent not provided for by any sub-adviser, (E) review, monitor, analyze and
report to the Board of Trustees on the performance of any sub-adviser, (F)
recommend, either in its sole discretion or in conjunction with any
sub-adviser, potential changes in investment policy, (G) furnish to the Board
of Trustees or any sub-adviser reports, statistics and economic information as
may be requested, (H) review investments in such Funds on a periodic basis for
compliance with such Funds' investment objectives, policies and restrictions as
stated in their Prospectuses; and (I) review jointly with any sub-adviser
country and regional investment allocation guidelines for such Funds, as well
as investment hedging guidelines, if any. Subject to the foregoing, it is
agreed that investment advisory services to the International Equity Fund,
Equity Value Fund,
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Prime Advantage Institutional Fund or Treasury Advantage Institutional Fund may
be provided by a sub-investment adviser (the "Sub-Adviser") pursuant to a
sub-advisory agreement agreeable to the Trust and approved in accordance with
the provisions of the 1940 Act (the "Sub-Advisory Agreement").
2. Delivery of Documents.
The Trust has furnished the Investment Adviser with copies properly
certified or authenticated of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
State Secretary of the Commonwealth of Massachusetts on March 16, 1988, and any
amendments thereto (such Agreement and Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is herein called the
"Declaration of Trust");
(b) The Trust's Code of Regulations and any amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission on March 21, 1988 and
any amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the Securities
Act of 1933 as amended ("1933 Act") (File No. 33-20658) and under the 1940 Act
as filed with the Securities and Exchange Commission on March 21, 1988 and any
amendments thereto; and
(f) The most recent prospectuses of the Funds (such prospectuses together
with the related statement of additional information, as presently filed with
the Securities and Exchange Commission and all amendments and supplements
thereto, are herein called "Prospectuses").
The Trust will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Services.
Subject to the supervision of the Trust's Board of Trustees, the
Investment Adviser will be responsible for the management of, and will provide
a continuous investment program for, the investment portfolio of each Fund,
including investment research and management with respect to all securities,
investments, cash and cash equivalents in the Funds. The Investment Adviser
will determine from time to time what securities and other investments will be
purchased, retained or sold by each of the Funds. The Investment Adviser will
provide the services rendered by it under this Agreement in accordance with
each Fund's investment objective, policies and restrictions as stated in the
Prospectus for each Fund and resolutions of the Trust's Board of Trustees.
Without limiting the generality of the foregoing, the Investment Adviser is
hereby specifically authorized to invest and reinvest the assets of a Fund, in
its discretion as investment adviser, in (i) variable amount demand notes of
corporate borrowers held by the Investment Adviser for the investment of monies
held by the Investment Adviser in its capacity as fiduciary, agent and
custodian and (ii) securities of other investment companies whether or not the
same are advised or managed by the Investment Adviser or another affiliated
person of the Trust. The Investment Adviser further agrees that it will:
(a) Establish and monitor investment criteria and policies for each Fund;
(b) Update each Fund's cash availability throughout the day as required;
(c) Maintain historical tax lots for each portfolio security held by the
Funds;
(d) Transmit trades to the Trust's custodian for proper settlement;
(e) Maintain all books and records with respect to each Fund's securities
transactions;
(f) Supply the Trust and its Board of Trustees with reports, statistical
data and economic information as requested; and
(g) Prepare a quarterly broker security transaction summary and monthly
security transaction listing for each Fund.
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4. Other Covenants.
The Investment Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment determinations for each
Fund either directly with the issuer or with any broker or dealer. In executing
portfolio transactions and selecting brokers or dealers, the Investment Adviser
will use its best efforts to seek on behalf of the Funds the best overall terms
available. In assessing the best overall terms available for any transaction,
the Investment 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-dealer to execute a particular transaction, the
Investment Adviser may also consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Funds and other accounts over which the Investment
Adviser or an affiliate of the Investment Adviser exercises investment
discretion. The Investment Adviser is authorized, subject to the prior approval
of the Trust's Board of Trustees, to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for any of the Funds which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if,
but only if, the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer -- viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Investment Adviser to the Funds. In addition, the Investment Adviser is
authorized to take into account the sale of shares of the Trust in allocating
purchase and sale orders for portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the Investment Adviser
or the Trust's principal underwriter), provided that the Investment Adviser
believes that the quality of the transaction and the commission are comparable
to what they would be with other qualified firms. In no instance, however, will
portfolio securities be purchased from or sold to the Investment Adviser, the
Trust's principal underwriter, or any affiliated person of either the Trust,
the Investment Adviser, or the principal underwriter, acting as principal in
the transaction, except to the extent permitted by the Securities and Exchange
Commission; and
(d) will maintain a policy and practice of conducting its investment
advisory services hereunder independently of the commercial banking operations
of its affiliates. When the Investment Adviser makes investment recommendations
for a Fund, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale
for the Fund's account are customers of the commercial department of any of the
Investment Adviser's affiliates. In dealing with commercial customers, the
Investment Adviser's affiliates will not inquire or take into consideration
whether securities of those customers are held by the Funds.
5. Services Not Exclusive.
The services furnished by the Investment Adviser hereunder are deemed not
to be exclusive, and the Investment Adviser shall be free to furnish similar
services to others so long as its services under this Agreement are 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 Investment Adviser to
be suitable for two or more accounts managed by the Investment Adviser, the
available securities or investments may be allocated in a manner believed by
the Investment Adviser to be equitable to each account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
6. Books and Records.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Investment Adviser hereby agrees that all records which it maintains for each
Fund are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's request. The Investment 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.
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7. Expenses.
During the term of this Agreement, the Investment Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased or sold
for the Funds. In addition, if in any fiscal year the aggregate expenses of the
Equity Fund, U.S. Government Securities Fund or Florida Tax-Exempt Fund (as
defined under the securities regulations of any state having jurisdiction over
such Fund) exceed the expense limitations of any such state, the Trust may
deduct from the fees to be paid hereunder, or the Investment Adviser will bear,
to the extent required by state law, that portion of the excess which bears the
same relation to the total of such excess as the Investment Adviser's fee
hereunder with respect to such Fund bears to the total fee otherwise payable
for the fiscal year by the Trust pursuant to this Agreement and the
administration agreement between the Trust and its administrator with respect
to such Fund. With respect to the other Funds, if in any fiscal year the
aggregate expenses of any Fund (as defined under the securities regulations of
any state having jurisdiction over such Fund) exceed the expense limitation of
any such state, the Trust may deduct from the fees to be paid hereunder, or the
Investment Adviser will bear, to the extent required by state law, that portion
of the excess which bears the same relation to the total of such excess as the
Investment Adviser's fees hereunder with respect to the Fund bears to the total
fees otherwise payable with respect to such Fund for the fiscal year by the
Trust hereunder and under the administration agreement between the Trust and
its administrator. The Investment Adviser's obligation is not limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
estimated and accrued daily and paid on a monthly basis.
8. Compensation.
For the services provided and the expenses assumed pursuant to this
Agreement, the Trust will pay the Investment Adviser, and the Investment
Adviser will accept as full compensation therefor from the Trust, a fee,
computed daily and payable monthly, at the following annual rates of the
average daily net assets of each respective Fund as follows: Equity Fund --
0.60%; Short-Term Fixed Income Fund -- 0.40%; U.S. Government Securities Fund
- -- 0.40%; Florida Tax-Exempt Fund -- 0.40%; Small Capitalization Fund -- 1.00%;
Balanced Fund -- 0.60%; Managed Bond Fund -- 0.40%; International Equity Fund
- -- 1.00%; Equity Value Fund -- 0.60%; Prime Advantage Institutional Fund --
0.10%; and Treasury Advantage Institutional Fund -- 0.10%. Such respective fee
as is 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 fees payable by a Fund under this Section 8 for the period
beginning on the date of this Agreement and ending on the date the shareholders
of the Fund approve this Agreement shall be maintained in an interest-bearing
escrow account until such time as such Fund's shareholders approve the payment
to the Investment Adviser. If a Fund's shareholders do not approve the payment
to the Investment Adviser of such fees for such period, the balance in the
escrow account shall be paid to the Fund.
9. Limitation of Liability.
The Investment 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 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 Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. Duration and Termination.
This Agreement shall become effective as of the date hereof with respect
to the Funds listed in Section 1(a) hereof, and with respect to any additional
Fund, on the date of receipt by the Trust of notice from the Investment Adviser
in accordance with Section 1(b) hereof that the Investment Adviser is willing
to serve as investment adviser with respect to such Fund, provided that this
Agreement (as supplemented by the terms specified in any notice and agreement
pursuant to Section 1(b) hereof) shall have been approved by the shareholders
of such additional Fund in accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect until May 9, 1998 and, if approved by the shareholders of a Fund on or
before such date, shall continue in effect as to that Fund for an additional
period ending on November 30, 1998. Thereafter, if not terminated, this
Agreement shall automatically continue in effect as to a particular Fund for
successive annual periods ending on November 30, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Trust's Board of Trustees who are not interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting such approval, and (b) by the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of such Fund. Notwithstanding the
foregoing, this Agreement may be terminated as to any Fund at any time, without
the payment of any penalty,
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by the Trust (by vote of the Trust's Board of Trustees or by vote of a majority
of the outstanding voting securities of such Fund), or by the Investment
Adviser, on sixty days' written notice. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning as such terms have in the 1940 Act.)
11. Amendment of This Agreement.
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 enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective as to a particular
Fund (in the case of the International Equity Fund, Equity Value Fund, Prime
Advantage Institutional Fund and Treasury Advantage Institutional Fund, only to
the extent required by the 1940 Act) until approved by vote of a majority of
the outstanding voting securities of such Fund.
12. Miscellaneous.
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. 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 and shall be governed by New York law.
13. Names.
The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" 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, shareholders,
or representatives of the Trust personally, but bind only 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.
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.
<TABLE>
<S> <C>
EMERALD FUNDS
Attest: (a Massachusetts business trust)
/s/ JEFFREY A. DALKE By /s/ JOHN G. GRIMSLEY
[Seal]
Attest: BARNETT CAPITAL ADVISORS, INC.
By /s/ JACK A. ABLIN
[Seal]
</TABLE>
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INVESTMENT ADVISORY AGREEMENT
(Tax-Exempt Fund)
AGREEMENT made as of January 9, 1998, between EMERALD FUNDS, a
Massachusetts business trust (herein called the "Trust"), and BARNETT CAPITAL
ADVISORS, INC., a wholly-owned indirect subsidiary of Barnett Banks, Inc.
(herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and other services to the Trust for its Tax-Exempt Fund
portfolio (the "Fund"), and the Investment Adviser is willing to so furnish
such services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Appointment.
The Trust hereby appoints the Investment Adviser to provide the investment
advisory and other services set forth herein to the Trust for its Tax-Exempt
Fund for the period and on the terms set forth in this Agreement. The
Investment Adviser accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
2. Subcontractors.
It is understood that the Investment Adviser will from time to time employ
or associate with such person or persons as the Investment Adviser may believe
to be particularly fitted to assist it in the performance of this Agreement;
provided, however, that the compensation of such person or persons shall be
paid by the Investment Adviser. In addition, notwithstanding any such
employment or association, the Investment Adviser shall itself (a) establish
and monitor general investment criteria and policies for the Fund, (b) review
and analyze on a periodic basis the Fund's portfolio holdings and transactions
in order to determine their appropriateness in light of the Fund's shareholder
base, and (c) review and analyze on a periodic basis the policies established
by any sub-adviser for the Fund with respect to the placement of orders for the
purchase and sale of portfolio securities. Without limiting the generality of
the foregoing, it is agreed that investment advisory services to the Fund shall
be provided by a sub-investment adviser (the "SubAdviser") pursuant to a
sub-advisory agreement agreeable to the Trust and approved in accordance with
the provisions of the 1940 Act (the "Sub-Advisory Agreement").
3. Delivery of Documents.
The Trust has furnished the Investment Adviser with copies properly
certified or authenticated of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
State Secretary of the Commonwealth of Massachusetts on March 16, 1988, and any
amendments thereto (such Agreement and Declaration of Trust, as presently in
effect and as it shall from time to time be amended, is herein called the
"Declaration of Trust");
(b) The Trust's Code of Regulations and any amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission on March 21, 1988 and
any amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the Securities
Act of 1933 as amended ("1933 Act") (File No. 33-20658) and under the 1940 Act
as filed with the Securities and Exchange Commission on March 21, 1988 and any
amendments thereto; and
(f) The most recent prospectus of the Fund (such prospectus together with
the related statement of additional information, as presently in effect and all
amendments and supplements thereto, are herein called "Prospectus").
The Trust will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
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4. Services.
Subject to the supervision of the Trust's Board of Trustees, the
Investment Adviser will be responsible for the management of, and will provide
a continuous investment program for, the Fund, including investment research
and management with respect to all securities, investments, cash and cash
equivalents in the Fund. The Investment Adviser will determine from time to
time what securities and other investments will be purchased, retained or sold
by the Fund. The Investment Adviser will provide the services rendered by it
under this Agreement in accordance with the Fund's investment objective,
policies and restrictions as stated in the Prospectus and resolutions of the
Trust's Board of Trustees. Without limiting the generality of the foregoing,
the Investment Adviser is hereby specifically authorized to invest and reinvest
the assets of the Fund, in its discretion as investment adviser, in (i)
variable amount demand notes of corporate borrowers held by the Investment
Adviser in its capacity as fiduciary, agent and custodian and (ii) securities
of other investment companies whether or not the same are advised or managed by
the Investment Adviser or another affiliated person of the Trust. The
Investment Adviser further agrees that it will:
(a) Establish and monitor general investment criteria and policies for
the Fund;
(b) Update the Fund's cash availability throughout the day as required;
(c) Maintain historical tax lots for each portfolio security held by the
Fund;
(d) Transmit trades to the Trust's custodian for proper settlement;
(e) Maintain appropriate books and records with respect to the Fund's
securities transactions;
(f) Supply the Trust and its Board of Trustees with reports, statistical
data and economic information as requested; and
(g) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for the Fund.
5. Other Covenants.
The Investment Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer. In executing
portfolio transactions and selecting brokers or dealers, the Investment Adviser
will use its best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any transaction,
the Investment 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-dealer to execute a particular transaction, the
Investment Adviser may also consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Fund and other accounts over which the Investment Adviser
or an affiliate of the Investment Adviser exercises investment discretion. The
Investment Adviser is authorized, subject to the prior approval of the Trust's
Board of Trustees, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for the
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Investment Adviser determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by
such broker or dealer -- viewed in terms of that particular transaction or in
terms of the overall responsibilities of the Investment Adviser to the Fund. In
addition, the Investment Adviser is authorized to take into account the sale of
shares of the Trust in allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Investment Adviser, Sub-Adviser or the Trust's principal
underwriter), provided that the Investment Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified firms. In no instance, however, will portfolio securities be
purchased from or sold to the Investment Adviser, Sub-Adviser, the Trust's
principal
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<PAGE>
underwriter, or any affiliated person of either the Trust, the Investment
Adviser, Sub-Adviser or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission; and
(d) will maintain a policy and practice of conducting its investment
advisory services hereunder independently of the commercial banking operations
of its affiliates. When the Investment Adviser makes investment recommendations
for the Fund, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale
for the Fund's account are customers of the commercial department of any of the
Investment Adviser's affiliates. In dealing with commercial customers, the
Investment Adviser's affiliates will not inquire or take into consideration
whether securities of those customers are held by the Fund.
6. Services Not Exclusive.
The services furnished by the Investment Adviser hereunder are deemed not
to be exclusive, and the Investment Adviser shall be free to furnish similar
services to others so long as its services under this Agreement are 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 Investment Adviser to
be suitable for two or more accounts managed by the Investment Adviser, the
available securities or investments may be allocated in a manner believed by
the Investment 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
the Fund or the size of the position obtainable for or disposed of by the Fund.
7. Books and Records.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Investment Adviser hereby agrees that all records which it maintains for the
Fund are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's request. The Investment 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.
During the term of this Agreement, the Investment Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased or sold
for the Fund. In addition, if in any fiscal year the aggregate expenses of the
Fund (as defined under the securities regulations of any state having
jurisdiction over the Fund) exceed the expense limitations of any such state,
the Investment Adviser will reimburse the Trust, to the extent required by
state law, for 50% of such excess expenses of the Fund. The Investment
Adviser's obligation is not limited to the amount of its fees hereunder. Such
reimbursement, if any, will be estimated and accrued daily and paid on a
monthly basis.
9. Compensation.
For the services provided and the expenses assumed pursuant to this
Agreement, the Trust will pay the Investment Adviser, and the Investment
Adviser will accept as full compensation therefor from the Trust, a fee,
computed daily and payable monthly, at the annual rate of .25% of the average
daily net assets of the Fund. Such fee shall be a separate charge to the Fund
and shall be the several (and not joint or joint and several) obligation of the
Fund. The fees payable by the Fund under this Section 9 for the period
beginning on the date of this Agreement and ending on the date the shareholders
of the Fund approve this Agreement shall be maintained in an interest-bearing
escrow account until such time as the Fund's shareholders approve the payment
of such fees to the Investment Adviser. If the Fund's shareholders do not
approve the payment to the Investment Adviser of such fees for such period, the
balance in the escrow account shall be paid to the Fund.
10. Limitation of Liability.
The Investment 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 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 Investment Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
11. Duration and Termination.
This Agreement shall become effective as of the date hereof. Unless sooner
terminated as provided herein, this Agreement shall continue in effect until
May 9, 1998 and, if approved by the shareholders of the Fund on or before such
date,
I-9
<PAGE>
shall continue in effect for an additional period ending on November 30, 1998.
Thereafter, if not terminated, this Agreement shall automatically continue in
effect for successive annual periods ending on November 30, provided such
continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Trust's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting such approval, and (b) by the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund. Notwithstanding the foregoing, this Agreement may be terminated as to the
Fund at any time, without the payment of any penalty, by the Trust (by vote of
the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund), or by the Investment Adviser, on sixty days'
written notice. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as such terms have in the 1940 Act.)
12. Amendment of This Agreement.
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 enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by
vote of a majority of the outstanding voting securities of the Fund.
13. Miscellaneous.
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. 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 and shall be governed by New York law.
14. Names.
The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" 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, shareholders,
or representatives of the Trust personally, but bind only 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.
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.
<TABLE>
<S> <C>
EMERALD FUNDS
(a Massachusetts business trust)
Attest:
/s/ JEFFREY A. DALKE By /s/ JOHN G. GRIMSLEY
[Seal]
Attest: BARNETT CAPITAL ADVISORS, INC.
By /s/ JACK A. ABLIN
[Seal]
</TABLE>
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<PAGE>
SUB-INVESTMENT ADIVSORY AGREEMENT
(Tax-Exempt Fund)
AGREEMENT made as of January 9, 1998 between BARNETT CAPITAL ADVISORS,
INC., a wholly-owned indirect subsidiary of Barnett Banks, Inc. (herein called
the "Adviser"), and RODNEY SQUARE MANAGEMENT CORPORATION, a Delaware
corporation (herein called the "Sub-Adviser").
WHEREAS, EMERALD FUNDS, a Massachusetts business trust (herein called the
"Trust"), is registered as an open-end, management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement by and between the
Trust and the Adviser (herein called the "Investment Advisory Agreement"), the
Adviser has agreed to furnish investment advisory services to the Trust with
respect to its Tax-Exempt Fund investment portfolio (the "Fund"); and
WHEREAS, the Investment Advisory Agreement authorizes the Adviser to
sub-contract investment advisory services with respect to the Fund to the
Sub-Adviser pursuant to a sub-advisory agreement agreeable to the Trust and
approved in accordance with the provisions of the 1940 Act; and
WHEREAS, this Agreement has been so approved, and the Sub-Adviser is
willing to furnish sub-advisory services to the Fund upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
The Adviser hereby appoints the Sub-Adviser to act as sub-investment
adviser to the Trust's Tax-Exempt Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Services of Sub-Adviser.
Subject to the oversight and supervision of the Adviser and the Trust's
Board of Trustees, the Sub-Adviser will provide a continuous investment program
for the Fund, including investment research and management with respect to all
securities, investments, cash and cash equivalents in the Fund. The Sub-Adviser
will determine from time to time what securities and other investments will be
purchased, retained or sold by the Fund. The Sub-Adviser will provide the
services rendered by it under this Agreement in accordance with the investment
criteria and policies established from time to time for the Fund by the
Adviser, the Fund's investment objective, policies and restrictions as stated
in the Trust's Prospectus and Statement of Additional Information for the Fund,
and resolutions of the Trust's Board of Trustees.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Fund's accountant for the purpose of
updating the Fund's cash availability throughout the day as required;
(b) Maintain historical tax lots for each portfolio security held by the
Fund;
(c) Transmit trades to the Trust's custodian for proper settlement;
(d) Maintain all books and records with respect to the Fund that are
required to be maintained under Rule 31a-1(f) under the 1940 Act;
(e) Supply the Trust and its Board of Trustees with reports, statistical
data and economic information as requested; and
(f) Prepare a quarterly broker security transaction summary and, if
requested in advance, monthly security transaction listing for the Fund.
3. Other Covenants.
The Sub-Adviser agrees that it:
(a) will comply with all applicable Rules and Regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law;
I-11
<PAGE>
(b) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(c) will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any 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 the 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-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934)
provided to the Fund or other accounts over which the Sub-Adviser or an
affiliate of the Sub-Adviser exercises investment discretion. The Sub-Adviser
is authorized, subject to the prior approval of the Adviser and the Trust's
Board of Trustees, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for the
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer -- viewed in terms of that particular transaction or in terms
of the overall responsibilities of the Sub-Adviser to the Fund. In addition,
the Sub-Adviser is authorized to take into account the sale of shares of the
Trust in allocating purchase and sale orders for portfolio securities to
brokers or dealers (including brokers and dealers that are affiliated with the
Adviser, Sub-Adviser or the Trust's principal underwriter), provided that the
Sub-Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified firms. In no instance,
however, will portfolio securities be purchased from or sold to the Adviser,
Sub-Adviser, the Trust's principal underwriter or any affiliated person of
either the Trust, the Adviser, Sub-Adviser, or the principal underwriter,
acting as principal in the transaction, except to the extent permitted by the
Securities and Exchange Commission; and
(d) will maintain a policy and practice of conducting its sub-investment
advisory services hereunder independently of its, and any of its affiliates',
commercial banking operations. When the Sub-Adviser makes investment
recommendations for the Fund, its investment advisory personnel will not
inquire or take into consideration whether the issuers of securities proposed
for purchase or sale for the Fund's account are customers of its, or any of its
affiliates', commercial department. In dealing with commercial customers, the
commercial department of the Sub-Adviser, or any of its affiliates, will not
inquire or take into consideration whether securities of those customers are
held by the Fund.
4. 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 services under this Agreement are 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 the Fund or the size of the position
obtainable for or disposed of by the Fund.
5. Books and Records.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which it maintains for the Fund are
the property of the Trust and further agrees to surrender promptly to the Trust
any of such records upon the Trust's 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 it under this Agreement.
6. Expenses.
During the term of this Agreement, the Sub-Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement other
than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction costs, if any) purchased or sold
for the Fund. In addition, if in any fiscal year the aggregate expenses of the
Fund (as defined under the securities regulations of any state having
jurisdiction over the Fund) exceed the expense limitations of any such state,
the Sub-Adviser will reimburse the Trust, to the extent required by state law,
for 50% of such excess expenses of the Fund; provided that to the extent the
Adviser reimburses the Trust for such expenses, then
I-12
<PAGE>
the Sub-Adviser will make its reimbursement hereunder to the Adviser instead;
and provided further that such reimbursement will not be required to the extent
that the Sub-Adviser's fee has been reduced pursuant to Section 7 hereof as a
result of reimbursements made by the Adviser to the Trust. The Sub-Adviser's
obligation with respect to the Fund is limited to the amount of its fees
hereunder from the Fund. Such reimbursement, if any, will be estimated and
accrued daily and paid on a monthly basis.
7. Compensation.
For the services provided 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, computed daily and payable
monthly, at the annual rate of .15% of the average daily net assets of the Fund
minus such amount, if any, that the Adviser has reimbursed the Trust in the
event the aggregate expenses of the Fund exceed the expense limitations of any
state having jurisdiction over the Fund. Such fee shall be a separate charge to
the Fund and shall be the several (and not joint or joint and several)
obligation of the Fund. The fees payable by the Adviser under this Section 7
for the period beginning on the date of this Agreement and ending on the date
the shareholders of the Fund approve this Agreement shall be maintained in an
interest-bearing escrow account until such time as the Fund's shareholders
approve the payment of such fees to the Sub-Adviser. If the Fund's shareholders
do not approve the payment to the Sub-Adviser of such fees for such period, the
balance in the escrow account shall be paid to the Fund. The Sub-Adviser
acknowledges that it shall not be entitled to any further compensation from
either the Adviser or the Trust in respect of the services provided and
expenses assumed by it under this Agreement.
8. Limitation of Liability.
The Sub-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 this Agreement, except that the Sub-Adviser shall be liable to the Trust for
any loss resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services or any loss resulting from willful misfeasance,
bad faith or negligence on the part of the Sub-Adviser in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
9. Duration and Termination.
This Agreement will become effective as of the date first above written.
Unless sooner terminated as provided herein this Agreement shall continue in
effect until May 9, 1998 and, if approved by the shareholders of the Fund on or
before such date, shall continue in effect for an additional period ending on
November 30, 1998. Thereafter, if not terminated, this Agreement shall
automatically continue in effect for successive annual periods ending on
November 30, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund. Notwithstanding the foregoing, this Agreement
may be terminated as to the Fund at any time, without the payment of any
penalty, by the Adviser or by the Trust (by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
Fund), on sixty days' written notice to the Sub-Adviser, or by the Sub-Adviser,
on sixty days' written notice to the Trust, provided that in each such case,
notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to the contrary, in the event of the
termination of the Investment Advisory Agreement with respect to the Fund for
any reason (whether by the Trust, by the Adviser or by operation of law) this
Agreement shall terminate upon the effective date of such termination of the
Investment Advisory Agreement. This Agreement will also immediately terminate
in the event of its assignment. (As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested persons" and "assignment"
shall have the same meaning as such terms have in the 1940 Act.)
10. Amendment of This Agreement.
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 enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by
vote of a majority of the outstanding voting securities of the Fund.
11. Miscellaneous.
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. If any provision of this Agreement shall
be held or
I-13
<PAGE>
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 and shall be governed by Delaware law.
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.
BARNETT CAPITAL ADVISORS, INC.
By: /s/ Jack A. Albin
--------------------------
Title: President
RODNEY SQUARE MANAGEMENT
CORPORATION
By: /s/ Joseph M. Fahey, Jr.
--------------------------
Title: Vice-President
I-14
<PAGE>
APPENDIX II
AGREEMENT AND PLAN OF REORGANIZATION
II-1
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
this 25th day of March, 1998, by and between Nations Fund Trust ("Nations
Fund"), a Massachusetts business trust, for itself and on behalf of Nations
Balanced Assets Fund, Nations Disciplined Equity Fund, Nations Florida
Municipal Bond Fund, Nations Short-Term Income Fund, Nations Strategic Fixed
Income Fund, Nations Tax Exempt Fund and Nations Value Fund (each an "Acquiring
Fund" and collectively the "Acquiring Funds"), all portfolios of Nations Fund,
and Emerald Funds ("Emerald Funds"), a Massachusetts business trust, for itself
and on behalf of the Emerald Balanced Fund, Emerald Equity Fund, Emerald Equity
Value Fund, Emerald Florida Tax-Exempt Fund, Emerald Managed Bond Fund, Emerald
Short-Term Fixed Income Fund and Emerald Tax-Exempt Fund (each an "Acquired
Fund" and collectively the "Acquired Funds"), all portfolios of Emerald Funds.
In accordance with the terms and conditions set forth in this Agreement,
the parties desire that all of the Fund Assets (as defined in paragraph 1.2.a.)
of each Acquired Fund be transferred to each Acquiring Fund corresponding
thereto, as set forth in the table attached hereto as Schedule A, in exchange
for shares of specified classes of the corresponding Acquiring Fund ("Acquiring
Fund Shares") and the assumption by each Acquiring Fund of the Liabilities (as
defined in paragraph 1.3) of each corresponding Acquired Fund, and that such
Acquiring Fund Shares be distributed immediately after the Closing(s), as
defined in this Agreement, by each Acquired Fund to its shareholders in
liquidation of each Acquired Fund. This Agreement is intended to be and is
adopted as a plan of reorganization for each Acquired Fund within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
In consideration of the promises and of the covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound
hereby, covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUNDS
1.1. Subject to the terms and conditions herein set forth, and on the
basis of the representations and warranties contained herein, each Acquired
Fund shall assign, deliver and otherwise transfer its assets as set forth in
paragraph 1.2.a (the "Fund Assets") to its corresponding Acquiring Fund
identified in Schedule A, and such corresponding Acquiring Fund shall, as
consideration therefor, on the Closing Date (as defined in paragraph 3.1), (i)
deliver to each corresponding Acquired Fund the full and fractional number of
shares of each of its share classes calculated by dividing the value of the
Fund Assets less the Liabilities of the corresponding Acquired Fund that are so
conveyed and are attributable to each of the Acquiring Fund's respective share
classes set forth in Schedule A, computed in the manner and as of the time and
date set forth in this Agreement, by the net asset value of one Acquiring Fund
share of the particular share class that is to be delivered with respect
thereto, computed in the manner and as of the time and date set forth in this
Agreement; and (ii) assume all of such Acquired Fund's Liabilities. Such
transfer, delivery and assumption shall take place at the closing(s) provided
for in paragraph 3.1 (hereinafter sometimes referred to as the "Closing(s)").
Promptly after the Closing(s), each Acquired Fund shall distribute the
Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation
of the Acquired Fund as provided in paragraph 1.4 hereof. Such transaction(s)
are hereinafter sometimes collectively referred to as the "Reorganization(s)."
1.2.a. With respect to each Acquired Fund, the Fund Assets shall consist
of all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, claims and receivables
(including dividend and interest receivables) owned by each Acquired Fund, and
any prepaid expenses shown as an asset on each Acquired Fund's books on the
Closing Date.
1.2.b. At least fifteen (15) business days prior to the Closing Date, each
Acquired Fund will provide the corresponding Acquiring Fund with a schedule of
its securities and other assets, and Liabilities of which it is aware, and such
Acquiring Fund will provide the Acquired Fund with a copy of the current
investment objective and policies applicable to each Acquiring Fund. Each
Acquired Fund reserves the right to sell any of the securities or other assets
shown on the list of the Fund's Assets prior to the Closing Date but will not,
without the prior approval of the corresponding Acquiring Fund, acquire any
additional securities other than securities which the Acquiring Fund is
permitted to purchase in accordance with its stated investment objective and
policies. At least ten (10) business days prior to the Closing Date, the
Acquiring Fund will advise the corresponding Acquired Fund of any investments
of such Acquired Fund shown on such schedule which the Acquiring Fund would not
be permitted to hold, pursuant to its stated investment objective and policies
or otherwise. In the event that the Acquired Fund holds any investments that
its corresponding Acquiring Fund would not be permitted to hold under its
stated investment objective or policies, the Acquired Fund, if requested by the
Acquiring Fund and, to the extent permissible and consistent with the Acquired
Fund's own investment objective and policies, will dispose of such securities
prior to the Closing Date. In addition, if it is determined that the portfolios
of the Acquired Fund and the Acquiring Fund,
II-2
<PAGE>
when aggregated, would contain investments exceeding certain percentage
limitations to which the Acquiring Fund is or will be subject with respect to
such investments, the Acquired Fund, if requested by the Acquiring Fund and, to
the extent permissible and consistent with the Acquired Fund's own investment
objective and policies, will dispose of and/or reinvest a sufficient amount of
such investments as may be necessary to avoid violating such limitations as of
the Closing Date.
1.3. Each Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. Each Acquiring Fund will
assume all liabilities and obligations of the corresponding Acquired Fund,
accrued, absolute, contingent or otherwise existing, as of the Closing Date,
which liabilities and obligations shall include any obligation of the Emerald
Funds to indemnify Emerald Funds Trustees and officers, acting in their
capacities as such, to the fullest extent permitted by law and the Emerald
Funds Agreement and Declaration of Trust, as in effect as of the date of this
Agreement ("Liabilities"). Without limiting the foregoing, each Acquired Fund
agrees that all rights to indemnification and all limitations of liability
existing in favor of the Emerald Funds' current and former Trustees and
officers, acting in their capacities as such, under Emerald Funds' Agreement
and Declaration of Trust as in effect as of the date of this Agreement shall
survive the Reorganization and shall continue in full force and effect, without
any amendment thereto, and shall constitute rights which may be asserted
against the Acquired Funds. The Liabilities assumed by Nations Fund on behalf
of an Acquiring Fund shall be separate Liabilities of such Acquiring Fund, and
not joint or joint and several liabilities of any other Acquiring Fund.
1.4. Promptly after the Closing(s) with respect to each Acquired Fund, the
Acquired Fund will distribute the shares of the Acquiring Fund class received
by the Acquired Fund pursuant to paragraph 1.1 to its shareholders of record
determined as of the close of business on the Closing Date ("Acquired Fund
Investors") in complete liquidation of the Acquired Fund. Acquired Fund
Investors will be credited with full and fractional shares of the class that is
issued by the corresponding Acquiring Fund under this Agreement with respect to
the shares of the Acquired Fund that are held by the Acquired Fund Investors.
Such distribution will be accomplished by an instruction, signed by an
appropriate officer of Emerald Funds, to transfer the Acquiring Fund Shares
then credited to the Acquired Fund's account on the books of the Acquiring Fund
to open accounts on the books of the Acquiring Fund established and maintained
by the Acquiring Fund's transfer agent in the names of record of the Acquired
Fund Investors and representing the respective number of shares of the
Acquiring Fund due such Acquired Fund Investors. In exchange for Acquiring Fund
Shares distributed, all issued and outstanding shares of beneficial interest of
the Acquired Fund will be redeemed and canceled simultaneously therewith on the
Acquired Fund's books; any outstanding share certificates representing
interests in the Acquired Fund thereafter will represent the right to receive
such number of Acquiring Fund Shares after the Closing(s) as determined in
accordance with Section 1.1.
1.5. If a request shall be made for a change of the registration of shares
of an Acquiring Fund to another person from the account of the shareholder in
which name the shares are registered in the records of the corresponding
Acquired Fund it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form
for transfer and, if any of such shares are outstanding in certificated form,
the certificates representing such shares, and that the person requesting such
registration shall pay to such Acquiring Fund any transfer or other taxes
required by reason of such registration or establish to the reasonable
satisfaction of the Acquiring Fund that such tax has been paid or is not
applicable.
1.6. Following the transfer of assets by each Acquired Fund to the
corresponding Acquiring Fund, the assumption of the Acquired Fund's Liabilities
by the Acquiring Fund, and the distribution by the Acquired Fund of the
Acquiring Fund Shares received by it pursuant to paragraph 1.4, Emerald Funds
shall terminate the qualification, classification and registration of such
Acquired Fund at all appropriate federal and state agencies. All reporting and
other obligations of Emerald Funds shall remain the exclusive responsibility of
Emerald Funds up to and including the date on which the particular Acquired
Fund is terminated and deregistered, subject to any reporting or other
obligations described in paragraph 4.9.
1.7. Subject to the conditions set forth in this Agreement, the failure of
one Acquired Fund to consummate the transactions contemplated hereby shall not
affect the consummation or validity of a Reorganization with respect to any
other Acquired Fund, and the provisions of this Agreement shall be construed to
effect this intent, including, without limitation, as the context requires,
construing the terms "Acquiring Fund" and "Acquired Fund" as meaning only those
series of Nations Fund and Emerald Funds, respectively, which are involved in a
Reorganization as of a Closing Date.
2. VALUATION
2.1.a. With respect to each Acquired Fund, the value of the Fund Assets
shall be the value of such assets computed as of the time at which its net
asset value is calculated on the Closing Date (such time and date being herein
called the "Applicable Valuation Date"). The net asset value of the Fund Assets
to be transferred by the Acquired Funds shall be computed
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by Emerald Funds and shall be subject to adjustment by the amount, if any,
agreed to by Nations Fund and the respective Acquired Funds. In determining the
value of the securities transferred by the Acquired Funds to the Acquiring
Funds, except as provided in sub-paragraph 2.1.b., each security shall be
priced in accordance with the pricing policies and procedures of the Acquiring
Funds as described in its then current prospectuses and statements of
additional information. For such purposes, price quotations and the security
characteristics relating to establishing such quotations shall be determined by
Emerald Funds, provided that such determination shall be subject to the
approval of Nations Fund. Emerald Funds and Nations Fund agree to use all
commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with the
pricing policies and procedures of Emerald Funds and those determined in
accordance with the pricing policies and procedures of the Acquiring Funds
prior to the Applicable Valuation Date.
2.1.b. It is understood and agreed that the net asset value of the Fund
Assets of the Emerald Tax-Exempt Fund shall be based on the amortized cost
valuation procedures that have been adopted by the Board of Trustees of Emerald
Funds; provided that if the difference between the per share net asset values
of the Emerald Tax-Exempt Fund and the corresponding Acquiring Fund equals or
exceeds $.0025 on the Applicable Valuation Date, as computed by using market
values in accordance with the policies and procedures established by Nations
Fund (or as otherwise mutually determined by the Boards of Trustees of Emerald
Funds and Nations Fund), either party shall have the right to postpone the
Applicable Valuation Date and Closing Date with respect to the Emerald
Tax-Exempt Fund until such time as the per share difference is less than
$.0025.
2.2. The net asset value of the share of a class of shares of an Acquiring
Fund shall be the net asset value per share of such class computed on the
Applicable Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then current prospectus and statement of additional
information.
3. CLOSING(S) AND CLOSING DATE
3.1. The Closing(s) for the Reorganization(s) shall occur on May 15, 1998,
and/or on such other date(s) as may be mutually agreed upon in writing by the
officers of the parties hereto (a "Closing Date"). The Closing(s) shall be held
at the offices of Stephens Inc., 111 Center Street, Suite 300, Little Rock,
Arkansas 72201 or at such other location as is mutually agreeable to the
parties. All acts taking place at the Closing(s) shall be deemed to take place
simultaneously as of 4:00 p.m. Eastern time on the Closing Date unless
otherwise provided.
3.2. Each Acquiring Fund's custodian shall deliver at the Closing(s) a
certificate of an authorized officer stating that: (a) each Acquired Fund's
portfolio securities, cash and any other assets have been delivered in proper
form to the corresponding Acquiring Fund on the Closing Date and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, have been paid, or provision for payment shall have been made,
by such Acquired Fund in conjunction with the delivery of portfolio securities.
Proper delivery of cash shall be by wire to The Bank of New York, the Acquiring
Funds' Sub-Custodian, pursuant to instruction to be delivered prior to the
Closing(s).
3.3. Notwithstanding anything herein to the contrary, in the event that on
the Applicable Valuation Date (a) the New York Stock Exchange shall be closed
to trading or trading thereon shall be restricted or (b) trading or the
reporting of trading on such exchange or elsewhere shall be disrupted so that,
in the judgment of Nations Fund and Emerald Funds, accurate appraisal of the
value of the net assets of an Acquiring Fund or an Acquired Fund is
impracticable, the Applicable Valuation Date and Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.
3.4. With respect to each Acquired Fund, Emerald Funds shall provide
Nations Fund and its transfer agents with immediate access from and after the
Closing Date to (a) the computer, electronic or such other forms of records
containing the names, addresses and taxpayer identification numbers of all of
the Acquired Fund Investors and the number and percentage ownership of
outstanding Acquired Fund shares owned by such Acquired Fund Investor, all as
of the Applicable Valuation Date, and (b) all original documentation (including
all applicable Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the Acquired Fund Investors' taxpayer
identification numbers and their liability for or exemption from back-up
withholding. Each corresponding Acquiring Fund shall issue and deliver to the
Secretary or Assistant Secretary of Emerald Funds, acting on behalf of the
Acquired Fund, a confirmation evidencing the Acquiring Fund Shares credited on
the Closing Date or shall provide evidence satisfactory to each Acquired Fund
that such Acquiring Fund Shares have been credited to each Acquired Fund's
account on the books of each Acquiring Fund. At the Closing(s), each party
shall deliver to the other such bills of sale, checks, assignments, assumptions
of liability, share certificates, if any, receipts or other documents of
transfer, assignment or conveyance as such other party or its counsel may
reasonably request.
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3.5. Within thirty (30) days after the Closing Date, each Acquired Fund
shall deliver, in accordance with Article 1 hereof, to the corresponding
Acquiring Fund a statement of the Fund Assets and Liabilities, together with a
list of such Acquired Fund's portfolio securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax purposes,
as of the Closing Date, certified by an appropriate officer of Emerald Funds.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS
4.1. Emerald Funds has called or will call a meeting: (a) of the Acquired
Fund shareholders to consider and act upon this Agreement, and to take such
other actions reasonably necessary to obtain the approval of the transactions
contemplated herein, including approval for each Acquired Fund's liquidating
distribution of the Acquiring Fund Shares contemplated hereby, and for Emerald
Funds to terminate each Acquired Fund's qualification, classification and
registration if requisite approvals are obtained with respect to each Acquired
Fund and (b) of all shareholders of Emerald Funds to consider and act upon the
reorganization of all investment portfolios of Emerald Funds with the Nations
Family of Funds. Nations Fund and Emerald Funds will jointly prepare the notice
of meeting, form of proxy and proxy statement (collectively, "Proxy Materials")
to be used in connection with such meeting; provided that Nations Fund has
furnished or will furnish Emerald Funds with a current, effective prospectus,
including any supplements, relating to the class of shares of each Acquiring
Fund corresponding to the class of shares of each Acquired Fund then
outstanding for incorporation within and/or distribution with the Proxy
Materials, and with such other information relating to the Acquiring Funds as
is reasonably necessary for the preparation of the Proxy Materials.
4.2. Emerald Funds, on behalf of each Acquired Fund, covenants that each
Acquired Fund shall not sell or otherwise dispose of any Acquiring Fund Shares
to be received in the transactions contemplated herein, except in distribution
to its shareholders in accordance with the terms of this Agreement.
4.3. Emerald Funds, on behalf of each Acquired Fund, will assist the
corresponding Acquiring Fund in obtaining such information as the Acquiring
Fund reasonably requests concerning the record and beneficial ownership of
shares of each class of each Acquired Fund.
4.4. Subject to the provisions hereof, Nations Fund, on its own behalf and
on behalf of each Acquiring Fund, and Emerald Funds, on its own behalf and on
behalf of each Acquired Fund, will take, or cause to be taken, all actions, and
do, or cause to be done, all things reasonably necessary, proper or advisable
to consummate and make effective the transactions contemplated herein.
4.5. Emerald Funds, on behalf of each Acquired Fund, shall furnish to its
corresponding Acquiring Fund on the Closing Date, a statement of the total
amount of each Acquired Fund's assets and Liabilities as of the Closing Date,
which statement shall be certified by an appropriate officer of Emerald Funds
as being determined in accordance with generally accepted accounting principles
consistently applied and as being valued in accordance with paragraph 2.1
hereof. As promptly as practicable, but in any case within sixty (60) days
after the Closing Date, Emerald Funds, on behalf of each Acquired Fund, shall
furnish its corresponding Acquiring Fund, in such form as is reasonably
satisfactory to Nations Fund, on behalf of each Acquiring Fund, a statement
certified by an officer of Emerald Funds of such Acquired Fund's federal income
tax attributes and the tax bases in its assets that will be carried over to the
corresponding Acquiring Fund in the reorganization pursuant to Section 381 of
the Code.
4.6. Nations Fund, on behalf of each Acquiring Fund, has prepared and
filed, or will prepare and file with the Securities and Exchange Commission
("SEC") a registration statement on Form N-14 under the Securities Act of 1933,
as amended (the "1933 Act"), relating to the Acquiring Fund Shares, which,
without limitation, shall include a proxy statement of Emerald Funds and the
prospectuses of the Acquiring Funds of Nations Fund relating to the
transactions contemplated by this Agreement (the "Registration Statement").
Emerald Funds, on behalf of each Acquired Fund, has provided or will provide
each corresponding Acquiring Fund with the materials and information necessary
to prepare the Proxy Materials for inclusion in the Registration Statement,
prepared in accordance with paragraph 4.1, and with such other information and
documents relating to each Acquired Fund as are requested by the corresponding
Acquiring Fund and as are reasonably necessary for the preparation of the
Registration Statement.
4.7. As soon after the Closing Date as is reasonably practicable, Emerald
Funds, on behalf of each Acquired Fund shall prepare and file all federal and
other tax returns and reports of each Acquired Fund required by law to be filed
with respect to all periods ending on or before the Closing Date but not
theretofore filed.
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<PAGE>
4.8. With respect to each Acquiring Fund, Nations Fund agrees to use all
reasonable efforts to operate in accordance with its then current prospectus
and statement of additional information prepared in accordance with Form N-1A,
including qualifying as a "regulated investment company" under the Code, for at
least one (1) year following the Closing Date.
4.9. Following the transfer of assets by each Acquired Fund to the
corresponding Acquiring Fund in exchange for Acquiring Fund Shares and the
assumption of all Liabilities of the Acquired Fund as contemplated herein,
Emerald Funds will file any final regulatory reports, including but not limited
to any Form N-SAR and Rule 24f-2 filings with respect to such Acquired Fund(s),
promptly after the Closing Date and also will take all other steps as are
necessary and proper to effect the termination or declassification of such
Acquired Funds of Emerald Funds in accordance with the laws of the Commonwealth
of Massachusetts and other applicable requirements.
5. REPRESENTATIONS AND WARRANTIES
5.1. Nations Fund, on behalf of itself and each Acquiring Fund, represents
and warrants to the Emerald Funds as follows:
5.1.a. Nations Fund was duly created pursuant to its Declaration of Trust
by the Trustees for the purpose of acting as a management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act") and is validly existing under the laws of the Commonwealth of
Massachusetts, and the Declaration of Trust directs the Trustees to manage
the affairs of Nations Fund and grants them all powers necessary or
desirable to carry out such responsibility, including administering Nations
Fund business as currently conducted by Nations Fund and as described in
the current prospectuses of Nations Fund; Nations Fund is registered as an
investment company classified as an open-end management company under the
1940 Act, and its registration with the SEC as an investment company is in
full force and effect;
5.1.b. The Registration Statement, including the current prospectuses and
statement of additional information of each Acquiring Fund, conform or will
conform, at all times up to and including the Closing Date, in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act
and the regulations thereunder and do not include or will not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
5.1.c. Each Acquiring Fund is not in violation of, and the execution,
delivery and performance of this Agreement by Nations Fund for itself and
on behalf of each Acquiring Fund does not and will not (i) violate Nations
Fund's Declaration of Trust or Code of Regulations, or (ii) result in a
breach or violation of, or constitute a default under any material
agreement or material instrument, to which Nations Fund is a party or by
which its properties or assets are bound;
5.1.d. Except as previously disclosed in writing to the Emerald Funds, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is presently pending or, to Nations Fund's
knowledge, threatened against Nations Fund or its business, the Acquiring
Funds or any of their properties or assets, which, if adversely determined,
would materially and adversely affect Nations Fund or an Acquiring Fund's
financial condition or the conduct of their business, and Nations Fund
knows of no facts that might form the basis for the institution of any such
proceeding or investigation, and no Acquiring Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely affect, its business or its ability to
consummate the transactions contemplated herein;
5.1.e. All issued and outstanding shares, including shares to be issued
in connection with the Reorganization, of each Acquiring Fund class will,
as of the Closing Date, be duly authorized and validly issued and
outstanding, fully paid and non-assessable by Nations Fund and the
Acquiring Fund does not have outstanding any option, warrants or other
rights to subscribe for or purchase any of its shares;
5.1.f. The execution, delivery and performance of this Agreement on
behalf of each Acquiring Fund will have been duly authorized prior to the
Closing Date by all necessary action on the part of Nations Fund and the
Trustees, and this Agreement constitutes a valid and binding obligation of
Nations Fund and each Acquiring Fund enforceable in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
5.1.g. The Acquiring Fund Shares to be issued and delivered to the
corresponding Acquired Fund for the account of the Acquired Fund Investors,
pursuant to the terms hereof, will have been duly authorized as of the
Closing Date
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<PAGE>
and, when so issued and delivered, will be duly and validly issued, fully
paid and non-assessable, and the shares of the class of the Acquiring Fund
issued and outstanding prior to the Closing Date were offered and sold in
compliance with the applicable registration requirements, or exemptions
therefrom, of the 1933 Act, and all applicable state securities laws, and
the regulations thereunder, and no shareholder of an Acquiring Fund shall
have any preemptive right of subscription or purchase in respect thereto;
5.1.h. From the effective date of the Registration Statement, through the
time of the meeting of the Acquired Fund shareholders and on the Closing
Date, any written information furnished by Nations Fund with respect to an
Acquiring Fund for use in the Proxy Materials, the Registration Statement
or any other materials provided in connection with the Reorganization does
not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the information provided not
misleading;
5.1.i. No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the Securities Exchange Act of 1934 (the "1934
Act"), the 1940 Act or Massachusetts law for the execution of this
Agreement by Nations Fund, for itself and on behalf of each Acquiring Fund,
or the performance of the Agreement by Nations Fund, for itself and on
behalf of each Acquiring Fund, except for the effectiveness of the
Registration Statement, any necessary exemptive relief or no-action
assurances requested from the SEC or its Staff with respect to Sections
17(a) and 17(d) of the 1940 Act and Rule 17d-1 thereunder, and such other
consents, approvals, authorizations and filings as have been made or
received, and except for such consents, approvals, authorizations and
filings as may be required subsequent to the Closing Date;
5.1.j. The Statement of Assets and Liabilities, Statement of Operations
and Statement of Changes in Net Assets of each Acquiring Fund as of and for
the year ended March 31, 1997, audited by Price Waterhouse LLP, and the
unaudited Statement of Assets and Liabilities, Statement of Operations and
Statement of Changes in Net Assets of each Acquiring Fund as of and for the
six-month period ended September 30, 1997 (copies of which have been or
will be furnished to the corresponding Acquired Fund), present fairly, in
all material respects, the financial position of each Acquiring Fund as of
such date and the results of its operations and the changes in its Net
Assets for the period then ended in accordance with generally accepted
accounting principles consistently applied and as of such date there were
no Liabilities of any Acquiring Fund known to Nations Fund that were not
disclosed therein but that would be required to be disclosed therein in
accordance with generally accepted accounting principles;
5.1.k. Since the date of the most recent audited financial statements,
there has not been any material adverse change in any Acquiring Fund's
financial position, assets, liabilities or business, other than changes
occurring in the ordinary course of business, or any incurrence by an
Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed in writing to
and accepted by the corresponding Acquired Fund prior to the Closing Date
(for the purposes of this subparagraph (k), neither a decline in an
Acquiring Fund's net asset value per share nor a decrease in an Acquiring
Fund's size due to redemptions shall be deemed to constitute a material
adverse change);
5.1.l. All federal and other tax returns and reports of Nations Fund and
each Acquiring Fund required by law to be filed on or before the Closing
Date have been or will be filed, and all federal and other taxes owed by
Nations Fund on behalf of the Acquiring Funds have been or will be paid so
far as due, and to the best of Nations Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to
any such return;
5.1.m. At the Closing Date, the Acquiring Funds will have good and
marketable title to their assets and full right, power and authority to
assign, deliver and otherwise transfer such assets; and
5.1.n. Each Acquiring Fund intends to qualify as a "regulated investment
company" under the Code, and each Acquiring Fund that has conducted
material investment operations prior to the Closing Date has elected to
qualify and has qualified as a "regulated investment company" under the
Code, as of and since its first taxable year; has been a "regulated
investment company" under the Code at all times since the end of its first
taxable year when it so qualified; and qualifies and shall continue to
qualify as a "regulated investment company" under the Code for its current
taxable year.
5.2. Emerald Funds, on behalf of itself and each Acquired Fund, represents
and warrants to Nations Fund as follows:
5.2.a. Emerald Funds was duly created pursuant to its Agreement and
Declaration of Trust by the Trustees for the purpose of acting as a
management investment company under the 1940 Act and is validly existing
under the laws of the Commonwealth of Massachusetts, and the Agreement and
Declaration of Trust provides that the affairs of Emerald
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<PAGE>
Funds shall be managed by the Trustees and grants them all powers necessary
or desirable to carry out such responsibility, including administering
Emerald Funds business as currently conducted by Emerald Funds and as
described in the current prospectuses of Emerald Funds; Emerald Funds is
registered as an investment company classified as an open-end management
company under the 1940 Act, and its registration with the SEC as an
investment company is in full force and effect;
5.2.b. All of the issued and outstanding shares representing units of
beneficial interest of each Acquired Fund have been offered and sold in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws;
5.2.c. The Acquired Funds are not in violation of, and the execution,
delivery and performance of this Agreement by Emerald Funds for itself and
on behalf of each Acquired Fund does not and will not (i) violate Emerald
Funds' Agreement and Declaration of Trust or Code of Regulations, or (ii)
result in a breach or violation of, or constitute a default under any
material agreement or material instrument, to which Emerald Funds is a
party or by which its properties or assets are bound, except as otherwise
previously disclosed in writing to the Acquiring Funds;
5.2.d. Except as previously disclosed in writing to Nations Fund, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is presently pending or, to Emerald Funds'
knowledge, threatened against any Acquired Fund or any of its properties or
assets which, if adversely determined, would materially and adversely
affect such Acquired Fund's financial condition or the conduct of its
business, and Emerald Funds knows of no facts that might form the basis for
the institution of any such proceeding or investigation, and no Acquired
Fund is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body that materially and adversely
affects, or is reasonably likely to materially and adversely affect, its
business or its ability to consummate the transactions contemplated herein;
5.2.e. The Statement of Assets and Liabilities, Statement of Operations
and Statement of Changes in Net Assets of each Acquired Fund as of and for
the year ended November 30, 1997, audited by KPMG Peat Marwick LLP (copies
of which have been or will be furnished to the corresponding Acquiring
Fund) fairly present, in all material respects, the financial condition of
each Acquired Fund as of such date and its results of operations for such
period in accordance with generally accepted accounting principles
consistently applied, and as of such date there were no Liabilities of any
Acquired Fund known to Emerald Funds that were not disclosed therein but
that would be required to be disclosed therein in accordance with generally
accepted accounting principles;
5.2.f. Since the date of the most recent audited financial statements,
there has not been any material adverse change in any Acquired Fund's
financial condition, assets, Liabilities or business, other than changes
occurring in the ordinary course of business, or any incurrence by an
Acquired Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed in writing to
and accepted by the corresponding Acquiring Fund, prior to the Closing Date
(for the purposes of this subparagraph (f), neither a decline in an
Acquired Fund's net asset value per share nor a decrease in an Acquired
Fund's size due to redemptions shall be deemed to constitute a material
adverse change);
5.2.g. All federal and other tax returns and reports of Emerald Funds and
each Acquired Fund required by law to be filed on or before the Closing
Date, have been or will be filed, and all federal and other taxes owed by
Emerald Funds on behalf of the Acquired Funds, have been or will be paid so
far as due, and to the best of Emerald Funds' knowledge, no such return is
currently under audit and no assessment has been asserted with respect to
any such return;
5.2.h. Each Acquired Fund has elected to qualify and has qualified as a
"regulated investment company" under the Code, as of and since its first
taxable year; has been a "regulated investment company" under the Code at
all times since the end of its first taxable year when it so qualified; and
qualifies and shall continue to qualify as a "regulated investment company"
under the Code for its taxable year ending upon its liquidation;
5.2.i. All issued and outstanding shares of each Acquired Fund are, and
on the Closing Date will be, duly authorized and validly issued and
outstanding, and fully paid and non-assessable by Emerald Funds, and all
such shares will, at the time of the Closing(s), be held by the persons and
in the amounts set forth in the list of Acquired Fund Investors provided to
each corresponding Acquiring Fund, pursuant to paragraph 3.4, and no
Acquired Fund has outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares, nor is there outstanding any
security convertible into any of its shares;
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<PAGE>
5.2.j. At the Closing Date, each Acquired Fund will have good and
marketable title to its Fund Assets and full right, power and authority to
assign, deliver and otherwise transfer such Fund Assets hereunder, and upon
delivery and payment for such Fund Assets as contemplated herein, the
corresponding Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the ownership or transfer thereof
other than such restrictions as might arise under the 1933 Act or
securities laws, and except for any liens or transfer tax liens arising in
connection with the transfer of Fund Assets pursuant to this Agreement;
5.2.k. The execution, delivery and performance of this Agreement on
behalf of the Acquired Funds will have been duly authorized prior to the
Closing Date by all necessary action on the part of Emerald Funds and the
Trustees, and this Agreement constitutes a valid and binding obligation of
Emerald Funds and each Acquired Fund enforceable in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
5.2.l. From the effective date of the Registration Statement, through the
time of the meeting of the Emerald Funds shareholders, and on the Closing
Date, the Registration Statement insofar as it relates to materials
provided by Emerald Funds or the Acquired Funds, used in connection with
the preparation of the Registration Statement: (i) will comply in all
material respects with the applicable provisions of the 1933 Act, the 1934
Act and the 1940 Act and the regulations thereunder and (ii) will not
contain any 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, and as of such dates and times, any written
information furnished by Emerald Funds, on behalf of the Acquired Funds,
for use in the Registration Statement or in any other manner that may be
necessary in connection with the transactions contemplated hereby does not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the information provided not misleading; and
5.2.m. No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the 1934 Act, the 1940 Act or Massachusetts
law for the execution of this Agreement by Emerald Funds, for itself and on
behalf of each Acquired Fund, or the performance of the Agreement by
Emerald Funds for itself and on behalf of each Acquired Fund, except for
the effectiveness of the Registration Statement, any necessary exemptive
relief or no-action assurances requested from the SEC or its Staff with
respect to Section 17(a) and 17(d) of the 1940 Act and Rule 17d-1
thereunder, and except for such other consents, approvals, authorizations
and filings as have been made or received, and such consents, approvals,
authorizations and filings as may be required subsequent to the Closing
Date, it being understood, however, that this Agreement and the
transactions contemplated herein must be approved by the shareholders of
the Acquired Funds as described in paragraph 8.1.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUNDS
The obligations of Emerald Funds to consummate the Reorganization with
respect to each Acquired Fund shall be subject to the performance by Nations
Fund, for itself and on behalf of each Acquiring Fund, of all the obligations
to be performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions with respect to each corresponding Acquiring
Fund:
6.1. All representations and warranties of Nations Fund with respect to
each Acquiring Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated herein, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2. Nations Fund, on behalf of each Acquiring Fund, shall have delivered
to Emerald Funds at the Closing(s) a certificate executed on behalf of each
corresponding Acquiring Fund by Nations Fund's President, Secretary, Assistant
Secretary, or other authorized officer, in a form and substance reasonably
satisfactory to Emerald Funds and dated as of the Closing Date, to the effect
that the representations and warranties of Nations Fund with respect to each
Acquiring Fund made herein are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated herein, and as
to such other matters as such Acquired Fund shall reasonably request.
6.3. Each Acquired Fund shall have received at the Closing(s) a favorable
opinion of Morrison & Foerster LLP, counsel to Nations Fund (based upon or
subject to such representations, assumptions, limitations or opinions of local
counsel as such counsel may deem appropriate or necessary), dated as of the
Closing Date, in a form (including the representations, assumptions,
limitations or opinions of local counsel upon which it is based or to which it
is subject) reasonably satisfactory to each Acquired Fund, substantially to the
effect that:
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6.3.a. Nations Fund is a duly registered, open-end, management investment
company, and its registration with the SEC as an investment company under
the 1940 Act is in full force and effect;
6.3.b. each Acquiring Fund is a portfolio of Nations Fund, which is a
company duly created pursuant to its Declaration of Trust, is validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and the Declaration of Trust directs the Trustees to manage
the affairs of Nations Fund and grants them all powers necessary or
desirable to carry out such responsibility, including administering Nations
Fund's business as described in the current prospectuses of Nations Fund;
6.3.c. this Agreement has been duly authorized, executed and delivered on
behalf of Nations Fund and each Acquiring Fund and, assuming due
authorization, execution and delivery of this Agreement on behalf of the
Acquired Funds, is a valid and binding obligation of Nations Fund
enforceable against Nations Fund in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
6.3.d. the Acquiring Fund Shares to be issued to the Acquired Funds
Investors pursuant to this Agreement are duly registered under the 1933 Act
on the appropriate form, and are duly authorized and upon such issuance
will be validly issued and outstanding and fully paid and non-assessable,
and no shareholder of an Acquiring Fund has any preemptive rights to
subscription or purchase in respect thereof;
6.3.e. the Registration Statement has become effective with the SEC and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose
have been instituted or are pending or threatened;
6.3.f. no consent, approval, authorization, filing or order of any court
or governmental authority of the United States or any state is required for
the consummation by Nations Fund of the Reorganization with respect to each
Acquiring Fund;
6.3.g. to such counsel's knowledge, the execution and delivery of the
Agreement and the performance of its terms by Nations Fund, and each
Acquiring Fund, do not violate or result in a violation of the Nations Fund
Declaration of Trust or Code of Regulations, or any judgment, order or
decree known to such counsel, of any court or arbiter, to which Nations
Fund is a party, and, to such counsel's knowledge, will not constitute a
material breach of the terms, conditions or provisions of, or constitute a
default under, any contract, undertaking, indenture or other agreement by
which Nations Fund is now bound or to which it is now a party;
6.3.h. to such counsel's knowledge, (a) no legal or governmental
proceedings existing on or before the date of mailing the combined proxy
statement/prospectus ("Combined Proxy/Prospectus"), involving Nations Fund
or the Acquiring Funds, are required to be described in the Combined
Proxy/Prospectus which are not described as required and (b) there are no
contracts or documents relating to Nations Fund or the Acquiring Funds,
known to such counsel, of a character required to be described in the
Combined Proxy/Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or filed as required; and
6.3.i. to such counsel's knowledge, except as otherwise disclosed in the
Registration Statement, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or threatened against Nations Fund or an Acquiring Fund or any of
their properties or assets and neither Nations Fund nor any Acquiring Fund
is a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body that materially and adversely affects, or
would materially and adversely affect, its business.
6.4. As of the Closing Date with respect to the Reorganization of each
Acquired Fund, there shall have been no material change in the investment
objective, policies and restrictions nor any material change in the investment
management fees, fee levels payable pursuant to the 12b-1 plan of distribution,
other fees payable for services provided to the Acquiring Funds, fee waiver or
expense reimbursement undertakings, or sales loads of the Acquiring Funds from
those fee amounts, undertakings and sales load amounts described in the
prospectus of each Acquiring Fund delivered to the corresponding Acquired Fund
pursuant to paragraph 4.1 and in the notice of meeting, form of proxy and
Combined Proxy/Prospectus (collectively, "Proxy Materials").
6.5. With respect to each Acquiring Fund, the Board of Trustees of Nations
Fund, including a majority of the "non-interested" Trustees, has determined
that the Reorganization is in the best interests of each Acquiring Fund and
that the interests of the existing shareholders of each Acquiring Fund would
not be diluted as a result of the Reorganization.
II-10
<PAGE>
6.6. For the period beginning at the Closing Date of the last
Reorganization to occur and ending not less than six years thereafter, Nations
Fund shall provide, or cause to be provided, liability coverage at least as
comparable to the liability coverage currently applicable to the Trustees and
officers of Emerald Funds, covering the actions of the Trustees and officers of
Emerald Funds for the period they served as such.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUNDS
The obligations of Nations Fund to consummate the Reorganization with
respect to each Acquiring Fund shall be subject to the performance by Emerald
Funds of all the obligations to be performed by it hereunder, with respect to
each corresponding Acquired Fund, on or before the Closing Date and, in
addition thereto, the following conditions:
7.1. All representations and warranties of Emerald Funds with respect to
the Acquired Funds contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date.
7.2. Emerald Funds, on behalf of each Acquired Fund, shall have delivered
to each corresponding Acquiring Fund at the Closing(s) a certificate executed
on behalf of each Acquired Fund, by Emerald Funds' President, Secretary or
Assistant Secretary, or other authorized officer, in form and substance
reasonably satisfactory to the Acquiring Funds and dated as of the Closing
Date, to the effect that the representations and warranties of Emerald Funds
with respect to each Acquired Fund made herein are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated herein and as to such other matters as each Acquiring Fund shall
reasonably request.
7.3. Each Acquiring Fund shall have received at the Closing(s) a favorable
opinion of Drinker Biddle & Reath LLP, counsel to Emerald Funds (based upon or
subject to such representations, assumptions, limitations or opinions of local
counsel as such counsel may deem appropriate or necessary), dated as of the
Closing Date, in a form (including the representations, assumptions,
limitations or opinions of local counsel upon which it is based or to which it
is subject) reasonably satisfactory to such Acquiring Fund, substantially to
the effect that:
7.3.a. Emerald Funds is a duly registered, open-end management investment
company, and its registration with the SEC as an investment company under
the 1940 Act is in full force and effect;
7.3.b. each Acquired Fund is a portfolio of Emerald Funds, Emerald Funds
is a business trust duly created pursuant to its Agreement and Declaration
of Trust, is validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, and the Agreement and Declaration of Trust
provides that the affairs of Emerald Funds shall be managed by the Trustees
and grants them all powers necessary or desirable to carry out such
responsibility, including administering Emerald Funds' business as
described in the current prospectuses of Emerald Funds;
7.3.c. this Agreement has been duly authorized, executed and delivered by
Emerald Funds, for itself and on behalf of the Acquired Funds and, assuming
due authorization, execution and delivery of this Agreement on behalf of
each Acquiring Fund, is a valid and binding obligation of Emerald Funds,
enforceable against Emerald Funds in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights and court decisions with respect thereto, and
such counsel will express no opinion with respect to the application of
equitable principles in any proceeding, whether at law or in equity;
7.3.d. no consent, approval, authorization, filing or order of any court
or governmental authority of the United States or any state is required for
the consummation of the Reorganization by Emerald Funds with respect to
each Acquired Fund, except for such consents, approvals, authorizations and
filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required subsequent to the
Closing Date;
7.3.e. to such counsel's knowledge, the execution and delivery of the
Agreement and the performance of its terms by Emerald Funds, and each
Acquired Fund, do not violate or result in a violation of the Emerald
Funds' Agreement and Declaration of Trust or Code of Regulations, or any
judgment, order or decree known to such counsel, of any court or arbiter,
to which Emerald Funds is a party, and, to such counsel's knowledge, will
not constitute a material breach of the terms, conditions or provisions of,
or constitute a default under, any contract, undertaking, indenture or
other agreement by which Emerald Funds is now bound or to which it is now a
party;
7.3.f. to such counsel's knowledge, (a) no legal or governmental
proceedings existing on or before the date of mailing the Combined
Proxy/Prospectus involving Emerald Funds or the Acquired Funds, are
required to be described
II-11
<PAGE>
in the Combined Proxy/Prospectus which are not described as required and
(b) there are no contracts or documents relating to Emerald Funds or the
Acquired Funds, known to such counsel, of a character required to be
described in the Combined Proxy/Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or filed as required; and
7.3.g. to such counsel's knowledge, except as otherwise disclosed in the
Registration Statement, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or threatened against Emerald Funds or an Acquired Fund or any of
their properties or assets and neither Emerald Funds nor an Acquired Fund
is a party to or subject to the provisions of any order, decree or judgment
of any court or governmental body that materially and adversely affects, or
would materially and adversely affect, its business.
7.4. Nations Fund, on behalf of each Acquiring Fund, shall have received
from KPMG Peat Marwick LLP a letter addressed to Nations Fund, on behalf of
each Acquiring Fund, and dated as of the Closing Date with respect to the
Acquired Funds, in form and substance satisfactory to Nations Fund, to the
effect that:
7.4.a. they are independent accountants with respect to Emerald Funds and
each Acquired Fund within the meaning of the 1933 Act and the applicable
regulations thereunder;
7.4.b. in their opinion, the audited financial statements and the per
share data provided in accordance with Item 3 in Form N-1A (the "Per Share
Data") of the Acquired Fund included or incorporated by reference in the
Registration Statement previously reported on by them comply as to form in
all material aspects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder;
7.4.c. on the basis of limited procedures agreed upon by Nations Fund, on
behalf of the Acquiring Funds and Emerald Funds, on behalf of the Acquired
Funds, and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the information relating to
the Acquired Funds appearing in the Registration Statement that is
expressed in dollars or percentages of dollars (with the exception of
performance comparisons) has been obtained from the accounting records of
the Acquired Funds or from schedules prepared by officers of Emerald Funds
having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
7.5. Emerald Funds shall have delivered to the Acquiring Funds, pursuant
to paragraph 5.2(e), copies of financial statements of each Acquired Fund as of
and for the period ended November 30, 1997, audited by KPMG Peat Marwick LLP.
7.6. With respect to each Acquired Fund, the Board of Trustees of Emerald
Funds, including a majority of "non-interested" Trustees, has determined that
the Reorganization is in the best interests of each Acquired Fund and that the
interests of the existing investors in each Acquired Fund would not be diluted
as a result of the Reorganization.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUNDS AND THE
ACQUIRED FUNDS
The obligations of each Acquiring Fund and of each corresponding Acquired
Fund herein are subject to the further conditions that on or before the Closing
Date with respect to each Acquiring Fund and each corresponding Acquired Fund:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
beneficial interest in each Acquired Fund, and the reorganization of Emerald
Funds into the Nations Family of Funds shall have been approved by the
requisite vote of the holders of the outstanding shares of beneficial interest
of Emerald Funds, consistent with the provisions of Emerald Funds' Agreement
and Declaration of Trust and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to each
corresponding Acquiring Fund. Approval of this Agreement by the requisite vote
of the holders of the outstanding shares of beneficial interest in an Acquired
Fund shall constitute approval of all of the transactions contemplated herein,
including the reorganization of all investment portfolios of Emerald Funds with
the Nations Family of Funds.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or any of the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC and of state securities
authorities) deemed necessary by
II-12
<PAGE>
Nations Fund, on behalf of the Acquiring Funds or by Emerald Funds, on behalf
of the Acquired Funds, to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where failure
to obtain any such consent, order or permit would not, in the opinion of the
party asserting that the condition to closing has not been satisfied, involve a
risk of a material adverse effect on the assets or properties of any of an
Acquiring Fund or its corresponding Acquired Fund.
8.4. The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5. Except to the extent prohibited by Rule 19b-1 promulgated under the
1940 Act, each Acquired Fund that has conducted material investment operations
prior to the Closing Date shall have declared a dividend or dividends, with a
record date and ex-dividend date prior to the Applicable Valuation Date, which,
together with all previous dividends, shall have the effect of distributing to
each Acquired Fund's shareholders substantially all of its investment company
taxable income, if any, for all taxable periods or years ending on or prior to
the Closing Date (computed without regard to any deduction for dividends paid)
and substantially all of its net capital gain, if any, realized for all taxable
periods or years ending on or prior to the Closing Date (after reduction for
any capital loss carry forward.)
8.6. Nations Fund, on behalf of each Acquiring Fund, and Emerald Funds, on
behalf of each Acquired Fund, shall have received from Price Waterhouse LLP a
letter dated as of the Closing Date, in form and substance satisfactory to
Nations Fund and to Emerald Funds, to the effect that on the basis of limited
procedures agreed upon by Nations Fund, on behalf of the Acquiring Funds and
Emerald Funds, on behalf of the Acquired Funds (but not an examination in
accordance with generally accepted auditing standards), the data used in the
calculation of any figure expressed numerically or in dollars or percentages
that appear in the Registration Statement as: (a) "Table II -- Pro Forma
Capitalization (as of November 30, 1997)" in the Combined Proxy
Statement/Prospectus, (b) "Table III -- Total Expense Information" in the
Combined Proxy Statement/Prospectus, (c) "Appendix III -- Expense Summaries of
Emerald Funds and the Corresponding Nations Funds" in the Combined Proxy
Statement/Prospectus, and (d) the pro forma financial statements in the
Statement of Additional Information, agree with the underlying accounting
records of the Acquiring Funds or with written estimates provided by officers
of Nations Fund having responsibility for financial and reporting matters, and
were found to be mathematically correct.
8.7. Nations Fund and Emerald Funds shall have received an opinion of
Morrison & Foerster LLP addressed to both Nations Fund and Emerald Funds in a
form reasonably satisfactory to them, and dated as of the Closing Date,
substantially to the effect that on the basis of facts, representations, and
assumptions set forth in such opinion:
8.7.a. each Reorganization will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each Acquiring Fund and the
corresponding Acquired Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
8.7.b. no gain or loss will be recognized by an Acquired Fund upon the
transfer of its assets and Liabilities to the corresponding Acquiring Fund
solely in exchange for the Acquiring Fund Shares;
8.7.c. no gain or loss will be recognized by an Acquiring Fund upon the
receipt of the assets and assumption of Liabilities of the corresponding
Acquired Fund solely in exchange for the Acquiring Fund Shares;
8.7.d. the basis of an Acquired Fund's assets received by the
corresponding Acquiring Fund pursuant to the Reorganization will be the
same as the basis of those assets in the hands of the Acquired Fund
immediately prior to the Reorganization;
8.7.e. the holding period of an Acquired Fund's assets in the hands of
the corresponding Acquiring Fund will include the period for which such
assets have been held by the Acquired Fund;
8.7.f. no gain or loss will be recognized by an Acquired Fund on the
distribution to its shareholders of the Acquiring Fund Shares to be
received by the Acquired Fund in the Reorganization;
8.7.g. no gain or loss will be recognized by the shareholders of an
Acquired Fund upon their receipt of the corresponding Acquiring Fund Shares
in exchange for such shareholders' shares of the Acquired Fund;
8.7.h. the basis of the Acquiring Fund Shares received by the
shareholders of the corresponding Acquired Fund will be the same as the
basis of the Acquired Fund shares surrendered by such shareholders pursuant
to the Reorganization;
II-13
<PAGE>
8.7.i. the holding period for the Acquiring Fund Shares received by the
Acquired Fund shareholders will include the period during which such
shareholders held the Acquired Fund shares surrendered therefor, provided
that such Acquired Fund shares are held as a capital asset in the hands of
the Acquired Fund shareholders on the date of the exchange; and
8.7.j. each Acquiring Fund will succeed to and take into account the tax
attributes described in Section 381(c) of the Code of the corresponding
Acquired Fund as of the Closing Date, subject to the conditions and
limitations specified in the Code.
8.8. Nations Fund and Emerald Funds shall have received (a) a memorandum
addressed to Nations Fund and the Emerald Funds, in form reasonably
satisfactory to them, prepared by Morrison & Foerster LLP concerning the filing
of notices and/or other documents, and the payment of fees, in connection with
the shares to be issued by Nations Fund pursuant to this Agreement under
applicable state securities laws or the exemption from such filing and payment
requirements under such laws, and (b) assurance reasonably satisfactory to each
of them that all permits and other authorizations necessary under state
securities laws to consummate the transactions contemplated by this Agreement
have been obtained.
8.9. The SEC shall not have issued any unfavorable advisory report under
Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act.
8.10. Emerald Funds' agreements with each of its service contractors have
terminated before or at the Closing, and each party has received reasonable
assurance that no claim for damages (liquidated or otherwise) will arise as a
result of such termination.
In rendering such opinion described in this paragraph 8.7, Morrison &
Foerster LLP may require and, to the extent they deem necessary and
appropriate, may rely upon representations made in certificates of Nations Fund
and Emerald Funds, their affiliates, and principal shareholders.
Notwithstanding anything herein to the contrary, neither an Acquiring Fund nor
its corresponding Acquired Fund may waive the condition set forth in this
paragraph 8.7.
9. BROKERAGE FEES AND EXPENSES
9.1. Nations Fund, for itself and on behalf of the Acquiring Funds, and
Emerald Funds, on behalf of itself and on behalf of the Acquired Funds,
represent and warrant that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for herein.
9.2. Each party shall be responsible for the payment of all expenses
incurred by such party in connection with this Agreement and the transaction
contemplated hereby. The parties understand that NationsBanc Advisors, Inc.
and/or affiliates shall bear the customary expenses associated with the
transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. This Agreement constitutes the entire agreement between the parties
and supersedes any prior or contemporaneous understanding or arrangement with
respect to the subject matter hereof.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein.
11. TERMINATION
11.1. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
11.1.a. by the mutual written consent of Nations Fund and Emerald Funds;
11.1.b. by either Nations Fund or Emerald Funds by notice to the other,
without liability to the terminating party on account of such termination
(provided any such termination shall not excuse the terminating party from
any liability arising out of a default or breach of this Agreement by such
terminating party) if such Closing(s) shall not have occurred on or before
December 31, 1998, or such other date as may be agreed to by the parties;
or
11.1.c. by either of Nations Fund or the Emerald Funds, in writing
without liability to the terminating party on account of such termination
(provided any such termination shall not excuse the terminating party from
any liability arising out of a material default or breach of this Agreement
by such terminating party), if (i) the other party shall fail
II-14
<PAGE>
to perform in any material respect its agreements contained herein required
to be performed prior to the Closing Date, (ii) the other party materially
breaches or shall have materially breached any of its representations,
warranties or covenants contained herein, or (iii) any other express
condition precedent to the obligations of the terminating party has not
been met and it reasonably appears that it will not or cannot be met.
11.2. Termination of this Agreement pursuant to paragraphs 11.1(a) or (b)
shall terminate all obligations of the parties hereunder with respect to the
Acquired Fund and Acquiring Fund affected by such termination, or with respect
to Nations Fund and Emerald Funds, as the case may be, and there shall be no
liability for damages on the part of Nations Fund or Emerald Funds or the
Trustees or officers of Nations Fund or Emerald Funds, on account of
termination pursuant to paragraphs 11.1(a) or (b), except as provided in
paragraphs 11.1(a) or (b); provided, however, that notwithstanding any
termination of this Agreement pursuant to paragraph 11.1, such termination
shall not relieve either party of its respective obligations pursuant to
Section 9.2 hereof.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Nations
Fund, acting on behalf of each Acquiring Fund and the authorized officers of
Emerald Funds, acting on behalf of the shareholders of each Acquired Fund;
provided, however, that following the meeting of the shareholders of the
Acquired Funds, no such amendment may have the effect of changing the
provisions for determining the number of shares of the corresponding Acquiring
Funds to be issued to the Acquired Fund Investors under this Agreement to the
detriment of such Acquired Fund Investors, or otherwise materially and
adversely affecting such Acquired Fund, without the Acquired Fund obtaining the
Emerald Fund(s)' shareholders further approval except that nothing in this
paragraph 12 shall be construed to prohibit any Acquiring Fund and the
corresponding Acquired Fund from amending this Agreement to change the Closing
Date or Applicable Valuation Date by mutual agreement.
At any time prior to or (to the fullest extent permitted by law) after
approval of this Agreement by the shareholders of Emerald Funds either party
may waive any breach by the other party or the failure to satisfy any of the
conditions to its obligations (such waiver to be in writing and authorized by
the Board of Trustees of the waiving party, or any appropriate officer of
either party, with or without the approval of such party's shareholders).
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to:
For Nations Fund, on behalf of itself and each Acquiring Fund:
Richard H. Blank, Jr.
Secretary
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
With copies to:
Robert M. Kurucza and
Marco E. Adelfio
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W., Suite 5500
Washington, D.C. 20006
For Emerald Funds, on behalf of itself and each Acquired Fund:
Marshall M. Criser
McGuire, Woods, Battle & Boothe LLP
3300 Barnett Center
50 N. Laura Street, Suite 3400
Jacksonville, FL 32203
with copies to:
II-15
<PAGE>
Jeffrey A. Dalke
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107-3496
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1. The article and paragraph headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to articles,
paragraphs, subparagraphs or Schedules shall be construed as referring to
articles, paragraphs or subparagraphs hereof or Schedules hereto, respectively.
Whenever the terms hereto, hereunder, herein or hereof are used in this
Agreement, they shall be construed as referring to this entire Agreement,
rather than to any individual article, paragraph, subparagraph or sentence.
14.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.5. It is expressly agreed that the obligations of Nations Fund
hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of Nations Fund personally, but shall
bind only the assets and the property of the respective Acquiring Fund of
Nations Fund, as provided in its Declaration of Trust. The execution and
delivery by such officers shall not be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the assets and the property of the respective Acquiring Fund of
Nations Fund as provided in its Declaration of Trust.
14.6. No Acquired Fund shall have any liability for the obligations of any
other Acquired Fund hereunder and no Acquiring Fund shall have any liability
for the obligation of any other Acquiring Fund hereunder.
14.7. The names "Emerald Funds" and "Trustees of Emerald Funds" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under an Agreement and
Declaration of Trust dated March 15, 1988, which is hereby referred to and a
copy of which is on file at the Office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "Emerald Funds" 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, shareholders,
or representatives of the Trust personally, but bind only 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.
14.8. Any announcement or similar publicity with respect to this Agreement
or the transactions contemplated herein shall be made only at such time and in
such manner as the parties shall agree; provided that nothing herein shall
prevent either party upon notice to the other party from making such public
announcements as such party's counsel may consider advisable in order to
satisfy the party's legal and contractual obligations in such regard.
II-16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized officers, and attested by their Secretaries
as of the day and year first written above.
<TABLE>
<S> <C>
ATTEST: NATIONS FUND TRUST, for itself and on
behalf of each Acquiring Fund
/s/ RICHARD H. BLANK, JR. By: /s/ A. MAX WALKER
- ----------------------------------- ------------------------------------------------
Richard H. Blank, Jr. A. Max Walker
Secretary President and Chairman of the Board of
Trustees
ATTEST: EMERALD FUNDS, for itself and on behalf of each
Acquired Fund
By: /s/ JOHN G. GRIMSLEY
- ----------------------------------- ------------------------------------------------
John G. Grimsley
President
</TABLE>
II-17
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund
- --------------------------------------- ------------------------------------
<S> <C>
Emerald Balanced Fund Nations Balanced Assets Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Equity Fund Nations Disciplined Equity Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Equity Value Fund Nations Value Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Florida Tax-Exempt Fund Nations Florida Municipal Bond Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Managed Bond Fund Nations Strategic Fixed Income Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Short-Term Fixed Income Fund Nations Short-Term Income Fund
Institutional Shares Primary A Shares
Retail Shares Investor A Shares
Emerald Tax-Exempt Fund Nations Tax Exempt Fund
Institutional Shares Primary A Shares
Retail Shares Daily Shares
Service Shares Investor A Shares
</TABLE>
II-18
<PAGE>
APPENDIX III
Expense Summaries of Emerald Funds
and the Corresponding Nations Funds
The following tables (a) compare the fees and expenses as of November 30,
1997, for the respective Emerald Funds and their corresponding Nations Funds
and (b) show the estimated fees and expenses for the corresponding Nations
Funds on a pro forma basis after giving effect to the reorganization. The
purpose of these tables is to assist shareholders in understanding the various
costs and expenses that investors in the Emerald Funds will bear as
shareholders of the corresponding Nations Funds. The tables do not reflect any
charges that may be imposed by institutions directly on their customer accounts
in connection with investments in the respective funds. The fund operating
expense levels shown in this Proxy/Prospectus assume current net asset levels;
pro forma expense levels shown should not be considered an actual
representation of future expenses or performance. Such pro forma expense levels
project anticipated levels but may be greater or less than those shown.
III-1
<PAGE>
EMERALD BALANCED FUND -- INSTITUTIONAL SHARES
NATIONS BALANCED ASSETS FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Nations Balanced Combined Fund
Balanced Fund Assets Fund Pro Forma
--------------- ------------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases .... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ...................... None None None
Deferred Sales Load ........................ None None None
Redemption Fees ............................ None None None
Exchange Fee ............................... None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees ............................ 0.60% 0.75% 0.75%
Other Expenses ............................. 0.19% 0.27% 0.26%
---------- ------------ ----------
Total Fund Operating Expenses: .............. 0.79% 1.02% 1.01%
========== ============ ==========
</TABLE>
- ---------
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations Balanced Combined Fund
Balanced Fund Assets Fund Pro Forma
--------------- ------------------ --------------
<S> <C> <C> <C>
1 year ........... $ 8 $ 10 $ 10
3 years .......... 25 32 32
5 years .......... 44 56 56
10 years ......... 98 125 124
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-2
<PAGE>
EMERALD BALANCED FUND -- RETAIL SHARES
NATIONS BALANCED ASSETS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Nations Balanced Combined Fund
Balanced Fund Assets Fund Pro Forma
--------------- ------------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases .... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ...................... None None None
Deferred Sales Load ........................ None None None
Redemption Fees ............................ None None None
Exchange Fee ............................... None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets) ....
Management Fees ............................ 0.60% 0.75% 0.75%
12b-1 Fees ................................. 0.25% 0.25% 0.25%
Shareholder Processing Plan ................ 0.25% -- --
Other Expenses (after reimbursements)* ..... 0.21% 0.27% 0.26%
---------- ----- -----
Total Fund Operating Expenses:
(after waivers or reimbursements)** ........ 1.31% 1.27% 1.26%
========== ===== =====
</TABLE>
- ---------
* Other Expenses (absent reimbursements) would be: 0.22% for Emerald Balanced
Fund.
** Total Fund Operating Expenses (absent reimbursements) would be: 1.32% for
Emerald Balanced Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations Balanced Combined Fund
Balanced Fund Assets Fund Pro Forma
--------------- ------------------ --------------
<S> <C> <C> <C>
1 year ........... $ 13 $ 13 $ 13
3 years .......... 42 40 40
5 years .......... 72 70 69
10 years ......... 158 153 152
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-3
<PAGE>
EMERALD EQUITY FUND -- INSTITUTIONAL SHARES
NATIONS DISCIPLINED EQUITY FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Nations Disciplined Combined Fund
Equity Fund Equity Fund Pro Forma
------------- --------------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ...................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees ............................. 0.60% 0.75% 0.75%
Other Expenses .............................. 0.16% 0.26% 0.25%
--------- ------------- ----------
Total Fund Operating Expenses: ............... 0.76% 1.01% 1.00%
========= ============= ==========
</TABLE>
- ---------
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations Disciplined Combined Fund
Equity Fund Equity Fund Pro Forma
------------- --------------------- --------------
<S> <C> <C> <C>
1 year ........... $ 8 $ 10 $ 10
3 years .......... 24 32 32
5 years .......... 42 56 55
10 years ......... 94 124 122
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-4
<PAGE>
EMERALD EQUITY FUND -- RETAIL SHARES
NATIONS DISCIPLINED EQUITY FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Nations Disciplined Combined Fund
Equity Fund Equity Fund Pro Forma
------------- --------------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ...................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets) .....
Management Fees ............................. 0.60% 0.75% 0.75%
12b-1 Fees .................................. 0.25% 0.25% 0.25%
Shareholder Processing Plan ................. 0.25% -- --
Other Expenses .............................. 0.22% 0.26% 0.25%
--------- ----- -----
Total Fund Operating Expenses: ............... 1.32% 1.26% 1.25%
========= ===== =====
</TABLE>
- ---------
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations Disciplined Combined Fund
Equity Fund Equity Fund Pro Forma
------------- --------------------- --------------
<S> <C> <C> <C>
1 year ........... $ 13 $ 13 $ 13
3 years .......... 42 40 40
5 years .......... 72 69 69
10 years ......... 159 152 151
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-5
<PAGE>
EMERALD EQUITY VALUE FUND -- INSTITUTIONAL SHARES
NATIONS VALUE FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Equity Nations Value Combined Fund
Value Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............ 0.55% 0.75% 0.75%
Other Expenses (after reimbursements)** ..... 0.24% 0.21% 0.19%
----------- ---------- ----------
Total Fund Operating Expenses:
(after waivers and reimbursements)*** ....... 0.79% 0.96% 0.94%
=========== ========== ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Emerald Equity
Value Fund.
** Other Expenses (absent reimbursements) would be: 0.33% for Emerald Equity
Value Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 0.93% for Emerald Equity Value Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Equity Nations Value Combined Fund
Value Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
1 year ........... $ 8 $ 10 $ 10
3 years .......... 25 31 30
5 years .......... 44 53 52
10 years ......... 98 118 115
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-6
<PAGE>
EMERALD EQUITY VALUE FUND -- RETAIL SHARES
NATIONS VALUE FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Equity Nations Value Combined Fund
Value Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............ 0.55% 0.75% 0.75%
12b-1 Fees .................................. 0.25% 0.25% 0.25%
Shareholder Processing Plan ................. -- -- --
Other Expenses (after reimbursements)** ..... 0.49% 0.21% 0.19%
----- ----- -----
Total Fund Operating Expenses:
(after waivers and reimbursements)*** ....... 1.54% 1.21% 1.19%
===== ===== =====
</TABLE>
- ---------
* Management Fees (absent waivers) would be .60% for Emerald Equity Value
Fund.
** Other Expenses (absent reimbursements) would be: 1.00% for Emerald Equity
Value Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 2.10% for Emerald Equity Value Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Equity Nations Value Combined Fund
Value Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
1 year ........... $ 16 $ 12 $ 12
3 years .......... 49 38 38
5 years .......... 84 66 65
10 years ......... 183 147 144
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-7
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND -- INSTITUTIONAL SHARES
NATIONS FLORIDA MUNICIPAL BOND FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Florida Nations Florida
Tax-Exempt Municipal Bond Combined Fund
Fund Fund Pro Forma
----------------- ---------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............ 0.40% 0.40% 0.40%
Other Expenses (after reimbursements)** ..... 0.18% 0.20% 0.20%
----------- ----------- ----------
Total Fund Operating Expenses:
(after waivers and/or reimbursements)*** .... 0.58% 0.60% 0.60%
=========== =========== ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Florida
Municipal Bond Fund and the Combined Fund.
** Other Expenses (absent reimbursements) would be: 0.29% for Nations Florida
Municipal Bond Fund.
*** Total Operating Expenses (absent waivers and/or reimbursements) would be:
0.89% and 0.80%, respectively, for Nations Florida Municipal Bond Fund and
the Combined Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Florida Nations Florida
Tax-Exempt Municipal Bond Combined Fund
Fund Fund Pro Forma
----------------- ---------------- --------------
<S> <C> <C> <C>
1 year ........... $ 6 $ 6 $ 6
3 years .......... 19 19 19
5 years .......... 32 33 33
10 years ......... 73 75 75
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-8
<PAGE>
EMERALD FLORIDA TAX-EXEMPT FUND -- RETAIL SHARES
NATIONS FLORIDA MUNICIPAL BOND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Florida Nations Florida
Tax-Exempt Municipal Bond Combined Fund
Fund Fund Pro Forma
----------------- ---------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............ 0.40% 0.40% 0.40%
12b-1 Fees .................................. 0.25% 0.20% 0.20%
Shareholder Processing Plan ................. 0.25% -- --
Other Expenses (after reimbursements)** ..... 0.03% 0.20% 0.20%
----------- ----- -----
Total Fund Operating Expenses:
(after waivers and/or reimbursements)*** .... 0.93% 0.80% 0.80%
=========== ===== =====
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Florida
Municipal Bond Fund and the Combined Fund.
** Other Expenses (absent reimbursements) would be : 0.21% and 0.29%,
respectively, for Emerald Florida Tax-Exempt Fund and Nations Florida
Municipal Bond Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 1.11%, 1.09% and 1.00%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Florida Nations Florida
Tax-Exempt Municipal Bond Combined Fund
Fund Fund Pro Forma
----------------- ---------------- --------------
<S> <C> <C> <C>
1 year ........... $ 9 $ 8 $ 8
3 years .......... 30 26 26
5 years .......... 51 44 44
10 years ......... 114 99 99
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-9
<PAGE>
EMERALD MANAGED BOND FUND -- INSTITUTIONAL SHARES
NATIONS STRATEGIC FIXED INCOME FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Nations Strategic
Emerald Managed Fixed Income Combined Fund
Bond Fund Fund Pro Forma
----------------- ------------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases .... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ..................... None None None
Deferred Sales Load ........................ None None None
Redemption Fees ............................ None None None
Exchange Fee ............................... None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ........... 0.40% 0.50% 0.50%
Other Expenses ............................. 0.17% 0.23% 0.20%
----------- ------------ ----------
Total Fund Operating Expenses:
(after waivers)** .......................... 0.57% 0.73% 0.70%
=========== ============ ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Strategic Fixed
Income Fund and the Combined Fund.
** Total Fund Operating Expenses (absent waivers) would be: 0.83% and 0.80%,
respectively, for Nations Strategic Fixed Income Fund and the Combined
Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Nations Strategic
Emerald Managed Fixed Income Combined Fund
Bond Fund Fund Pro Forma
----------------- ------------------ --------------
<S> <C> <C> <C>
1 year ........... $ 6 $ 7 $ 7
3 years .......... 18 23 22
5 years .......... 32 41 39
10 years ......... 71 91 87
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-10
<PAGE>
EMERALD MANAGED BOND FUND -- RETAIL SHARES
NATIONS STRATEGIC FIXED INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Strategic
Emerald Managed Fixed Income Combined Fund
Bond Fund Fund Pro Forma
----------------- ------------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ...... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load .......................... None None None
Redemption Fees .............................. None None None
Exchange Fee ................................. None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............. 0.40% 0.50% 0.50%
12b-1 Fees ................................... 0.25% 0.20% 0.20%
Shareholder Processing Plan .................. 0.25% -- --
Other Expenses (after reimbursements)** ...... 0.20% 0.23% 0.20%
----------- ----- -----
Total Fund Operating Expenses:
(after waivers and/or reimbursements)*** ..... 1.10% 0.93% 0.90%
=========== ===== =====
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Strategic
Fixed Income Fund and the Combined Fund.
** Other Expenses (absent reimbursements) would be: 1.11% for Emerald Managed
Bond Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 2.01%, 1.03% and 1.00%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Nations Strategic
Emerald Managed Fixed Income Combined Fund
Bond Fund Fund Pro Forma
----------------- ------------------ --------------
<S> <C> <C> <C>
1 year ........... $ 11 $ 9 $ 9
3 years .......... 35 30 29
5 years .......... 61 51 50
10 years ......... 134 114 111
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-11
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND -- INSTITUTIONAL SHARES
NATIONS SHORT-TERM INCOME FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Short- Nations Short-
Term Fixed Income Term Income Combined Fund
Fund Fund Pro Forma
------------------- --------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases .... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ...................... None None None
Deferred Sales Load ........................ None None None
Redemption Fees ............................ None None None
Exchange Fee ............................... None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ........... 0.40% 0.30% 0.30%
Other Expenses ............................. 0.21% 0.21% 0.20%
------------ ---------- ----------
Total Fund Operating Expenses:
(after waivers)** .......................... 0.61% 0.51% 0.50%
============ ========== ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Short-Term
Income Fund and the Combined Fund.
** Total Fund Operating Expenses (absent waivers) would be: 0.81% and 0.80%,
respectively for Nations Short-Term Income Fund and the Combined Fund.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald
Short-Term Nations Short-
Fixed Income Term Income Combined Fund
Fund Fund Pro Forma
-------------- --------------- --------------
<S> <C> <C> <C>
1 year ........... $ 6 $ 5 $ 5
3 years .......... 20 16 16
5 years .......... 34 29 28
10 years ......... 76 64 63
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-12
<PAGE>
EMERALD SHORT-TERM FIXED INCOME FUND -- RETAIL SHARES
NATIONS SHORT-TERM INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Short- Nations Short-
Term Income Term Income Combined Fund
Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ...... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ........................ None None None
Deferred Sales Load .......................... None None None
Redemption Fees .............................. None None None
Exchange Fee ................................. None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ............. 0.40% 0.30% 0.30%
12b-1 Fees ................................... 0.25% 0.20% 0.20%
Shareholder Processing Plan .................. 0.25% -- --
Other Expenses (after reimbursement)** ....... 0.13% 0.21% 0.20%
----------- ----- -----
Total Fund Operating Expenses:
(after waivers and/or reimbursements)*** ..... 1.03% 0.71% 0.70%
=========== ===== =====
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.60% for Nations Short-Term
Income Fund and the Combined Fund.
** Other Expenses (absent reimbursements) would be: 0.32% for Emerald
Short-Term Fixed Income Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 1.22%, 1.01% and 1.00%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Short- Nations Short-
Term Fixed Term Income Combined Fund
Income Fund Fund Pro Forma
---------------- --------------- --------------
<S> <C> <C> <C>
1 year ........... $ 11 $ 7 $ 7
3 years .......... 33 23 22
5 years .......... 57 40 39
10 years ......... 126 88 87
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-13
<PAGE>
EMERALD TAX-EXEMPT FUND -- INSTITUTIONAL SHARES
NATIONS TAX EXEMPT FUND -- PRIMARY A SHARES
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases .............. None None None
Maximum Sales Load Imposed on
Reinvested Dividends ................................ None None None
Deferred Sales Load .................................. None None None
Redemption Fees ...................................... None None None
Exchange Fee ......................................... None None None
Annual Fund Operating Expenses: (as a percentage of
average net assets)
Management Fees) (after waivers)* .................... 0.15% 0.16% 0.16%
Other Expenses ....................................... 0.16% 0.14% 0.14%
--------- --------- ----------
Total Fund Operating Expenses:
(after waivers)** 0.31% 0.30% 0.30%
========= ========= ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.25%, 0.40% and 0.40%,
respectively.
** Total Fund Operating Expenses (absent waivers) would be: 0.41%, 0.54% and
0.54%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
1 year ........... $ 3 $ 3 $ 3
3 years .......... 10 10 10
5 years .......... 17 17 17
10 years ......... 39 38 38
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-14
<PAGE>
EMERALD TAX-EXEMPT FUND -- SERVICE SHARES
NATIONS TAX EXEMPT FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ............... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ................................. None None None
Deferred Sales Load ................................... None None None
Redemption Fees ....................................... None None None
Exchange Fee .......................................... None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers)* ...................... 0.15% 0.16% 0.16%
12b-1 Fees ............................................ -- 0.35% 0.35%
Other Expenses (after reimbursements)** ............... 0.58% 0.14% 0.14%
----- --------- ----------
Total Fund Operating Expenses: (after waivers and/or
reimbursements)*** .................................... 0.73% 0.65% 0.65%
===== ========= ==========
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.25%, 0.40% and 0.40%,
respectively.
** Other Expenses (absent reimbursements) would be: 1.46% for Emerald
Tax-Exempt Fund.
*** Total Fund Operating Expenses (absent waivers and/or reimbursements) would
be: 1.71%, 0.89% and 0.89%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
1 year ........... $ 7 $ 7 $ 7
3 years .......... 23 21 21
5 years .......... 41 36 36
10 years ......... 91 81 81
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-15
<PAGE>
EMERALD TAX-EXEMPT FUND -- RETAIL SHARES
NATIONS TAX EXEMPT FUND -- DAILY SHARES
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ..... None None None
Maximum Sales Load Imposed on
Reinvested Dividends ....................... None None None
Deferred Sales Load ......................... None None None
Redemption Fees ............................. None None None
Exchange Fee ................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after waivers) * ........... 0.15% 0.16% 0.16%
12b-1 Fees .................................. 0.25% 0.50% 0.50%
Shareholder Processing Plan ................. 0.25% -- --
Other Expenses .............................. 0.22% 0.14% 0.14%
--------- ----- -----
Total Fund Operating Expenses:
(after waivers)** ........................... 0.87% 0.80% 0.80%
========= ===== =====
</TABLE>
- ---------
* Management Fees (absent waivers) would be: 0.25%, 0.40% and 0.40%,
respectively.
** Total Fund Operating Expenses (absent waivers) would be: 0.97%, 1.04% and
1.04%, respectively.
Example:*
You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Emerald Nations
Tax-Exempt Tax Exempt Combined Fund
Fund Fund Pro Forma
------------ ------------ --------------
<S> <C> <C> <C>
1 year ........... $ 9 $ 8 $ 8
3 years .......... 28 26 26
5 years .......... 48 44 44
10 years ......... 107 99 99
</TABLE>
- ---------
* This example should not be considered a representation of future expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual return; actual return may be greater or less than the assumed amount.
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Total Fund Operating
Expenses above remain the same in the years shown.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
III-16
<PAGE>
APPENDIX IV
Investment Objectives, Limitations and Certain Significant Investment Policies
of the
Operating Nations Funds and the Corresponding Emerald Funds
This Appendix sets forth the investment objectives, fundamental and
certain non-fundamental limitations and significant investment policies of the
seven Emerald Funds that will be reorganized into the seven Nations Funds, as
well as the investment objectives, fundamental and non-fundamental limitations
and significant investment policies of Nations Funds. The following is
qualified in its entirety by the more detailed information included in the
prospectuses and statements of additional information for the Emerald Funds and
the corresponding Nations Funds which are incorporated by reference in this
Proxy/Prospectus.
I. EMERALD BALANCED FUND/NATIONS BALANCED ASSETS FUND
A. Investment Objectives.
1. Emerald Balanced Fund: to provide an attractive investment return
through a combination of growth of capital and current income.
2. Nations Balanced Assets Fund: to seek total return by investing in
equity and fixed income securities.
Comment: Both Funds seek to achieve their objectives by allocating assets
among three major asset groups: equity securities, fixed-income securities and
cash equivalents. The Emerald Balanced Fund's policy dictates that at all times
at least 25% of total asset value is invested in fixed income securities and no
more than 75% of assets is invest in equity securities. The Nations Balanced
Assets Fund also maintains at least 25% of total asset value in fixed income
securities, under normal market conditions. Both Funds may also invest up to
25% in securities of foreign issuers.
The Emerald Balanced Fund may invest in U.S. Government obligations,
corporate bonds, mortgage-backed and other asset-backed securities, senior debt
securities, preferred stocks and common stocks. Equity securities acquired may
include common stock, preferred stock and debt instruments convertible into
common stock. The Fund also may invest in equity securities of small
capitalization companies and cash equivalents. Not more than 15% of the Fund's
total assets may be invested in convertible securities rated below investment
grade at the time of purchase.
Nations Balanced Assets Fund invests in common and preferred stocks of
U.S. corporations and of foreign issuers, as well as securities convertible
into common stocks, and other types of securities having common stock
characteristics. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase or, if unrated, determined by the Adviser to be
of comparable quality.
Both Funds may invest in government, corporate and municipal debt
securities as well as mortgaged-backed and asset-backed securities.
II. EMERALD EQUITY FUND/NATIONS DISCIPLINED EQUITY FUND
A. Investment Objectives.
1. Emerald Equity Fund: to seek long-term capital appreciation by
investing primarily in common stocks (secondary objective: potential income
growth through investments).
2. Nations Disciplined Equity Fund: to seek growth of capital by investing
in companies that are expected to produce significant increases in earnings per
share.
Comment: The Emerald Equity Fund normally invests at least 65% of total
assets in equity securities which include common stocks, preferred stock and
debt instruments convertible into common stock. The remainder of the Fund's
assets may be invested in cash, or cash equivalents, and up to 25% of its
assets may be invested in equity securities of small capitalization companies.
Under normal market conditions, the Nations Disciplined Equity Fund
invests at least 65% of total assets in common stocks of domestic issuers and
the remainder of Fund assets may be invested in equity and debt instruments
including preferred stock and securities convertible into common stock.
IV-1
<PAGE>
The Emerald Equity Fund generally invests in larger companies with market
capitalizations exceeding $5 billion, whereas, the Nations Disciplined Equity
Fund invests primarily in medium- and large-sized companies with market
capitalizations of $500 million or greater.
The Nations Disciplined Equity Fund is limited to investing in investment
grade debt securities, including convertible securities, and may not invest in
debt securities rated below the top four investment categories. However, the
Emerald Equity Fund may invest up to 15% of total assets in convertible
securities rated below investment grade.
The Emerald Equity Fund may invest up to 25% of total assets in securities
of foreign issuers. However, the Nations Disciplined Equity Fund may only
invest up to 20% of total assets in foreign securities. Both Funds may invest
in money market instruments and repurchase agreements.
The management styles of the Emerald Equity Fund and the Nations
Disciplined Equity differ in that the Emerald Equity Fund invests in equity
securities selected on the basis of fundamental investment value and growth
prospects that Barnett Capital believes exceed those of the general economy,
whereas, for Nations Disciplined Equity Fund, NBAI selects stocks for purchase
utilizing quantitative analysis and optimization tools. Accordingly, the
resulting portfolio holdings do not align as closely as the similar investment
objectives would indicate. See Section "Summary -- Special Considerations
Relating to the Emerald Equity Fund."
III. EMERALD EQUITY VALUE FUND/NATIONS VALUE FUND
A. Investment Objectives.
1. Emerald Equity Value Fund: to seek long-term capital appreciation.
2. Nations Value Fund: to seek growth of capital by investing in companies
that are believed to be undervalued.
Comment: The Emerald Equity Value Fund normally invests at least 75% of
total assets in common stock, preferred stock and debt securities convertible
into common stock. The Fund primarily invests in companies having
capitalizations that exceed $100 million. Not more than 15% of the Fund's total
assets may be invested in convertible securities rated below investment grade
at the time of purchase.
Under normal market conditions, the Nations Value Fund invests at least
65% of total assets in common stock and invests in preferred stock and
securities convertible into common stock in addition to common stock. The Fund
normally invests in companies that have a market capitalization of $500 million
or more and have an average daily trading volume of $3 million.
Both Funds may invest in money market instruments, repurchase agreements
and obligations of the U.S. Government, its agencies or instrumentalities.
However, the Nations Value Fund is limited to holding an aggregate of 20% of
its total assets in obligations issued or guaranteed as to payment of principal
and interest by the U.S. Government and investment grade securities of domestic
companies.
Both Funds may invest in foreign securities. The Emerald Equity Value Fund
may invest up to 25% of total assets in the securities of foreign issuers,
whereas, the Nations Value Fund is restricted to 20% of total assets invested
in foreign securities.
IV. EMERALD FLORIDA TAX-EXEMPT FUND/NATIONS FLORIDA MUNICIPAL BOND FUND
A. Investment Objectives.
1. Emerald Florida Tax-Exempt Fund: to seek to provide high tax-free
income and current liquidity (secondary objective: long-term capital
appreciation potential).
2. Nations Florida Municipal Bond Fund: to seek high current income exempt
from federal income and Florida state intangibles taxes with the potential for
principal fluctuation associated with investments in long-term municipal
securities.
Comment: The Emerald Florida Tax-Exempt Fund primarily invests its assets
in municipal obligations that are rated investment grade or above by one or
more nationally recognized statistical rating organization ("NRSRO") at the
time of purchase. The Nations Florida Municipal Bond Fund invests in investment
grade, long-term municipal securities. Both Funds invest at least 80% of their
total net assets in obligations the interest on which is exempt from federal
income tax except during temporary defensive periods.
IV-2
<PAGE>
Under normal market conditions, the Emerald Florida Tax-Exempt Fund will
invest at least 65% of its net assets in securities issued by the state of
Florida and its municipalities, counties and other taxing districts, as well as
in other securities exempt from the Florida intangibles tax. Under normal
market conditions, at least 80% of the Nations Florida Municipal Bond Fund's
net assets will be invested in municipal securities and debt instruments,
issued by or on behalf of the state of Florida and its political subdivisions,
agencies, instrumentalities and authorities. Both Funds may invest up to 20% of
net assets in taxable instruments and private activity bonds, the interest on
which may be subject to federal alternative minimum tax.
The Emerald Florida Tax-Exempt Fund may invest, without limitation, in
securities that have remaining maturities of more than ten years. Under normal
conditions, the average dollar-weighted maturity of the Nations Florida
Municipal Bond Fund will be greater than ten years and duration will be between
seven and nine and one half years.
V. EMERALD MANAGED BOND FUND/NATIONS STRATEGIC FIXED INCOME FUND
A. Investment Objectives.
1. Emerald Managed Bond Fund: to seek a high level of current income and,
secondarily, capital appreciation.
2. Nations Strategic Fixed Income Fund: to seek total return by investing
in investment grade fixed income securities.
Comment: The Emerald Managed Bond Fund invests substantially all of its
assets in investment grade debt obligations and normally will invest at least
65% of total assets in debt obligations rated "A" or better by at least one
nationally recognized statistical rating organization ("NRSRO") (or obligations
determined to be of comparable quality). Nations Strategic Fixed Income Fund
invests at least 65% of total assets in investment grade fixed income
securities. Although most obligations acquired by the Funds will be issued by
companies or governmental entities within the United States both Funds may
invest in foreign securities. Unlike the Emerald Managed Bond Fund which limits
such investments to 35% of total assets, the Nations Strategic Fixed Income
Fund may only invest up to 25% of its assets in foreign securities.
The average weighted maturity of the Emerald Managed Bond Fund may be
longer or shorter than ten years depending on prevailing market and economic
conditions. However, the Nations Strategic Fixed Income Fund has an expected
average weighted maturity that will be ten years or less and under no
circumstances will the maturity exceed 15 years.
Both Funds may also invest in high-quality cash equivalents, convertible
stock, asset-backed securities, mortgaged-related securities, municipal
securities and repurchase agreements.
VI. EMERALD SHORT-TERM FIXED INCOME FUND/NATIONS SHORT-TERM INCOME FUND
A. Investment Objectives.
1. Emerald Short-Term Fixed Income Fund: to seek consistently positive
current income with relative stability of principal by investing in investment
grade securities and high quality money market instruments.
2. Nations Short-Term Income Fund: to seek high current income consistent
with minimal fluctuation of principal.
Comment: Both Funds invest substantially all of their assets in investment
grade debt obligations, and under normal market conditions will invest at least
65% of total assets in such obligations. Additionally, the Emerald Short-Term
Fixed Income Fund normally invests at least 65% of total assets in debt
obligations rated "A" or better by at least one NRSRO (or obligations
determined to be of comparable quality). Although most obligations acquired by
the Funds will be issued by companies or governmental entities within the
United States, the Funds may invest in foreign securities. The Emerald Short-
Term Fixed Income Fund limits such investments to 35% of total assets, however,
the Nations Short-Term Income Fund may only invest up to 25% of its assets in
foreign securities.
The average weighted maturity of the Emerald Short-Term Fixed Income Fund
will not exceed three years, whereas, Nations Short-Term Income Fund has an
expected average weighted maturity that will not exceed five years and a
duration that will not exceed three years.
Both Funds may also invest in high-quality cash equivalents, convertible
stock, asset-backed securities, mortgaged-related securities, municipal
securities and repurchase agreements.
IV-3
<PAGE>
VII. EMERALD TAX-EXEMPT FUND/NATIONS TAX EXEMPT FUND
B. Investment Objectives.
1. Emerald Tax-Exempt Fund: to seek to provide a high level of current
income that is exempt from federal income taxes, consistent with liquidity, the
preservation of capital and a stable net asset value.
2. Nations Tax Exempt Fund: to seek as high a level of current income
exempt from federal income taxes as is consistent with liquidity and stability
of principal.
Comment: Each of these Funds is a money market fund and seeks to maintain
a net asset value of $1.00 per share, although there is no assurance that they
will be able to do so. As a matter of fundamental policy, both Funds invest at
least 80% or more of their respective net assets in municipal obligations.
Nations Tax Exempt Fund may invest in instruments issued by certain trusts,
partnerships and other special purpose issuers, including pass-through
certificates.
Both Funds may also invest up to 20% of net assets in private activity
bonds subject to alternative minimum tax. Neither Fund knowingly purchases
securities, the interest on which is subject to federal tax, and the Funds both
may hold uninvested cash reserves.
Each Fund is a money market fund and, in accordance with Rule 2a-7 under
the 1940 Act, may invest in instruments with remaining maturities not exceeding
thirteen months, and each Fund's dollar-weighted average portfolio maturity
must not exceed 90 days. Both Funds limit their investments to "First Tier
Securities" as defined by Rule 2a-7.
IV-4
<PAGE>
APPENDIX V
Shareholder Transactions and Services of the Nations Funds and the
Corresponding Emerald Funds
This Appendix compares the shareholder transactions and services of the
Emerald Funds and the corresponding Nations Funds. The following is qualified
in its entirety by the more detailed information included in the prospectuses
for the Emerald Funds and Nations Funds which are incorporated by reference in
this Proxy/Prospectus. Unless otherwise indicated, terms used herein and not
otherwise defined have the same meanings as are given to them in such
prospectuses. Please note that after the Reorganization, Nations will continue
to honor any standing instructions regarding the corresponding Emerald Fund
classes, under arrangements such as automatic withdrawal plans, systematic
investment plans or dividend reinvestment plans. In such cases, standing
instructions will be subject to the same or similar terms (e.g., minimum
investments, account balances and minimum transaction amounts) currently in
effect, except that there may be exceptions with respect to the timing of
transactions which may need to be altered to comport with Nations procedures.
Shareholders will be notified of any such exceptions. After the Reorganization,
any instructions given with respect to any new account will be subject to the
terms of the applicable Nations Fund class.
I. Emerald Funds -- Retail Shares (Emerald Balanced Fund, Emerald Equity Fund,
Emerald Equity Value Fund, Emerald Florida Tax-Exempt Fund, Emerald Managed
Bond Fund and Emerald Short-Term Fixed Income Fund).
Corresponding Nations Funds -- Investor A Shares (Nations Balanced Assets
Fund, Nations Disciplined Equity Fund, Nations Value Fund, Nations Florida
Municipal Bond Fund, Nations Strategic Fixed Income Fund and Nations Short-Term
Income Fund).
A. Sales Charges and Exemptions
There is no sales charge on either the Retail Shares of the Emerald Funds
or the Investor A Shares of the Nations Funds.
B. Purchase Policies
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- -------------------------------------
<S> <C> <C>
Minimum initial investment ..... $1,000 for a regular account; $500 $1,000 for a regular account**;
for IRA investors; $250 for non- $500 for investors participating in
working spousal IRAs; $100 for the E-Z Matic Investment Plan;
investors participating in the Sys- $50 for investors participating in
tematic Investment Plan; no mini- the Periodic Investment Plan;
mum investment for 401(k) plans, $1,000 for IRA investors; $250 for
simplified employee pension plans non-working spousal IRAs; no
("SEPs"), Savings Incentives minimum investment for 401(k)
Method Plans for Employees Plans, Qualified Retirement Plans
("SIMPLE IRAs") and salary and SEP-IRAs.
reduction-IRAs ("SAR-IRAs").*
Minimum subsequent
investments ................... $100; $50 for subsequent invest- $100 for regular accounts*** and
ments made through the System- investors in the E-Z Matic Invest-
atic Investment Plan. ment Plan; $50 for investors in the
Periodic Investment Plan; no mini-
mum investment for IRAs, 401(k)
Plans, Qualified Retirement Plans
and SEP-IRAs.
</TABLE>
V-1
<PAGE>
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
----------------------------------- -----------------------------------
<S> <C> <C>
Purchase methods ..... Through Selling Agents, Servicing Through Barnett Investments, Inc.,
Agents, a Nations Fund Personal Service Organizations; by mail; by
Investment Planner account; by wire; by telephone; an E-Z Matic
mail; by wire; by telephone and a Investment account and Periodic
Systematic Investment Plan. Investment Plan account.
</TABLE>
* The assets of such plans must reach an asset value of $1,000 ($500 for SEPs,
SAR-SEPs and SAR-IRAs) within one year of the account open date. If the
assets of such plans do not reach the minimum asset size within one year,
Nations reserves the right to redeem the Shares held by such plans on 60
days' written notice.
** If the investment is made through a qualified account at a Service
Organization whose clients have made total investments of at least
$1,000,000 the investor qualifies for a $100 minimum initial investment;
employees of Barnett Capital and its affiliates qualify for a $500 minimum
initial investment.
*** Employees of Barnett Capital and its affiliates qualify for a $50 minimum
subsequent investment.
C. Redemption Procedures
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- -------------------------------------
<S> <C> <C>
Through an authorized selling or
servicing agent .................... Yes Yes
By mail ............................. Yes Yes
By telephone ........................ Yes Yes
By wire ............................. Yes Yes
Check writing feature ............... No No
By automatic withdrawal plan ........ Yes (net asset value of account must Yes (net asset value of account must
be $10,000 be at least $5,000)
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations Funds may redeem Investor A Shares if the balance in a shareholder's
account with the Fund drops below $500 as a result of redemptions, and the
shareholder does not increase the balance to at least $500 on 60 days' written
notice. Share balances also may be redeemed at the direction of an agent
pursuant to arrangements between the agent and its customer. Nations also may
redeem shares of the Nations Funds involuntarily or make payment for redemption
in readily marketable securities or other property under certain circumstances
in accordance with the 1940 Act.
Emerald may redeem Retail Shares involuntarily if the balance of an
account (other than an IRA or Qualified Retirement Plan account) decreases to a
value below $1,000 due to shareholder redemptions, and the shareholder does not
increase such balance to $1,000 upon 30 days' written notice. Share balances
also may be redeemed at the direction of an institution pursuant to
arrangements between the institution and its customer. Under unusual
circumstances, Emerald may pay redemption proceeds in readily marketable
portfolio securities at their market value equal to the redemption price.
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------- -----------------------------------
<S> <C> <C>
Systematic/automatic investment
plan ......................... Yes (in any amount from $50 to Yes (debits shareholder's bank
$100,000) account and purchases shares
either once or twice a month in
amounts as specified by the share-
holder)
</TABLE>
V-2
<PAGE>
E. Share Exchanges
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
------------------------------------------ ---------------------------------------
<S> <C> <C>
By mail ........................ Yes Yes
By telephone ................... Yes Yes
Minimum ........................ The Investor A Shares exchanged must The Retail Shares exchanged must
have a current value of at least $1,000. have a current value of at least $500.
Automatic exchange feature ..... Yes. A shareholder may automati- No
cally exchange at least $25 on a
monthly or quarterly basis.
</TABLE>
Retail Shares of an Emerald Fund may be exchanged for Institutional Shares
of the same Fund that are held in a qualified trust, agency or custodial
account or for Retail Shares of another Emerald Fund.
Investor A Shares of a Nations Fund may be exchanged for Investor A Shares
of any other Nations Fund. Exchanges are subject to the minimum investment
requirements imposed.
II. Emerald Funds -- Institutional Shares (Emerald Balanced Fund, Emerald
Equity Fund, Emerald Equity Value Fund, Emerald Florida Tax-Exempt Fund,
Emerald Managed Bond Fund, Emerald Short-Term Fixed Income Fund and Emerald
Tax-Exempt Fund).
Corresponding Nations Funds -- Primary A Shares (Nations Balanced Assets
Fund, Nations Disciplined Equity Fund, Nations Value Fund, Nations Florida
Municipal Bond Fund, Nations Strategic Fixed Income Fund, Nations Short-Term
Income Fund and Nations Tax Exempt Fund).
A. Sales Charges and Exemptions
There is no front-end or contingent-deferred sales charge on the
Institutional Shares of the Emerald Funds or the Primary A Shares of the
Nations Funds.
B. Purchase Policies
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------------- --------------------------------------
<S> <C> <C>
Minimum initial investment .......... $250,000 $250,000 for non-money market
funds; $5,000 for money market
funds; there is no minimum initial
investment requirement for trans-
fers of assets by Barnett's custom-
ers from other banks or financial
institutions.
Minimum subsequent investments.. None None for non-money market
funds; $100 for money market
funds.
Purchase methods .................... Primary A Shares may be sold to Institutional Shares sold to Barnett
NationsBank and its affiliates acting on and its affiliates, as well as
behalf of bona fide trust customers. Pri- Barnett's correspondent banks and
mary A Shares also may be sold to other institutions acting on behalf
employee benefit plans, charitable foun- of themselves or their customers
dations, endowments and to other funds who maintain qualified trust,
in the Nations Fund family. agency or custodial accounts. All
share purchases are effected
through a customer's account at
Barnett or another institution.
</TABLE>
V-3
<PAGE>
C. Redemption Procedures
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
---------------- ---------------
<S> <C> <C>
Through the transfer agent ..... Yes Yes
By telephone ................... Yes Yes
By wire ........................ Yes Yes
Check writing feature .......... Not Applicable Not Applicable
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations reserves the right to close a shareholder's account and send the
shareholder the proceeds if the balance falls below $500 as a result of
redemptions, and the shareholder does not increase the balance to at least $500
on 60 days' written notice. Share balances also may be redeemed at the
direction of an agent pursuant to arrangements between the agent and its
customers. Nations also may redeem Shares of the Nations Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
With respect to the Emerald money market funds, an involuntary redemption
of Institutional shares may occur if the balance of an account (other than an
IRA or Qualified Retirement Plan account) decreases to a value below $4,000 due
to shareholder redemptions, and the shareholder does not increase such balance
to $4,000 upon 60 days' written notice. With respect to the Emerald non-money
market funds, an involuntary redemption of Institutional Shares may occur if
the account balance has fallen below the minimum level due to shareholder
redemptions. Share balances also may be redeemed at the direction of an
institution pursuant to arrangements between the institution and its customer.
Under unusual circumstances, Emerald may pay redemption proceeds in readily
marketable portfolio securities at their market value equal to the redemption
price.
D. Additional Shareholder Services
None.
E. Share Exchanges
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
--------------- --------------
<S> <C> <C>
By mail ............... Yes Yes
By telephone .......... Yes Yes
</TABLE>
Primary A Shares of a Nations Fund may be exchanged for Primary A Shares
of any other Nations Fund. Exchanges are subject to the minimum investment
requirements imposed.
Institutional Shares of the Emerald Funds may be exchanged for Retail
Shares of the same Fund in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of Barnett or another bank, trust company or financial institution.
Exchanges are subject to the minimum investment requirements imposed.
III. Emerald Funds -- Service Shares (Emerald Tax-Exempt Fund).
Corresponding Nations Funds -- Investor A Shares (Nations Tax Exempt
Fund).
A. Sales Charges and Exemptions
There is no front-end or contingent-deferred sales charge on the Service
Shares of the Emerald Funds or the Investor A Shares of the Nations Funds.
V-4
<PAGE>
B. Purchase Policies
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- --------------------------------------
<S> <C> <C>
Minimum initial investment ..... $1,000 for a regular account; $500 $5,000; there is no minimum ini-
for IRA investors; $250 for non- tial investment requirements for
working spousal IRAs; $100 for transfers of assets by Barnett's
investors participating in the Sys- customers from other banks or
tematic Investment Plan; no mini- financial institutions.
mum investment for 401(k) plans,
simplified employee pension plans
("SEPs"), Savings Incentives
Method Plans for Employees
("SIMPLE IRAs") and salary
reduction-IRAs ("SAR-IRAs").*
Minimum subsequent
investments ................... $100; $50 for subsequent invest- $ 100
ments made through the System-
atic Investment Plan.
Purchase methods ............... Through Selling Agents, Servicing Sold to Barnett and its affiliates,
Agents, a Nations Fund Personal as well as Barnett's correspondent
Investment Planner account; by banks and other institutions acting
mail; by wire; by telephone and a on behalf of themselves or their
Systematic Investment Plan. customers who maintain qualified
trust, agency or custodial accounts.
All share purchases are effected
through a customer's account at
Barnett or another institution.
</TABLE>
* The assets of such plans must reach an asset value of $1,000 ($500 for
SEPs, SAR-SEPs and SAR-IRAs) within one year of the account open date. If the
assets of such plans do not reach the minimum asset size within one year,
Nations reserves the right to redeem the Shares held by such plans on 60 days'
written notice.
C. Redemption Procedures
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- --------------
<S> <C> <C>
Through an authorized selling or
servicing agent .................... Yes Yes
By mail ............................. Yes Yes
By telephone ........................ Yes Yes
By wire ............................. Yes Yes
Check writing feature ............... Yes No
By automatic withdrawal plan ........ Yes (net asset value of account must No
be $10,000)
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations Funds may redeem Investor A Shares if the balance in a shareholder's
account with the Fund drops below $500 as a result of redemptions, and the
shareholder does not increase the balance to at least $500 on 60 days' written
notice. Share balances also may be redeemed at the direction of an agent
pursuant to arrangements between the agent and its customer. Nations also may
redeem shares of the Nations Funds involuntarily or make payment for redemption
in readily marketable securities or other property under certain circumstances
in accordance with the 1940 Act.
Emerald may redeem Service Shares involuntarily if the balance of an
account decreases to a value below $4,000 due to shareholder redemptions, and
the shareholder does not increase such balance to $4,000 upon 60 days' written
notice.
V-5
<PAGE>
Share balances also may be redeemed at the direction of an institution pursuant
to arrangements between the institution and its customer. Under unusual
circumstances, Emerald may pay redemption proceeds in readily marketable
portfolio securities at their market value equal to the redemption price.
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------- --------------
<S> <C> <C>
Systematic/automatic investment
plan ......................... Yes (in any amount from $50 to No
$100,000)
</TABLE>
E. Share Exchanges
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
----------------------------------------- --------------
<S> <C> <C>
By mail ........................ Yes No
By telephone ................... Yes No
Minimum ........................ The Investor A Shares exchanged must No
have a current value of at least $1,000.
Automatic exchange feature ..... Yes. A shareholder may automati- No
cally exchange at least $25 on a
monthly or quarterly basis.
</TABLE>
Investor A Shares of a Nations Fund may be exchanged for Investor A Shares
of any other Nations Fund. Exchanges are subject to the minimum investment
requirements imposed.
Emerald does not currently offer an exchange privilege with respect to
Service Shares of the Emerald Funds.
IV. Emerald Funds -- Retail Shares (Emerald Tax-Exempt Fund).
Corresponding Nations Funds -- Daily Shares (Nations Tax Exempt Fund).
A. Sales Charges and Exemptions
There is no front-end or contingent-deferred sales charge on the Retail
Shares of the Emerald Funds or the Daily Shares of the Nations Funds.
B. Purchase Policies
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- ------------------------------------
<S> <C> <C>
Minimum initial investment .. $1,000 for a regular account; $500 $1,000 for a regular account**;
for IRA investors; $250 for non- $500 for investors participating in
working spousal IRAs; $100 for the E-Z Matic Investment Plan;
investors participating in the Sys- $50 for investors participating in
tematic Investment Plan; no mini- the Periodic Investment Plan;
mum investment for 401(k) plans, $1,000 for IRA investors; $250 for
simplified employee pension plans non-working spousal IRAs; no
("SEPs"), Savings Incentives minimum investment for 401(k)
Method Plans for Employees Plans, Qualified Retirement Plans
("SIMPLE IRAs") and salary and SEP-IRAs.
reduction-IRAs ("SAR-IRAs").*
</TABLE>
V-6
<PAGE>
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
------------------------------------ -------------------------------------
<S> <C> <C>
Minimum subsequent
investments .......... $100; $50 for subsequent $100 for regular accounts*** and
investments made through the investors in the E-Z Matic Invest-
Systematic Investment Plan. ment Plan; $50 for investors in the
Periodic Investment Plan; no mini-
mum investment for IRAs, 401(k)
Plans, Qualified Retirement Plans
and SEP-IRAs.
Purchase methods ...... Through Selling Agents, Servicing Through Barnett Investments, Inc.,
Agents, a Nations Fund Personal Service Organizations; by mail; by
Investment Planner account; by wire; by telephone; an E-Z Matic
mail; by wire; by telephone and a Investment Plan account and Peri-
Systematic Investment Plan. odic Investment Plan account.
</TABLE>
* The assets of such plans must reach an asset value of $1,000 ($500 for SEPs,
SAR-SEPs and SAR-IRAs) within one year of the account open date. If the
assets of such plans do not reach the minimum asset size within one year,
Nations reserves the right to redeem the Shares held by such plans on 60
days' written notice.
** If the investment is made through a qualified account at a Service
Organization whose clients have made total investments of at least
$1,000,000 the investor qualifies for a $100 minimum initial investment;
employees of Barnett Capital and its affiliates qualify for a $500 minimum
initial investment.
*** Employees of Barnett Capital and its affiliates qualify for a $50 minimum
subsequent investment.
C. Redemption Procedures
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
-------------------------------------- -------------------------------------
<S> <C> <C>
Through an authorized selling or
servicing agent .................... Yes Yes
By mail ............................. Yes Yes
By telephone ........................ Yes Yes
By wire ............................. Yes Yes
Check writing feature ............... No No
By automatic withdrawal plan ........ Yes (net asset value of account must Yes (net asset value of account must
be $10,000) be at least $5,000)
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations Funds may redeem Daily Shares if the balance in a shareholder's account
with the Fund drops below $500 as a result of redemptions, and the shareholder
does not increase the balance to at least $500 on 60 days' written notice.
Share balances also may be redeemed at the direction of an agent pursuant to
arrangements between the agent and its customer. Nations also may redeem shares
of the Nations Funds involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Emerald may redeem Retail Shares involuntarily if the balance of an
account (other than an IRA or Qualified Retirement Plan account) decreases to a
value below $1,000 due to shareholder redemptions, and the shareholder does not
increase such balance to $1,000 upon 30 days' written notice. Share balances
also may be redeemed at the direction of an institution pursuant to
arrangements between the institution and its customer. Under unusual
circumstances, Emerald may pay redemption proceeds in readily marketable
portfolio securities at their market value equal to the redemption price.
V-7
<PAGE>
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
----------------------------------- --------------------------------
<S> <C> <C>
Systematic/automatic investment
plan ......................... Yes (in any amount from $50 to Yes (debits shareholder's bank
$ 100,000). account and purchases shares
either once or twice a month in
amounts as specified by the
shareholder).
</TABLE>
E. Share Exchanges
<TABLE>
<CAPTION>
Nations Funds Emerald Funds
------------------------------------------ ---------------------------------------
<S> <C> <C>
By mail ........................ Yes Yes
By telephone ................... Yes Yes
Minimum ........................ The Daily Shares exchanged must The Retail Shares exchanged must
have a current value of at least $1,000. have a current value of at least $500.
Automatic exchange feature ..... Yes. A shareholder may automati- No
cally exchange at least $25 on a
monthly or quarterly basis.
</TABLE>
Retail Shares of an Emerald Fund may be exchanged for Institutional Shares of
the same fund that are held in a qualified trust, agency or custodial account
or for Retail Shares of another Emerald Fund.
Daily Shares of a Nations Fund may be exchanged for Investor C Shares of
any other Nations non-money market fund and Daily Shares of any Nations money
market fund. Exchanges are subject to the minimum investment requirements
imposed.
VI. Dividends and Distributions
A. Dividends Declared Daily/Paid Monthly
<TABLE>
<CAPTION>
Emerald Fund Nations Fund
- ------------------------------------------- ------------------------------------
<S> <C>
Emerald Florida Tax-Exempt Fund Nations Florida Municipal Bond Fund
Emerald Managed Bond Fund Nations Strategic Fixed Income Fund
Emerald Short-Term Fixed Income Fund Nations Short-Term Income Fund
Emerald Tax-Exempt Fund Nations Tax Exempt Fund
</TABLE>
B. Dividends Declared Monthly/Paid Monthly
<TABLE>
<CAPTION>
Emerald Fund Nations Fund
- -------------- --------------------------------
<S> <C>
None Nations Disciplined Equity Fund
Nations Value Fund
</TABLE>
C. Dividends Declared Quarterly/Paid Quarterly
<TABLE>
<CAPTION>
Emerald Fund Nations Fund
- ------------------------------- -----------------------------
<S> <C>
Emerald Balanced Fund Nations Balanced Assets Fund
Emerald Equity Fund
Emerald Equity Value Fund
</TABLE>
V-8
<PAGE>
APPENDIX VI
Management's Discussion and Analysis of the Nations Funds
<PAGE>
NATIONS BALANCED ASSETS FUND
PERFORMANCE AND COMMENTARY
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Julie L. Hale, CFA, is Senior Portfolio Manager of Nations Balanced Assets
Fund and Senior Product Manager, Equity Management for TradeStreet Investment
Associates, Inc., investment sub-adviser to the Fund.
INVESTMENT OBJECTIVE
The Fund seeks total return by investing in equity and fixed income
securities.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the one-year period ended March 31, 1997, Nations Balanced Assets Fund
Investor A Shares provided shareholders with a total return of 12.18%,
outperforming the Lipper Balanced Funds Average, which returned 10.74%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Ms. Hale shares her views on financial market
conditions and Fund performance for the one-year period ended March 31, 1997.
PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
The Fund's investment philosophy is based on the premise that a diversified
portfolio allocated among stocks, fixed income securities and money market
instruments, which have different return/risk characteristics, will reduce
overall portfolio risk relative to expected returns. The Fund invests primarily
in stocks of high-quality companies with favorable long-term fundamentals and
earnings-growth potential. Fixed income investments consist of investment grade,
intermediate-term securities.
BRIEFLY DESCRIBE THE MARKET CONDITIONS THAT PREVAILED OVER THE LAST TWELVE
MONTHS.
Over the past year, we experienced a strong equity market driven by
continued low inflation and healthy corporate profits. Bonds provided only a
modest positive return over the period as interest rates moved upward due to
investor fears about the impact of accelerating economic growth on inflation.
The Fund's bias toward equities had a significant positive impact on
performance.
ON THE EQUITY SIDE, WHAT DO YOU LOOK FOR WHEN YOU SELECT COMPANIES FOR THE FUND?
We seek out high-quality companies with strong, long-term fundamentals that
are trading at favorable prices relative to their total return potential.
WHERE DID YOU FIND STRONG EQUITY PERFORMANCE?*
The Fund benefited from holdings in the consumer cyclical, energy and
telecommunications sectors. Better performing stocks included Snap-On Inc.,
Exxon Corporation, Sprint Corporation and MCI Communications.
WHAT SHIFTS WERE MADE IN THE FUND'S OVERALL ASSET ALLOCATION OVER THE PAST
TWELVE MONTHS?
During the past twelve months, asset allocation was fairly steady with equities
making up approximately 60% to 65% and fixed income securities comprising 33% to
38% of the Fund. Although the equity weighting was fairly stable, we experienced
notable shifts in sector weightings as significant divergence in sector
performance occurred. The Fund moved to substantial underweight positions in
healthcare and finance, while increasing exposure to the basic materials and
capital goods sectors. There also were limited and moderate shifts in the
weighting across fixed income categories of the Fund.
- ---------------
* Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook. Also, the outlook of this Fund's portfolio manager may differ from
that of other Nations Funds' portfolio managers.
VI-1
<PAGE>
WHAT AREAS OF THE MARKET WERE DISAPPOINTING?
Although finance and technology were among the better performing groups
this past year, the Fund lost relative performance in these areas. Within the
financial sector, the Fund had good stock selection but moved to an underweight
position in the group too early. Although the technology sector performed well
overall, stock selection was difficult as earnings shortfalls resulted in
significant stock price disappointments.
WHERE DID YOU FIND GOOD VALUE IN THE BOND MARKET?
Over the past year, the Fund benefited from an overweight position in
corporates, mortgages and asset-backed securities. All three sectors
outperformed comparable maturity U.S. Treasury bonds.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
At least for the short-term, we anticipate that the Fund's asset allocation
will continue to be within the ranges of 60%-65% equities and 33%-38% fixed
income securities, reflecting our long-term bias toward stocks. Recently, we
increased fixed income holdings slightly at the expense of stocks based on
weakness in the bond market and strength in the stock market. At current levels,
bonds look attractive compared to stocks. In the equity area, we continue to
find attractive values in the basic materials and energy groups, while the
finance and healthcare sectors appear to offer limited opportunities.
VI-2
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 3/31/97
<TABLE>
<S> <C>
Common Stocks 59.0%
Mortgage-Backed Securities 14.2%
Corporate Bonds and Notes 12.1%
U.S. Treasury Securities 6.7%
Repurchase Agreement and
Other Assets and Liabilities (Net) 5.1%
Asset-Backed Securities 2.1%
Foreign Bond 0.5%
Government Agency 0.3%
</TABLE>
- -------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
% OF NET ASSETS AS OF 3/31/97
<TABLE>
<C> <S> <C>
1. U.S. T-Bond, 6.250% 08/15/23 3.3%
2. FNMA, 6.500% 04/01/26 (2 Pools) 2.4
3. U.S. T-Note, 7.000% 07/15/06 2.1
4. GNMA, 9.000% 01/15/27 (1 Pool) 2.0
5. FNMA, 8.500% 06/01/26 - 07/01/26 (2 Pools) 1.5
6. GNMA, 8.000% 06/15/22 - 10/15/24 (2 Pools) 1.1
7. FNMA, 7.000% 04/01/26 (1 Pool) 1.1
8. FHLMC, Gold, 6.500% 08/01/10 1.0
9. Wellman Inc. 1.0
10. Ford Motor Company 1.0
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
INVESTOR A SHARES
- ---------------------------------
<S> <C>
Year Ended 03/31/97 12.18%
Since Inception (10/02/92)
through 03/31/97 11.13%
</TABLE>
The chart to the right shows the growth in value of a hypothetical $10,000
investment in Investor A Shares of Nations Balanced Assets Fund on October 2,
1992 (inception date). Figures for the Lehman Aggregate Bond Index, which is an
unmanaged index comprised of the Government Corporate Bond Index, the
Asset-Backed Securities Index and the Mortgage-Backed Securities Index and
includes U.S. Treasury issues, agency issues, corporate bond issues and
mortgage-backed issues, include reinvestment of dividends. Figures for the
Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500
widely held common stocks, include reinvestment of dividends. Funds included in
the Lipper Balanced Funds Average have a primary objective of conserving
principal by maintaining at all times a balanced portfolio of both stocks and
bonds. Typically, the stock/bond ratio ranges around 60%/40%.
[LINE GRAPH]
<TABLE>
<CAPTION>
Growth of
Standard & Poor's Investment with
Measurement Period Lipper Balanced 500 Composite Stock Lehman Aggregate Distributions
(Quarterly) Funds Average Price Index Bond Index Reinvested
<S> <C> <C> <C> <C>
Oct. 2, 1992 10000 10000 10000 10000
Nov. 30, 1992 10401 10502 10027 10372
10839 10961 10441 10800
11016 11013 10718 11066
11419 11297 10999 11309
Nov. 30, 1993 11585 11559 11004 11379
11211 11121 10689 11013
11094 11167 10578 10661
11415 11712 10643 11076
Nov. 30, 1994 11292 11710 10683 11000
11995 12849 11222 11621
12869 14074 11906 12584
13582 15192 12140 13252
Nov. 30, 1995 14157 16106 12657 13866
Mar. 31, 1996 14512 16970 12432 14327
14834 17731 12503 14709
15212 18279 12734 15042
16074 19801 13116 15858
Mar. 31, 1997 16104 20333 13043 16072
</TABLE>
Assumes the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-3
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C, INVESTOR N, PRIMARY A AND PRIMARY B
SHARES AS OF MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 11.37%*
Year Ended 03/31/97 11.85%
Since Inception (10/02/92) through
03/31/97 10.43%
</TABLE>
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase
<TABLE>
<CAPTION>
INVESTOR N SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 11.62%
Since Inception (06/07/93) through
03/31/97 10.54%
</TABLE>
<TABLE>
<CAPTION>
PRIMARY A SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 12.50%
Since Inception (09/30/92) through
03/31/97 11.39%
</TABLE>
AGGREGATE TOTAL RETURN
<TABLE>
<CAPTION>
PRIMARY B SHARES**
- ----------------------------------------------
<S> <C>
Since Inception (06/28/96) through
03/31/97 9.06%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N, Primary A and Primary B Shares of
Nations Balanced Assets Fund from the date each class of shares was first
offered. Figures for the Lehman Aggregate Bond Index, which is an
unmanaged index comprised of the Government Corporate Bond Index, the
Asset-Backed Securities Index and the Mortgage-Backed Securities Index and
includes U.S. Treasury issues, agency issues, corporate bond issues and
mortgage-backed issues, include reinvestment of dividends. Figures for the
Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of
500 widely held common stocks, include reinvestment of dividends. Funds
included in the Lipper Balanced Funds Average have a primary objective of
conserving principal by maintaining at all times a balanced portfolio of
both stocks and bonds. Typically the stock/bond ratio ranges around
60%/40%.
Each chart assumes the reinvestments of all distributions.
** Please note that the performance shown for Primary B Shares includes
the performance for Primary A Shares from their date of inception
(9/30/92) through 6/28/96, plus the performance for Primary B Shares from
their date of inception (6/28/96) through 3/31/97. The expense structures
for Primary A and Primary B Shares are similar, except that Primary B
Shares are subject to a shareholder servicing fee of up to 60 basis
points. This will result in a slight variance in the performance of
Primary A and Primary B Shares.
PERFORMANCE COMPARISONS
INVESTOR C SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD &
POORS 500 GROWTH OF
COMPOSITE LEHMAN INVESTMENT
STOCK BROTHERS WITH
MEASUREMENT PERIOD PRICE AGGREGATE DISTRIBUTIONS
(QUARTERLY) INDEX BOND INDEX REINVESTED
<S> <C> <C> <C>
OCT. 2, 1992 10000 10000 10000
NOV. 30, 1992 10502 10027 10353
10961 10441 10758
11013 10718 11000
11297 10998 11218
NOV. 30, 1993 11559 11004 11268
11121 10689 10889
11167 10578 10519
11712 10643 10910
NOV. 30, 1994 11710 10683 10809
12849 11222 11400
14074 11906 12314
15192 12140 12947
NOV. 30, 1995 16106 12857 13523
MAR. 31, 1996 16970 12432 13967
17731 12503 14371
18279 12734 14208
19801 13116 15436
MAR. 31, 1997 20333 13043 15622
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD &
POORS 500 GROWTH OF
COMPOSITE LEHMAN INVESTMENT
STOCK BROTHERS WITH
MEASUREMENT PERIOD PRICE AGGREGATE DISTRIBUTIONS
(QUARTERLY) INDEX BOND INDEX REINVESTED
<S> <C> <C> <C>
JUNE 7, 1993 10000 10000 10000
10267 10447 10498
NOV. 30, 1993 10526 10453 10546
10127 10154 10198
10170 10049 9860
10666 10110 10231
NOV. 30, 1994 10664 10148 10147
11701 10660 10709
12817 11310 11573
13834 11532 12174
NOV. 30, 1995 14667 12023 12723
MAR. 31, 1996 15454 11810 13129
16146 11877 13463
16646 12097 13751
18032 12460 14476
MAR. 31, 1997 18516 12390 14654
</TABLE>
PRIMARY A AND PRIMARY B SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD &
POORS 500 GROWTH OF
COMPOSITE INVESTMENT
STOCK LEHMAN WITH
MEASUREMENT PERIOD PRICE AGGREGATE DISTRIBUTIONS
(QUARTERLY) INDEX BOND INDEX REINVESTED
<S> <C> <C> <C>
SEPT. 30, 1992 10000 10000 10000
NOV. 30, 1992 10502 10027 10384
10961 10441 10818
11013 10718 11089
11297 10998 11338
NOV. 30, 1993 11559 11004 11416
11121 10669 11052
11167 10578 10706
11712 10643 11128
NOV. 30, 1994 11710 10683 11059
12849 11222 11701
14074 11906 12665
15192 12140 13345
NOV. 30, 1995 16106 12657 13971
MAR. 31, 1996 16970 12432 14443
JUNE 28, 1996 17731 12503 14849
18279 12734 15193
19801 13116 16021
MAR. 31, 1997 20333 13043 16248
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual and aggregate total returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestment of dividends.
VI-4
<PAGE>
NATIONS DISCIPLINED EQUITY FUND
PERFORMANCE AND COMMENTARY
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER
Jeff Moser, CFA, is Senior Portfolio Manager of Nations Disciplined Equity
Fund and Senior Product Manager, Equity Management for TradeStreet Investment
Associates, Inc., investment sub-adviser to the Fund.
INVESTMENT OBJECTIVE
The Fund seeks growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the one-year period ended March 31, 1997, Nations Disciplined Equity
Fund Investor A Shares provided shareholders with a total return of 16.76%,
outperforming the Lipper Growth Funds Average, which returned 11.75%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Mr. Moser shares his views on financial market
conditions and Fund performance for the one-year period ended March 31, 1997.
PLEASE DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY AND STYLE.
The core premise behind Nations Disciplined Equity Fund is that earnings
drive stock prices. We use quantitative techniques to construct an equally
weighted portfolio of undervalued companies most likely to report earnings that
exceed expectations.
To capture earnings momentum or earnings surprises, the Fund uses a
proprietary tracking system that follows a set of established rules for the buy,
sell and valuation process. Essentially, this proprietary model, called ALPHA,
does three key things: it identifies stock buying opportunities, evaluates the
reasonableness of the price of these opportunities and signals when to sell a
stock. Of course, we validate the entire process with in-depth research and
analysis of the companies identified by ALPHA.
WHAT PARTICULAR SECTORS/STOCKS IMPACTED FUND PERFORMANCE?*
Investments in financial stocks proved very rewarding over the past year.
This group scored very high within our quantitative model on both earnings
momentum and valuation. Therefore, the Fund was overweighted in the group most
of the year. Some of the best performers were Student Loan Marketing
Association, BankAmerica Corporation and Travelers Group Inc. Another standout
sector for the Fund was consumer stocks. The Fund was very successful with
investments in the retail group including NIKE, Inc., TJX Companies Inc. and
Dayton Hudson Corporation. Retail food was another spotlight within the consumer
group, with significant gains in Safeway Inc. and Vons Companies.
We lost ground to the market by being underweighted in the consumer staples
sector. Our valuation models indicated that household products and healthcare
companies were significantly overvalued so we avoided those stocks. However, the
market favored those types of large-capitalization, growth stocks for their
stability and consistency of earnings. The Fund did not own the blue-chip names
such as Coca-Cola Co., Proctor & Gamble, and Merck & Company, Inc. which
accounted for much of the market's advance. We were also negatively impacted by
surprise downturns in earnings momentum in names such as Digital Equipment, Bay
Networks (both affected by losing business to competitors) and WorldCom Inc.
(dilutive merger). Each of these stocks was subsequently sold by the Fund.
- ---------------
* Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook. Also, the outlook of this Fund's portfolio manager may differ from
that of other Nations Funds' portfolio managers.
VI-5
<PAGE>
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
The sector emphasis and portfolio characteristics of the Fund are driven by
our quantitative model, which, we believe, identifies the best combination of
earnings momentum and valuation among the stock universe. The narrow,
large-company focused market of the last few years has made those companies
relatively less attractive on a valuation basis. Therefore, we are finding the
best valuations among medium-sized companies and, thus, the Fund has an average
market capitalization significantly below that of the Standard & Poor's 500
Composite Stock Price Index. We continue to find the best earnings momentum in
financial and energy stocks and are emphasizing those sectors. Also, we are
emphasizing the capital goods sector based on positive business trends and
earnings from this group in the current economic environment. The Fund is
underrepresented in healthcare companies as our process shows the group to be
significantly overvalued.
VI-6
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund
- ------------------------------------
PORTFOLIO BREAKDOWN AS OF 3/31/97
<TABLE>
<S> <C>
Repurchase Agreement and Other Assets and Liabilities (Net) 2.7%
Utilities 7.3%
Technology 7.8%
Producer Durables 7.4%
Other 3.7%
Materials/Processing 13.4%
Healthcare 3.6%
Auto and Transportation 5.8%
Consumer Discretionary 8.0%
Consumer Staples 6.3%
Energy 12.2%
Financial Services 21.8%
</TABLE>
- -----------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
<TABLE>
<S> <C> <C>
1. United Technologies Corporation 2.3%
2. Dell Computer Corporation 2.2
3. Texaco Inc. 2.2
4. USX-Marathon Group (New) 2.2
5. Compuware Corporation 2.1
6. Baker Hughes Inc. 2.1
7. Guidant Corporation 2.1
8. Safeway Inc. 2.1
9. Fruit of the Loom Inc., Class A 2.1
10. Chase Manhattan Corporation 2.1
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
INVESTOR A SHARES
- ---------------------------------
<S> <C>
Year Ended 03/31/97 16.76%
Since Inception (07/26/93)
through 03/31/97 14.95%
</TABLE>
Inception is based on The Capitol Mutual Funds Special Equity Portfolio Class B
Shares, which were reorganized into Investor A Shares of Nations Disciplined
Equity Fund as of the close of business on April 29, 1994. The Capitol Mutual
Funds Special Equity Portfolio Class B Shares commenced operations on July 26,
1993. The chart to the right shows the growth in value of a hypothetical $10,000
investment in Investor A Shares of Nations Disciplined Equity Fund on July 26,
1993 (inception date). Figures for the Standard & Poor's 500 Composite Stock
Price Index, an unmanaged index of 500 widely held common stocks, include
reinvestment of dividends. Funds included in the Lipper Growth Funds Average
normally invest in companies whose long-term earnings are expected to grow
significantly faster than the earnings of the stocks represented in the major
unmanaged stock indices.
<TABLE>
<CAPTION>
Standard & Poor's 500 Growth of Investment
Measurement Period Composite Stock Price Lipper Growth Funds with Distributions
(Quarterly) Index Average Reinvested
<S> <C> <C> <C>
July 26, 1993 10000 10000 10000
10299 10537 11894
Nov. 30, 1993 10538 10783 11506
10139 10432 10926
10181 10165 10188
10678 10711 11012
Nov. 30, 1994 10676 10577 10768
11714 11379 10938
12831 12510 12313
13850 13617 13562
Nov. 30, 1995 14683 13943 13707
Mar. 31, 1996 15471 14693 14300
16165 15334 14863
16664 15772 15354
18052 16617 16709
Mar. 31, 1997 18537 16454 16696
</TABLE>
Assumes the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-7
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C, INVESTOR N, PRIMARY A AND PRIMARY B
SHARES AS OF MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 15.95%*
Year Ended 03/31/97 16.45%
Since Inception (05/10/95) through
03/31/97 21.12%
</TABLE>
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase
<TABLE>
<CAPTION>
INVESTOR N SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 15.86%
Since Inception (05/20/94) through
03/31/97 16.99%
</TABLE>
<TABLE>
<CAPTION>
PRIMARY A SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 17.00%
Since Inception (10/01/92) through
03/31/97 22.80%
</TABLE>
AGGREGATE TOTAL RETURN
<TABLE>
<CAPTION>
PRIMARY B SHARES**
- ----------------------------------------------
<S> <C>
Since Inception (06/28/96) through
03/31/97 12.13%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N, Primary A and Primary B Shares of
Nations Disciplined Equity Fund from the date each class of shares was
first offered. Figures for the Standard & Poor's 500 Composite Stock Price
Index, an unmanaged index of 500 widely held common stocks, include
reinvestment of dividends.
Each chart assumes the reinvestment of all distributions.
** Please note that the performance shown for Primary B Shares includes
the performance for Primary A Shares from their date of inception
(10/1/92) through 6/28/96, plus the performance for Primary B Shares from
their date of inception (6/28/96) through 3/31/97. The expense structures
for Primary A and Primary B Shares are similar, except that Primary B
Shares are subject to a shareholder servicing fee of up to 60 basis
points. This will result in a slight variance in the performance of
Primary A and Primary B Shares.
PERFORMANCE COMPARISONS
INVESTOR C SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD & GROWTH OF
POOR'S 500 INVESTMENT
COMPOSITE WITH
MEASUREMENT PERIOD STOCK PRICE DISTRIBUTIONS
(QUARTERLY) INDEX REINVESTED
<S> <C> <C>
MAY 10, 1995 10000 10000
10640 10673
11485 11744
NOV. 30, 1995 12176 11845
MAR. 31, 1996 12829 12343
13404 12819
13819 13238
14970 14393
MAR. 31, 1997 15372 14373
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD & GROWTH OF
POORS 500 INVESTMENT
COMPOSITE WITH
MEASUREMENT PERIOD STOCK PRICE DISTRIBUTIONS
(QUARTERLY) INDEX REINVESTED
<S> <C> <C>
MAY 20, 1994 10000 10000
9755 9779
10231 10555
NOV. 30, 1994 10230 10304
11224 10437
12294 11730
13271 12896
NOV. 30, 1995 14069 12999
MAR. 31, 1996 14824 13533
15489 14034
15967 14472
17297 15721
MAR. 31, 1997 17762 15678
</TABLE>
PRIMARY A AND PRIMARY B SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD & GROWTH OF
POORS 500 INVESTMENT
COMPOSITE WITH
MEASUREMENT PERIOD STOCK PRICE DISTRIBUTIONS
(QUARTERLY) INDEX REINVESTED
<S> <C> <C>
OCT. 1, 1992 10000 10000
NOV. 30, 1992 10502 13311
10961 14105
11013 15100
11297 17923
NOV. 30, 1993 11559 17279
11121 16409
11167 15304
11712 16542
NOV. 30, 1994 11710 16181
12849 16441
14074 18521
15192 20413
NOV. 30, 1995 16106 20636
MAR. 31, 1996 16970 21529
JUN. 28, 1996 17731 22388
18279 23139
19801 25193
MAR. 31, 1997 20333 25188
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual and aggregate total returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestment of dividends.
VI-8
<PAGE>
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
NATIONS FLORIDA MUNICIPAL BOND FUND
PERFORMANCE AND COMMENTARY
PORTFOLIO MANAGER
Michele M. Poirier is Senior Portfolio Manager of Nations Florida
Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund and
Director, Municipal Fixed Income Management for TradeStreet Investment
Associates, Inc., investment sub-adviser to the Funds.
INVESTMENT OBJECTIVE
Nations Florida Intermediate Municipal Bond Fund seeks high current income
exempt from federal income and the Florida state intangibles taxes consistent
with moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Florida Municipal Bond 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. The Fund invests in investment grade, long-term municipal
securities.
PERFORMANCE REVIEW*
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
For the one-year period ended March 31, 1997, Nations Florida Intermediate
Municipal Bond Fund Investor A Shares provided a total return of 4.01%,
outperforming the Lipper Florida Intermediate Municipal Debt Funds Average of
3.72%.
NATIONS FLORIDA MUNICIPAL BOND FUND
For the one-year period ended March 31, 1997, Nations Florida Municipal
Bond Fund Investor A Shares provided a total return of 5.09%, outperforming the
Lipper Florida Municipal Debt Funds Average of 4.75%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Ms. Poirier shares her views on financial
market conditions and Fund performance for the one-year period ended March 31,
1997.
BRIEFLY DESCRIBE YOUR OVERALL INVESTMENT PHILOSOPHY AND THE INVESTMENT APPROACH
OF THE FUNDS.
Our investment philosophy strives to achieve total return to the extent
consistent with the Funds' investment objective by maintaining a focus on income
exempt from federal income taxes. Additionally, care is taken to limit the
distribution of capital gains when consistent with the prudent management of the
Funds. We use a combination of strategies among which are duration management
(managing the Funds' sensitivity to interest rates), market sector selection and
review of individual credits. By maintaining a well-diversified portfolio, we
limit the Funds' vulnerability to significant difficulties in any single credit
or market sector.
Nations Florida Intermediate Municipal Bond Fund focuses on investment
grade municipal bonds exempt from federal income and Florida state intangibles
taxes. The portfolio is managed to maintain an average maturity of between three
and ten years.
Nations Florida Municipal Bond Fund focuses on investment grade municipal
bonds exempt from federal income and Florida state intangibles taxes. The
portfolio is managed to maintain an average maturity of between ten and twenty
years.
The Funds balance their investments between high quality investment grade
issues for reduced credit risk and liquidity, and lower quality investment grade
issues (BBB) for the additional yield potential they provide.
- ---------------
* The performance shown includes the effect of fee waivers by the investment
adviser, the administrator and/or the custodian. Such fee waivers have the
effect of increasing total return.
VI-9
<PAGE>
In periods of falling interest rates, we will extend the average portfolio
maturity toward the maximum limit to benefit from the greater capital
appreciation potential of longer-term bonds. When interest rates are rising,
we'll shorten the average maturity to protect the Funds' net asset value from
the price erosion that comes with higher interest rates.
HOW DID MARKET CONDITIONS AFFECT THE FUNDS' PERFORMANCE?
The reporting period was a volatile time for interest rates. Interest rate
volatility was lessened in the municipal market due to strong supply and demand
dynamics -- modest supply conditions and strong demand from property and
casualty insurance companies. Due to these conditions, municipal bonds
outperformed their U.S. Treasury counterparts during the year. (For additional
information, please refer to the "general municipal bond market comments" on
page 5.)
Over the reporting period, the key factor influencing Fund performance was
duration management. We focused on positioning the Funds appropriately in a
changing interest rate environment and the Funds' returns reflect this
positioning. Owing to our belief that interest rates would increase, the Funds
were slightly short duration during the first four months of the fiscal year and
then moved to a neutral to slightly long position until January, when durations
were shortened again in anticipation of rising interest rates. Additionally,
security selection played a role in performance as structural aspects of an
individual security become more significant in periods of interest rate
volatility. Sector rotation had little impact on Fund performance because credit
spreads between sectors universally remain compressed.
WHAT'S THE ECONOMIC ENVIRONMENT IN FLORIDA?
As one of the fastest growing states in the nation in terms of population,
Florida continues to achieve positive financial results through prudent
financial management and continued economic expansion. This has led to a "Aa2"
rating from Moody's Investors Service, Inc., a "AA" rating from Standard &
Poor's Corporation and a "AA" rating from Fitch Investors Service, Inc.
Florida's proactive attitude towards welfare reform has positioned the state to
meet the challenges created by declining federal support. Florida's Work and
Gain Economic Self Sufficiency (WAGES) program has been approved by the federal
government and contains many of the same mandates contained in the federal
program. Population growth, one of Florida's strengths, also poses one of
Florida's greatest challenges for the future as the state contends with
expanding its debt issuance in order to meet the ever increasing infrastructure
needs of its residents.
WHAT ARE THE FUNDS' CURRENT PORTFOLIO CHARACTERISTICS?**
As of March 31, 1997, the average portfolio maturity of Nations Florida
Intermediate Municipal Bond Fund was 9.26 years, while the duration of the Fund
was 5.53 years. The Fund held 48 issues with an average credit rating of "Aa" by
Moody's Investors Service, Inc. Issues whose income is subject to the federal
Alternative Minimum Tax made up 6.92% of the Fund.
As of March 31, 1997, the average portfolio maturity of Nations Florida
Municipal Bond Fund was 19.32 years, while the duration of the Fund was 7.52
years. The Fund held 39 issues with an average credit rating of "Aa" by Moody's
Investors Service, Inc. Issues whose income is subject to the federal
Alternative Minimum Tax made up 16.20% of the Fund.
WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN 1997?
State and local government finances continue to benefit from the economy's
expansion, providing support for the market from a credit standpoint. Modest new
issue supply should help the municipal bond market outperform taxable
counterparts. However, the market will be facing challenges as structural
changes in our welfare system begin to have an impact on state and local
government finances. As the competitive environment for utilities and healthcare
changes, these market segments will bear monitoring over the next few years.
- ---------------
** Portfolio characteristics and outlook were current as of March 31, 1997,
are subject to change and may not be representative of current
characteristics and outlook. Also, the outlook of this Fund's portfolio
manager may differ from that of other Nations Funds' portfolio managers.
VI-10
<PAGE>
-------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
% OF NET ASSETS AS OF 3/31/97
<PAGE>
Nations Florida Municipal Bond Fund
- --------------------------------------
Portfolio Breakdown as a % of Total
Investments as of 3/31/97 (unaudited)
[Pie Chart appears here with the following Percentages]
Insured 40.0%
General Obligation 5.1%
Hospital 4.1%
Education 8.2%
Pollution Control Revenue/
Industrial Development
Revenue 13.1%
Housing Revenue 10.2%
Transportation 2.5%
Power/Utilites Revenue 3.0%
Pre-Refunded 11.0%
Other 2.8%
<TABLE>
<S> <C>
1. South Broward, Florida, Hospital District
Revenue Refunding, (FSA Insured)
5.500% 05/01/28 4.9%
2. Palm Beach County, Florida, Health Facilities
Authority Revenue, (Good Samaritans Health
System), 6.200% 10/01/11 4.0
3. Dade County, Florida, Water and Sewer System
Revenue Refunding, (FGIC Insured),
5.000% 10/01/13 3.6
4. Hillsborough County, Florida, Industrial
Development Authority, PCR, (Tampa Electric
Company Project),
8.000% 05/01/22 3.0
5. Martin County, Florida, Industrial Development
Authority Revenue, (Indiantown Cogeneration
Project),
Series A, AMT, 7.875% 12/15/25 3.0
6. Florida State Municipal Power Agency Revenue,
(Stanton II Project), Pre-refunded, (AMBAC
Insured),
6.500% 10/01/20 2.9
7. Florida State Board of Education, GO, Capital
Outlay, Public Education, Unrefunded Balance,
Series A,
7.250% 06/01/23 2.8
8. North Broward, Florida, Hospital Revenue,
(MBIA Insured), 6.250% 01/01/06 2.8
9. Florida State Housing Finance Agency,
Refunding, Multi-family Housing, (Altamonte
Project), Series C, 7.000% 12/01/24 2.8
10. Escambia County, Florida, PCR, (Champion
International Corporation Project), AMT,
6.900% 08/01/22 2.8
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
<TABLE>
<CAPTION>
AVERAGE
ANNUAL TOTAL RETURN
INVESTOR A SHARES
- ---------------------------------
<S> <C>
Year Ended 03/31/97 5.09%
Since Inception (12/10/93)
through 03/31/97 3.62%
</TABLE>
The chart to the right shows the growth in value of a hypothetical $10,000
investment in Investor A Shares of Nations Florida Municipal Bond Fund on
December 10, 1993 (inception date). The Lehman 20 Year Municipal Bond Index is a
broad based, unmanaged, total return index composed of investment grade bonds
with maturities of 18 to 22 years. Funds included in the Lipper Florida
Municipal Debt Funds Average limit their assets to those securities which are
exempt from taxation in Florida.
<TABLE>
<CAPTION>
GROWTH OF INVESTMENT
MEASUREMENT PERIOD LIPPER FLORIDA MUNICIPAL LEHMAN 20-YEAR MUNICIPAL WITH DISTRIBUTIONS
(QUARTERLY) DEBT FUNDS AVERAGE BOND INDEX REINVESTED
<S> <C> <C> <C>
Dec. 10, 1993 10000 10000 10000
10230 10241 9997
9535 9531 9198
9606 9626 9269
9630 9676 9280
Nov. 30, 1994 9471 9489 9174
10183 10335 9923
10390 10558 10183
10644 10844 10436
Nov. 30, 1995 11181 11479 10977
Mar. 31, 1996 10947 11224 10703
11013 11352 10801
11268 11677 11050
11528 11991 11302
Mar. 31, 1997 11462 11916 11247
</TABLE>
Assumes the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-11
<PAGE>
NATIONS FUNDS
Nations Florida Municipal Bond Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C, INVESTOR N AND PRIMARY A SHARES AS OF
MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 4.28%*
Year Ended 03/31/97 4.78%
Since Inception (11/03/94) through
03/31/97 9.76%
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase
INVESTOR N SHARES
- ----------------------------------------------
Year Ended 03/31/97 4.52%
Since Inception (10/22/93) through
03/31/97 3.04%
PRIMARY A SHARES
- ----------------------------------------------
Year Ended 03/31/97 5.29%
Since Inception (12/13/93) through
03/31/97 4.01%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N and Primary A Shares of Nations
Florida Municipal Bond Fund from the date each class of shares was first
offered. The Lehman 20-Year Municipal Bond Index is a broad based, unmanaged,
total return index composed of investment grade bonds with maturities of 18 to
22 years.
Each chart assumes the reinvestment of all distributions.
[LEGEND--GROWTH OF INVESTMENT WITH DISTRIBUTIONS REINVESTED,
LEHMAN 20-YEAR MUNICIPAL BOND INDEX]
PERFORMANCE COMPARISONS
INVESTOR C SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH OF
LEHMAN INVESTMENT
20-YEAR WITH
MEASUREMENT PERIOD MUNICIPAL DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED
<S> <C> <C>
NOV. 3, 1994 10000 10000
10072 10300
10970 11126
11207 11403
11511 11670
NOV. 30, 1995 12185 12259
MAR. 31, 1996 11914 11943
12049 12043
12049 12043
12394 12312
12728 12584
MAR. 31, 1997 12649 12514
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH OF
LEHMAN INVESTMENT
20-YEAR WITH
MEASUREMENT PERIOD MUNICIPAL DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED
<S> <C> <C>
OCT. 22, 1993 10000 10000
NOV. 30, 1993 10129 10034
9427 9213
9520 9274
9570 9273
NOV. 30, 1994 9385 9154
10222 9888
10442 10133
10725 10371
NOV. 30, 1995 11353 10894
MAR. 31, 1996 11101 10607
11227 10690
11548 10921
11860 11156
MAR. 31, 1997 11786 11086
</TABLE>
PRIMARY A SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH OF
LEHMAN INVESTMENT
20-YEAR WITH
MEASUREMENT PERIOD MUNICIPAL DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED
<S> <C> <C>
DEC. 13, 1993 10000 10000
10241 10056
9531 9251
9626 9330
9676 9346
NOV. 30, 1994 9489 9244
10558 10270
10844 10531
NOV. 30, 1995 11479 11082
MAR. 31, 1996 11224 10811
11352 10915
11677 11172
11991 11433
MAR. 31, 1997 11916 11383
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
VI-12
<PAGE>
NATIONS SHORT-TERM INCOME FUND
PERFORMANCE AND COMMENTARY
PORTFOLIO MANAGER
Brad Pope is Portfolio Manager of Nations Short-Term Income Fund and
Product Manager, Fixed Income Management for TradeStreet Investment Associates,
Inc., investment sub-adviser to the Fund.
INVESTMENT OBJECTIVE
The Fund seeks high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
PERFORMANCE REVIEW*
For the one-year period ended March 31, 1997, Nations Short-Term Income
Fund Investor A Shares provided shareholders with a total return of 5.04%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Mr. Pope shares his views on financial market
conditions and Fund performance for the one-year period ended March 31, 1997.
HOW DID THE MARKET ENVIRONMENT AFFECT THE FUND?
Since Nations Short-Term Income Fund focuses on one- to three-year
securities, changes in interest rates affect the Fund less than they do longer
term bond portfolios. These securities generally provide more income over time
than money markets, but with lower price volatility than longer-term bonds. The
rise in rates seen during the first quarter of 1997, has enabled us to add yield
to the portfolio by purchasing securities at higher yield levels and lower
prices.
During the year, the Fund emphasized corporate bonds and asset-backed
securities. These positions contributed significantly to Fund performance. The
yield advantage these types of securities have over U.S. Treasuries helped to
mute the negative effects of a rising interest rate environment.
WHERE DO YOU SEE RATES GOING AS WE HEAD INTO THE NEW FISCAL YEAR?
There is little doubt that there will be continued market volatility. We
believe that, in the short run, rates are likely to rise as the economy
continues to show resilience and the market ponders the possibility of a series
of interest rate hikes by the Federal Reserve Board. However, we also believe
this will create a buying opportunity, as rates then should decline in response
to a slower growth, benign inflation environment.
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
We continue to emphasize income potential by focusing on investment grade
corporate bonds, asset-backed securities and mortgages. Over time, the
incremental income advantage of the portfolio should enhance return potential.
We are taking a somewhat more defensive approach to the corporate bond market
given the historically small yield advantage some of these securities have over
U.S. Treasuries.
WHAT'S THE BIGGEST HURDLE INVESTORS FACE TODAY?
Understanding that market reactions to information and perception are
quicker than they have been historically. This does not mean that the economic
cycle and the business cycle have changed. Rather, the market is reacting to the
cycles much more quickly and may, in fact, be tempering the severity of the
cycles. Losing sight of fundamental economic and valuation measures is a danger
many investors face today.
- ---------------
* The performance shown includes the effect of fee waivers by the investment
adviser. Such fee waivers have the effect of increasing total return.
VI-13
<PAGE>
NATIONS FUNDS
Nations Short-Term Income Fund
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 3/31/97
[PIE CHART]
<TABLE>
<S> <C>
Foreign Bonds and Notes 6.5%
Corporate Bonds anad Notes 53.8%
Asset-Backed Securities 25.4%
U.S. Treasury Obligations 10.0%
Mortgage-Backed Security 3.3%
Repurchase Agreement and Other
Assets and Liabilities (Net) 1.0%
</TABLE>
-------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
% OF NET ASSETS AS OF 3/31/97
<TABLE>
<S> <C> <C>
1. U.S. Treasury Notes 10.0%
2. Federal National Mortgage Association
Certificates 3.3
3. Advanta Corporation, MTN, 6.600% 02/04/00 2.9
4. Time Warner Asset-Backed Trust, 7.290%
06/22/98 2.7
5. Comdisco, Inc., MTN, 6.470% 09/30/98 2.5
6. Chase Manhattan Auto Owner Trust, Series
1996-C, Class A4, 6.150% 03/15/02 2.5
7. Salomon Inc., MTN, 9.000% 02/15/99 2.4
8. Lockheed Martin Corporation, 6.625% 06/15/98 2.3
9. Associates Corporation N.A., Notes, 6.625%
01/15/98 2.3
10. IMC Home Equity Loan Trust, Series 1997-1,
Class A3, 6.820% 10/25/11 2.2
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INVESTOR A SHARES
- ---------------------------------
<S> <C>
Year Ended 03/31/97 5.04%
Since Inception (10/02/92)
through 03/31/97 4.87%
</TABLE>
The chart to the right shows
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Short-Term
Income Fund on October 2, 1992
(inception date). Figures for
the Merrill Lynch 1-3 Year
Treasury Index, an unmanaged
index comprised of U.S.
Treasury bonds with maturities
of 1-3 years, include
reinvestment of dividends.
[LINE GRAPH]
<TABLE>
<CAPTION>
Measurement Period Merrill Lynch 1-3 Year Growth of Investment with
(Quarterly) Treasury Index Distributions Reinvested
<S> <C> <C>
Oct. 2, 1992 10000 10000
Nov. 30, 1992 10018 9914
10239 10226
10350 10398
10498 10585
Nov. 30, 1993 10560 10641
10508 10535
10516 10492
10620 10592
Nov. 30, 1994 10620 10590
10977 10925
11329 11304
11499 11475
Nov. 30, 1995 11789 11763
Mar. 31, 1996 11828 11790
11947 11901
12145 12088
12375 12314
Mar. 31, 1997 12457 12385
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-14
<PAGE>
NATIONS FUNDS
Nations Short-Term Income Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -INVESTOR C, INVESTOR N, PRIMARY A AND PRIMARY B SHARES
AS OF MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 4.39%*
Year Ended 03/31/97 4.89%
Since Inception (10/02/92) through
03/31/97 4.68%
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase.
INVESTOR N SHARES
- ----------------------------------------------
Year Ended 03/31/97 4.89%
Since Inception (06/07/93) through
03/31/97 4.81%
PRIMARY A SHARES
- ----------------------------------------------
Year Ended 03/31/97 5.25%
Since Inception (09/30/92) through
03/31/97 5.13%
AGGREGATE TOTAL RETURN
PRIMARY B SHARES**
- ----------------------------------------------
Since Inception (06/28/96) through
03/31/97 3.95%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N, Primary A and Primary B Shares of
Nations Short-Term Income Fund from the date each class of shares was
first offered. Figures for the Merrill Lynch 1-3 Year Treasury Index, an
unmanaged index comprised of U.S. Treasury bonds with maturities of 1-3
years, include reinvestment of dividends.
Each chart assumes the reinvestment of all distributions.
** Please note that the performance shown for Primary B Shares includes
the performance for Primary A Shares from their date of inception
(09/30/92) through 6/28/96, plus the performance for Primary B Shares
from their date of inception (6/28/96) through 3/31/97. The expense
structures for Primary A and Primary B Shares are similar, except that
Primary B Shares are subject to a shareholder servicing fee of up to 60
basis points. This difference in expenses will result in a slight
difference in the performance of Primary A and Primary B Shares.
PERFORMANCE COMPARISONS
[LINE GRAPH]
INVESTOR C SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH OF
MERRILL LYNCH INVESTMENT
1-3 YEAR WITH
MEASUREMENT PERIOD TREASURY DISTRIBUTIONS
QUARTERLY INDEX REINVESTED
<S> <C> <C>
OCT. 2, 1992 10000 10000
NOV. 30, 1992 10018 9923
10239 10226
10350 10380
10498 10560
NOV. 30, 1993 10560 10609
10508 10497
10516 10450
10620 10546
NOV. 30, 1994 10620 10539
10977 10869
11329 11237
11499 11403
NOV. 30, 1995 11789 11685
MAR. 31, 1996 11828 11707
11947 11813
12145 11994
12375 12214
MAR. 31, 1997 12457 12280
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
GROWTH OF
MERRILL LYNCH INVESTMENT
1-3 YEAR WITH
MEASUREMENT PERIOD TREASURY DISTRIBUTIONS
QUARTERLY INDEX REINVESTED
<S> <C> <C>
JUNE 7, 1993 10000 10000
10218 10277
NOV. 30, 1993 10279 10328
10227 10223
10236 10177
10337 10271
NOV. 30, 1994 10337 10265
10684 10586
11027 10946
11192 11108
NOV. 30, 1995 11474 11382
MAR. 31, 1996 11512 11405
11628 11508
11821 11684
12045 11898
MAR. 31, 1997 12125 11962
</TABLE>
PRIMARY A AND PRIMARY B SHARES AS OF MARCH 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
GROWTH OF GROWTH OF
MERRILL LYNCH INVESTMENT INVESTMENT
1-3 YEAR WITH WITH
MEASUREMENT PERIOD TREASURY DISTRIBUTIONS DISTRIBUTIONS
QUARTERLY INDEX REINVESTED - A REINVESTED - B
<S> <C> <C> <C>
SEPT. 30, 1992 10000 10000 10000
NOV. 30, 1992 10016 9941 9941
10239 10268 10268
10350 10435 10435
10498 10629 10629
NOV. 30, 1993 10560 10692 10692
10508 10592 10592
10518 10553 10553
10620 10660 10660
NOV. 30, 1994 10620 10663 10663
10977 11006 11006
11329 11391 11391
11499 11569 11569
NOV. 30, 1995 11789 11865 11865
MAR. 31, 1996 11828 11899 11899
JUNE 28, 1996 11947 12017 12017
12145 12212 12212
12375 12446 12446
MAR. 31, 1997 12457 12524 12491
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual and aggregate total returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestment of dividends.
VI-15
<PAGE>
NATIONS STRATEGIC FIXED INCOME FUND
PERFORMANCE AND COMMENTARY
PORTFOLIO MANAGER
Greg Cobb is Senior Portfolio Manager of Nations Strategic Fixed Income
Fund and Senior Product Manager, Fixed Income Management for TradeStreet
Investment Associates, Inc., investment sub-adviser to the Fund.
INVESTMENT OBJECTIVE
The Fund seeks total return by investing in investment grade fixed income
securities.
PERFORMANCE REVIEW*
For the one-year period ended March 31, 1997, Nations Strategic Fixed
Income Fund Investor A Shares provided shareholders with a total return of
3.70%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Mr. Cobb shares his views on financial market
conditions and Fund performance for the one-year period ended March 31, 1997.
PLEASE DESCRIBE YOUR OVERALL INVESTMENT PHILOSOPHY AND THE FUND'S INVESTMENT
APPROACH.
Nations Strategic Fixed Income Fund invests in the investment grade sectors
of the broad bond market, buying mainly U.S. Government securities,
mortgage-backed securities, corporate bonds and asset-backed securities.
Our investment philosophy is biased toward total return, recognizing that
the combination of current income and price movement is ultimately more
important than current income alone. We use a combination of investment
strategies -- duration management (management of interest rate risk), sector
rotation, security selection and yield curve positioning -- to add value to the
Fund over time. By using multiple strategies, we avoid making "big bets" and
look for each strategy to add incremental income without any single strategy
dominating returns.
HOW DID BOND MARKET CONDITIONS AFFECT THE FUND'S PERFORMANCE?
Over the last twelve months, the bond market has been quite volatile. The
30-year U.S. Treasury bond, the benchmark for the market, began the reporting
period yielding 6.60%, and reached a high yield of 7.20% in July, before falling
to 6.35% in early December.
For most of the first quarter of 1997, the long bond traded above 6.80%,
ending the quarter at 7.10%. The rise in bond yields during the first quarter
can be attributed primarily to an economy that continues to exhibit a
frustrating resiliency, growing at a rate above the economy's long-run potential
of 2.25%.
Given our view that economic growth would moderate and interest rates trend
lower, the duration of the Fund (a measure of its sensitivity to interest rates)
was longer than that of its benchmark, the Lehman Aggregate Bond Index. Because
rising yields mean lower prices and longer durations magnify this effect, the
rise in yields over the majority of the reporting period resulted in the Fund
underperforming its benchmark.
WHAT ARE THE FUND'S CURRENT PORTFOLIO CHARACTERISTICS?
As of March 31, 1997, the Fund had a weighted average maturity of 8.5 years
and a duration of 4.5 years. The average quality of the portfolio was AA.
WHAT STRATEGIES HAS THE FUND BENEFITED FROM OVER THE LAST TWELVE MONTHS?**
The Fund's sector strategy of overweighting corporate bonds, mortgage
securities and asset-backed securities provided the strongest performance.
Corporates benefited from a moderate economic growth and low inflation, positive
- ---------------
* The performance shown includes the effect of fee waivers by the investment
adviser. Such fee waivers have the effect of increasing total return.
** Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics
and outlook. Also, the outlook of this Fund's portfolio manager may differ
from that of other Nations Funds' portfolio managers.
VI-16
<PAGE>
credit trends (upgrades outnumbered downgrades) and positive technicals (heavy
demand and low supply). Mortgage securities also experienced strong demand as
investors poured money into the highest yielding investment grade sector.
Asset-backed securities also saw heavy demand, particularly in short maturities.
All three sectors outperformed comparable maturity U.S. Treasury bonds.
WHICH SECTOR PROVIDED THE WEAKEST PERFORMANCE?
Long-duration U.S. Treasury bonds, especially 30-year bonds, were the worst
performers. Historically, this has been the case in a rising interest rate
environment, as these securities are most sensitive to changes in interest
rates.
GOING FORWARD, WHERE DO YOU EXPECT TO FIND THE BEST VALUES?
The major spread sectors are expected to provide strong performance
potential going forward. "Spread" sectors refers to securities that trade at a
yield premium or spread over comparable maturity U.S. Treasury bonds. For
example, mortgages typically yield 1% to 1.25% more than Treasuries; they trade
at a spread over Treasuries.
We expect mortgages, in particular, to perform well as we think interest
rates will remain within a fairly narrow range. Demand from a broad array of
investors is expected to be strong, as mortgages provide more income relative to
corporate bonds and asset-backed securities.
VI-17
<PAGE>
NATIONS FUNDS
Nations Strategic Fixed Income Fund
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 3/31/97
[PIE CHART]
<TABLE>
<S> <C>
Mortgage-Backed Securities 36.1%
U.S. Treasury Obligations 18.8%
Repurchase Agreement and Other Assets
and Liabilities (Net) 3.6%
Foreign Bonds 3.8%
Asset Backed Securities 13.2%
Corporate Bonds and Notes 24.5%
</TABLE>
-------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
% OF NET ASSETS AS OF 3/31/97
<TABLE>
<C> <S> <C>
1. Federal National Mortgage Association
Certificates 14.3%
2. Government National Mortgage Association
Certificates 12.8
3. U.S. Treasury Bonds 10.6
4. Federal Home Loan Mortgage Corporation
Certificates 9.0
5. U.S. Treasury Notes 8.2
6. Tennessee Valley Authority, Deb., 5.980%
04/01/36 1.7
7. AT&T Universal Card, Master Trust Series
95-2A, 5.950% 10/17/02 1.6
8. American Express Co., Master Trust, Series
94-3, Class A, 7.85% 08/15/05 1.6
9. Olympic Auto Receivables Trust Series 96-C,
Class A4, 6.80% 03/15/02 1.5
10. Aon Capital Trust A, 8.205% 01/01/27 1.5
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
INVESTOR A SHARES
- ---------------------------------
Year Ended 03/31/97 3.70%
Since Inception (11/19/92)
through 03/31/97 5.76%
</TABLE>
The chart to the right shows
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Strategic
Fixed Income Fund on November
19, 1992 (inception date).
Figures for the Lehman
Aggregate Bond Index, an
unmanaged index comprised of
the Lehman Government/Corporate Index,
the Asset-Backed Securities
Index and the Mortgage-Backed
Securities Index which include
U.S. Treasury issues, agency
issues, corporate bond issues
and mortgage-backed
securities, include
reinvestment of dividends.
[LINE GRAPH]
<TABLE>
<CAPTION>
Measurement Period Growth of Investment with
(Fiscal Year Covered) Lehman Aggregate Bond Index Distributions Reinvested
<S> <C> <C>
Nov. 19, 1992 10000 10000
Nov. 30, 1992 10157 10111
10577 10590
10858 10876
11141 11212
Nov. 30, 1993 11148 11183
10828 10865
10717 10733
10782 10787
Nov. 30, 1994 10823 10791
11369 11280
12061 11945
12298 12118
Nov. 30, 1995 12822 12631
12595 12313
Mar. 31, 1996 12666 12328
12901 12508
13288 12873
Mar. 31, 1997 13213 12769
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-18
<PAGE>
NATIONS FUNDS
Nations Strategic Fixed Income Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -INVESTOR C, INVESTOR N, PRIMARY A AND PRIMARY B SHARES
AS OF MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 2.88%*
Year Ended 03/31/97 3.38%
Since Inception (11/16/92) through
03/31/97 5.40%
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase
INVESTOR N SHARES
- ----------------------------------------------
Year Ended 03/31/97 3.23%
Since Inception (06/07/93) through
03/31/97 4.22%
PRIMARY A SHARES
- ----------------------------------------------
Year Ended 03/31/97 3.90%
Since Inception (10/30/92) through
03/31/97 5.97%
AGGREGATE TOTAL RETURN
PRIMARY B SHARES**
- ----------------------------------------------
Since Inception (06/28/96) through
03/31/97 3.35%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N, Primary A and Primary B Shares of
Nations Strategic Fixed Income Fund from the date each class of shares was
first offered. Figures for the Lehman Aggregate Bond Index, an unmanaged
index comprised of the Lehman Government/Corporate Index, the Asset-Backed
Securities Index and the Mortgage-Backed Securities Index which include
U.S. Treasury issues, agency issues, corporate bond issues and mortgage-
backed securities, include reinvestment of dividends.
Each chart assumes the reinvestment of all distributions.
**Please note that the performance shown for Primary B Shares includes the
performance for Primary A Shares from their date of inception (10/30/92)
through 6/28/96, plus the performance for Primary B Shares from their
date of inception (6/28/96) through 3/31/97. The expense structures for
Primary A and Primary B Shares are similar, except that Primary B Shares
are subject to a shareholder servicing fee of up to 60 basis points.
This difference in expenses will result in a slight difference in the
performance of Primary A and Primary B Shares.
INVESTOR C SHARES AS OF MARCH 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
GROWTH OF
LEHMAN INVESTMENT
BROTHERS WITH
MEASUREMENT PERIOD AGGREGATE DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED
<S> <C> <C>
NOV. 16, 1992 10000 10000
NOV. 30, 1992 10157 10133
10577 10598
10858 10867
11141 11185
NOV. 30, 1993 11148 11140
10828 10807
10717 10668
10782 10714
NOV. 30, 1994 10823 10710
11369 11187
12061 11837
12298 12000
NOV. 30, 1995 12822 12498
MAR. 31, 1996 12595 12174
12666 12178
12901 12347
13288 12698
MAR. 31, 1997 13213 12585
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
GROWTH OF
LEHMAN INVESTMENT
BROTHERS WITH
MEASUREMENT PERIOD AGGREGATE DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED
<S> <C> <C>
JUNE 7, 1993 10000 10000
10161 10146
10447 10445
NOV. 30, 1993 10453 10406
10154 10097
10049 9963
10110 10003
NOV. 30, 1994 10148 9995
10660 10436
11310 11039
11532 11187
NOV. 30, 1995 12023 11647
MAR. 31, 1996 11810 11342
11877 11342
12097 11495
12460 11817
MAR. 31, 1997 12390 11708
</TABLE>
PRIMARY A AND PRIMARY B SHARES AS OF MARCH 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
GROWTH OF GROWTH OF
INVESTMENT INVESTMENT
LEHMAN WITH WITH
MEASUREMENT PERIOD AGGREGATE DISTRIBUTIONS DISTRIBUTIONS
(QUARTERLY) BOND INDEX REINVESTED - A REINVESTED - B
<S> <C> <C> <C>
OCT. 30, 1992 10000 10000 10000
NOV. 30, 1992 10161 10151 10151
10581 10636 10636
10862 10928 10928
11145 11269 11269
NOV. 30, 1993 11152 11245 11245
10832 10928 10928
10721 10801 10801
10786 10861 10861
NOV. 30, 1994 10827 10871 10871
11373 11369 11369
12066 12045 12045
12303 12226 12226
NOV. 30, 1995 12827 12750 12750
12599 12436 12436
MAR. 31, 1996 12671 12456 12456
12906 12645 12645
13293 13021 13021
MAR. 31, 1997 13218 12921 12873
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual and aggregate total returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestment of dividends.
VI-19
<PAGE>
NATIONS VALUE FUND
PERFORMANCE AND COMMENTARY
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Sharon Herrmann, CFA, is Senior Portfolio Manager of Nations Value Fund and
a Director of Equity Management for TradeStreet Investment Associates, Inc.,
investment sub-adviser to the Fund.
INVESTMENT OBJECTIVE
The Fund seeks growth of capital by investing in companies that are
believed to be undervalued.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
Nations Value Fund Investor A Shares produced another year of strong
returns for shareholders, generating a total return of 17.80% for the one-year
period ended March 31, 1997. The Fund outperformed its peer group, the Lipper
Growth and Income Funds Average, which returned 15.47%.
PORTFOLIO MANAGER COMMENTARY
In the following interview, Ms. Herrmann shares her views on financial
market conditions and Fund performance for the one-year period ended March 31,
1997.
PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
Nations Value Fund is based on the premise that a well-diversified
portfolio of undervalued companies with low prices relative to the earnings they
are expected to generate should, over time, outperform the overall market while
incurring lower than average market risk. The Fund's focus on owning stocks with
low price-to-earnings ratios should provide a cushion during periods of market
declines.
HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT PREVAILED OVER THE
LAST TWELVE MONTHS?
As investor anxiety climbed with each upward move in the market, companies
that carried a high level of predictability of positive earnings revisions were
rewarded by higher stock prices. Conversely, those that disappointed in terms of
earnings were severely damaged. Therefore, our strategy of owning companies with
relatively low price-to-earnings multiples and improving forward earnings was a
winning one. Fund performance was significantly enhanced by the ability to avoid
companies that experienced negative earnings surprises. The market also favored
large-capitalization companies, which make up the majority of the Fund's
portfolio.
WHAT PARTICULAR SECTORS/STOCKS IMPACTED FUND PERFORMANCE?*
Outperformance came from stocks in a variety of sectors, including consumer
staples, energy, finance, technology and healthcare. Our decision to overweight
the energy sector significantly boosted Fund performance, as companies such as
Amoco, British Petroleum and several natural gas companies benefited from an
increase in energy demand and low inventory levels. The Fund's overweight
position in financial stocks was also rewarding. Among the major winners for the
Fund were regional and money center banks, such as Bank of New York Inc., Chase
Manhattan Corporation, and Citicorp, as well as insurance companies ITT Hartford
Group Inc., and CIGNA Corporation, which are major restructuring stories. Other
strong performers included Intel Corporation, the market share leader in
semiconductors, whose share price increased a whopping 104.6% over the past year
ended March 31, 1997.
Slightly suppressing returns were companies in the utilities sector that
are held as a defensive hedge, should we have a major market decline, due to
their attractive dividend yields. Because of deregulation concerns, these stocks
possess some of the best valuations in our discipline and, we believe, represent
a timely buying opportunity.
- ---------------
* Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook. Also, the outlook of this Fund's portfolio manager may differ from
that of other Nations Funds' portfolio managers.
VI-20
<PAGE>
HOW ARE YOU POSITIONING THE FUND GOING FORWARD?
We believe Nations Value Fund will continue to deliver attractive total
return potential relative to the market over the coming year. The portfolio is
structured to continue to take advantage of companies trading at low prices
relative to the earnings they are expected to generate in a broad array of
sectors, including energy, finance, utilities and basic materials. Also, the
Fund is selectively buying technology stocks, as this sector is now selling at
attractive valuation levels given its recent downturn.
As of the fiscal year end, the Fund's valuation level is more attractive
than the overall stock market, selling at a modest price-to-earnings multiple of
just 14.9 times weighted average earnings for 1997. This compares favorably with
the multiple of the Standard & Poor's 500 Composite Stock Price Index which,
according to our estimates, is currently selling at approximately 19 times 1997
earnings.
As we move further into 1997, our focus for the Fund will be on avoiding
companies that experience major earnings disappointments. The Fund's broad
diversification should reduce the risk of heavy concentrations in any one
specific company or industry -- a prudent strategy as we enter a more volatile
market environment with historically high price levels.
VI-21
<PAGE>
NATIONS FUNDS
Nations Value Fund
- ------------------------------------
PORTFOLIO BREAKDOWN AS OF 3/31/97
<TABLE>
<S> <C>
Consumer Staples 6.7%
Producer Durables 6.3%
Consumer Discretionary 4.8%
Other 4.8%
Repurchase Agreement and Other Assets and Liabilities (Net) 4.7%
Financial Services 15.2%
Materials/Processing 7.3%
Auto and Transportation 7.3%
Healthcare 9.6%
Energy 10.3%
Technology 10.5%
Utilities 12.5%
</TABLE>
- ----------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS A
% OF NET ASSETS AS OF 3/31/97
<TABLE>
<S> <C> <C>
1. Intel Corporation 2.8%
2. Harris Corporation 2.4
3. Compaq Computer Corporation 2.3
4. General Re Corporation 2.3
5. Bristol-Myers Squibb Company 2.3
6. CIGNA Corporation 2.3
7. Xerox Corporation 2.2
8. Lockheed Martin Corporation 2.2
9. Mobil Corporation 2.2
10. Schering-Plough Corporation 2.1
</TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 3/31/97
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
INVESTOR A SHARES
- ---------------------------------
<S> <C>
Year Ended 03/31/97 17.80%
Five Years Ended 03/31/97 15.00%
Since Inception (12/06/89)
through 03/31/97 14.21%
</TABLE>
The chart to the right shows the growth in value of a hypothetical $10,000
investment in Investor A Shares of Nations Value Fund on December 6, 1989
(inception date). Figures for the Standard & Poor's 500 Composite Stock Price
Index, an unmanaged index of 500 widely held common stocks, include reinvestment
of dividends. Funds included in the Lipper Growth and Income Funds Average
combine a growth of earnings orientation and an income requirement for level
and/or rising dividends.
<TABLE>
<CAPTION>
STANDARD & POOR'S 500 GROWTH OF INVESTMENT
MEASUREMENT PERIOD COMPOSITE STOCK PRICE LIPPER GROWTH AND INCOME WITH DISTRIBUTIONS
(QUARTERLY) INDEX FUNDS AVERAGE REINVESTED
<S> <C> <C> <C>
DEC. 6, 1989 10000 10000 10000
9932 9879 10107
10555 10380 10634
9106 9010 9347
NOV. 30, 1990 9921 9676 10386
11360 11057 11780
11333 11036 11779
11938 11662 12296
NOV. 30, 1991 12938 12504 13073
12611 12518 13149
12851 12545 13219
13256 12861 13362
NOV. 30, 1992 13922 13654 14004
14530 14315 14672
14599 14476 15010
14975 15031 15671
NOV. 30, 1993 15322 15367 16254
14742 14911 15831
14804 14871 15703
15526 15515 15971
NOV. 30, 1994 15523 15244 15753
17033 16427 17216
18657 17758 18937
20138 19087 20450
NOV. 30, 1995 21350 19940 21388
22495 21018 22450
23504 21688 23326
24231 22339 23896
MAR. 31, 1996 26249 23981 25847
MAR. 31, 1997 26954 24279 26446
</TABLE>
Assumes the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio characteristics and outlook were current as of March 31, 1997, are
subject to change and may not be representative of current characteristics and
outlook.
VI-22
<PAGE>
NATIONS FUNDS
Nations Value Fund
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C, INVESTOR N, PRIMARY A AND PRIMARY B
SHARES AS OF MARCH 31, 1997
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
INVESTOR C SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 17.01%*
Year Ended 03/31/97 17.51%
Since Inception (06/17/92) through
03/31/97 15.48%
</TABLE>
*adjusted for maximum contingent
deferred sales charge of 0.50% when
Investor C Shares are redeemed
within one year of purchase
<TABLE>
<CAPTION>
INVESTOR N SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 17.21%
Since Inception (06/07/93) through
03/31/97 15.90%
</TABLE>
<TABLE>
<CAPTION>
PRIMARY A SHARES
- ----------------------------------------------
<S> <C>
Year Ended 03/31/97 18.07%
Five Years Ended 03/31/97 15.24%
Since Inception (09/19/89) through
03/31/97 14.00%
</TABLE>
AGGREGATE TOTAL RETURN
<TABLE>
<CAPTION>
PRIMARY B SHARES**
- ----------------------------------------------
<S> <C>
Since Inception (06/28/96) through
03/31/97 13.20%
</TABLE>
The charts to the right show the growth in value of a hypothetical $10,000
investment in Investor C, Investor N, Primary A and Primary B Shares of
Nations Value Fund from the date each class of shares was first offered.
Figures for the Standard & Poor's 500 Composite Stock Price Index, an
unmanaged index of 500 widely held common stocks, include reinvestment of
dividends.
Each chart assumes the reinvestment of all distributions.
** Please note that the performance shown for Primary B Shares includes
the performance for Primary A Shares from their date of inception
(9/19/89) through 6/28/96, plus the performance for Primary B Shares from
their date of inception (6/28/96) through 3/31/97. The expense structures
for Primary A and Primary B Shares are similar, except that Primary B
Shares are subject to a shareholder servicing fee of up to 60 basis
points. This will result in a slight variance in the performance of
Primary A and Primary B Shares.
PERFORMANCE COMPARISONS
INVESTOR C SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD & GROWTH OF
POORS 500 INVESTMENT
COMPOSITE WITH
MEASUREMENT PERIOD STOCK PRICE DISTRIBUTIONS
(QUARTERLY) INDEX REINVESTED
<S> <C> <C>
JUNE 17, 1992 10000 10000
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) 10315 10361
NOV. 30, 1992 10834 10830
11306 11309
11361 11551
11653 12031
NOV. 30, 1993 11923 12460
11472 12116
11520 11995
12082 12171
NOV. 30, 1994 12080 11992
13255 13069
14518 14358
15671 15473
NOV. 30, 1995 16614 16147
MAR. 31, 1996 17505 16944
18290 17597
18855 18010
20426 19468
MAR. 31, 1997 20975 19911
</TABLE>
INVESTOR N SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
STANDARD & GROWTH OF
POORS 500 INVESTMENT
COMPOSITE WITH
MEASUREMENT PERIOD STOCK PRICE DISTRIBUTIONS
(QUARTERLY) INDEX REINVESTED
<S> <C> <C>
JUNE 7, 1993 10000 10000
10287 10588
NOV. 30, 1993 10526 10967
10127 10665
10170 10577
10666 10735
NOV. 30, 1994 10664 10585
11701 11539
12617 12682
13834 13673
NOV. 30, 1995 14667 14286
MAR. 31, 1996 15454 14979
16146 15546
16646 15898
18032 17180
MAR. 31, 1997 18516 17557
</TABLE>
PRIMARY A AND PRIMARY B SHARES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
GROWTH OF STANDARD &
INVESTMENT POORS 500
WITH COMPOSITE
MEASUREMENT PERIOD DISTRIBUTIONS STOCK PRICE
(QUARTERLY) REINVESTED INDEX
<S> <C> <C>
SEPT. 19, 1989 10000 10000
NOV. 30, 1989 10073 10205
10148 9898
10676 10520
9384 9076
NOV. 30, 1990 10428 9888
11827 11322
11826 11295
12345 11696
NOV. 30, 1991 13125 12894
13201 12569
13273 12808
13417 13212
NOV. 30, 1992 14083 13875
14758 14481
15107 14550
15781 14925
NOV. 30, 1993 16388 15271
15959 14693
15828 14754
16096 15474
NOV. 30, 1994 15898 15471
17372 16976
19134 18594
20661 20071
NOV. 30, 1995 21636 21278
MAR. 31, 1996 22724 22420
JUN. 28, 1996 23624 23425
24201 24149
26206 26161
MAR. 31, 1997 26829 26863
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual and aggregate total returns are historical in nature and measure
net investment income and capital gain or loss from portfolio investments
assuming reinvestment of dividends.
VI-23
<PAGE>
Statement of Additional Information
Dated March 25, 1998
Emerald Funds
3435 Stelzer Road
Columbus, Ohio 43219
(800) 637-3759
Nations Fund Trust
One NationsBank Plaza
Charlotte, NC 28255
(800) 626-2275
(May 4, 1998 Special Meeting of Shareholders of Emerald Funds)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Proxy/Prospectus dated the date hereof, for the
Special Meeting of Shareholders of Emerald to be held on May 4, 1998. Copies of
the Proxy/Prospectus may be obtained at no charge by writing or calling Emerald
or Nations at the addresses or telephone numbers set forth above. Unless
otherwise indicated, capitalized terms used herein and not otherwise defined
have the same meanings as are given to them in the Proxy/Prospectus.
Incorporation of Documents by Reference in Statement of Additional Information
Further information about the Investor A and Primary A Shares of the
Nations Balanced Assets Fund, Nations Disciplined Equity Fund, Nations Value
Fund, Nations Florida Municipal Bond Fund, Nations Strategic Fixed Income Fund,
Nations Short-Term Income Fund, and the Investor A, Primary A and Daily Shares
of Nations Tax-Exempt Fund, is contained in and incorporated herein by reference
to the statement of additional information for Investor A and Primary A Shares
of the Nations Balanced Assets Fund, Nations Disciplined Equity Fund, Nations
Value Fund, Nations Florida Municipal Bond Fund, Nations Strategic Fixed Income
Fund, Nations Short-Term Income Fund, and the Investor A, Primary A and Daily
Shares of Nations Tax-Exempt Fund, dated August 1, 1997.
Further information about the Retail and Institutional Shares of the
Emerald Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund, Emerald
Florida Tax-Exempt Fund, Emerald Managed Bond Fund, Emerald Short-Term Fixed
Income Fund and the Retail, Institutional and Service Shares of the Emerald
Tax-Exempt Fund is contained in and incorporated herein by reference to the
statement(s) of additional information for the Retail and Institutional Shares
of the Emerald Balanced Fund, Emerald Equity Fund, Emerald Equity Value Fund,
Emerald Florida Tax-Exempt Fund, Emerald Managed Bond Fund, Emerald Short-Term
Fixed Income Fund and the Retail, Institutional and Service Shares of the
Emerald Tax-Exempt Fund, dated April 1, 1997, as supplemented, and redated March
25, 1998.
1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
General Information...............................................................................4
Introductory Note to Pro Forma Financial Information..............................................5
</TABLE>
2
<PAGE>
General Information
The Reorganization contemplates the transfer of all of the Fund Assets
and Liabilities (as those terms are defined in the Reorganization Agreement) of
each Emerald Fund to a corresponding Nations Fund in exchange for Shares of
designated classes of the corresponding Nations Fund.
The Shares issued by Nations will have an aggregate value equal to the
aggregate value of the shares of the respective Emerald Funds that were
outstanding immediately before the Closing.
After the transfer of their Fund Assets and Liabilities in exchange for
Shares of the Nations Funds, the Emerald Funds will distribute the Shares of the
Nations Funds to their shareholders in liquidation of the Emerald Funds. Each
shareholder owning shares of a particular Emerald Fund at the Closing will
receive Shares of the corresponding Nations Fund of equal value, and will
receive any unpaid dividends or distributions that were declared before the
Closing on shares of the Emerald Funds. Nations will establish an account for
each former shareholder of the Emerald Funds reflecting the appropriate number
of Nations Fund Shares distributed to the shareholder. These accounts will be
substantially identical to the accounts maintained by Emerald for each
shareholder. Upon completion of the reorganization with respect to all Emerald
funds, all outstanding shares of the Emerald Funds will be redeemed and
cancelled in exchange for Shares of the Nations Funds distributed, and Emerald
will wind up its affairs and be deregistered as an investment company under the
1940 Act.
For further information about the transaction, see the
Proxy/Prospectus.
3
<PAGE>
Introductory Note to Pro Forma Financial Information
The following unaudited pro forma information gives effect to the
proposed transfer of the Fund Assets and Liabilities (as those terms are defined
in the Reorganization Agreement) of the Emerald Funds to the Nations Funds,
accounted for as if each transfer had occurred as of November 30, 1997 and as if
the Nations Funds had operated for the year then ended. However, it is possible
that one or more of the Emerald Funds will not approve the merger, in which case
the resulting fund or funds will be comprised of only those Emerald Funds that
approve the merger. In addition, each pro forma combining statement has been
prepared based upon the structure of the proposed fee and expense structure of
the applicable surviving Nations Fund. In addition, there is no expectation of
any material repositioning of the portfolio securities of the Emerald Funds
(other than the Emerald Equity Fund) after the Closing, except in the ordinary
course of business. With respect to the Emerald Equity Fund, it is expected
that a portion of the portfolio securities of the Fund will be repositioned
as described in greater detail in the Combined Proxy/Prospectus.
Pro forma financial information giving effect to the proposed transfer
of Fund Assets and Liabilities of the Emerald Managed Bond Fund to Nations
Strategic Fixed Income Fund, Emerald Tax-Exempt Fund to Nations Tax-Exempt Fund
and Emerald Equity Value Fund to Nations Value Fund, is not presented in this
Statement of Additional Information because, as of March 16, 1998. Each such
Emerald Fund's assets were less than 10% of the corresponding Nations Fund.
The pro forma financial information should be read in conjunction with
the historical financial statements and notes thereto of the Emerald Funds and
Nations Funds included or incorporated herein by reference in this Statement of
Additional Information. Each combination of the above Emerald Funds and Nations
Funds will be accounted for as a tax-free reorganization. For more information
concerning this aspect of the Reorganization, see "Information Relating to
Proposal 2--Approval of the Reorganization Agreement--Federal Income Tax
Considerations" in the Proxy/Prospectus.
4
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - 61.1%
Aerospace and Defense - 2.7%
39,825 0 39,825 Litton Industries, Inc.+ ..................... $2,006,184 $0 $2,006,184
24,250 0 24,250 Lockheed Martin Corporation .................. 2,365,891 0 2,365,891
24,575 0 24,575 Raytheon Company ............................. 1,374,664 0 1,374,664
35,350 0 35,350 TRW Inc. ..................................... 2,006,112 0 2,006,112
----------------------------------------------
7,752,851 0 7,752,851
----------------------------------------------
Apparel and Textiles - 0.6%
55,225 0 55,225 Fruit of the Loom Inc., Class A+ ............. 1,287,433 0 1,287,433
0 14,300 14,300 Tommy Hilfiger Corporation+ .................. 0 561,275 561,275
----------------------------------------------
1,287,433 561,275 1,848,708
----------------------------------------------
Automobile Parts Manufacturers - 1.7%
89,550 0 89,550 Cooper Tire and Rubber Inc ................... 2,003,681 0 2,003,681
25,850 0 25,850 Echilin Inc. ................................. 819,122 0 819,122
0 11,000 11,000 Lear Corporation+ ............................ 0 514,938 514,938
31,200 0 31,200 Snap-On Inc .................................. 1,370,850 0 1,370,850
----------------------------------------------
4,193,653 514,938 4,708,591
----------------------------------------------
Banks - 2.1%
0 10,500 10,500 BankAmerica Corporation ...................... 0 766,500 766,500
0 4,600 4,600 Chase Manhattan Bank ......................... 0 499,675 499,675
7,900 0 7,900 Citicorp ..................................... 947,506 0 947,506
0 2,195 2,195 Imperial Bancorp+ ............................ 0 102,479 102,479
31,600 0 31,600 PNC Bank Corporation ......................... 1,700,475 0 1,700,475
0 3,450 3,450 Saint Paul Bancorp Inc. ...................... 0 84,525 84,525
34,775 0 34,775 SouthTrust Corporation ....................... 1,895,238 0 1,895,238
----------------------------------------------
4,543,219 1,453,179 5,996,398
----------------------------------------------
Beverages - 1.2%
27,300 0 27,300 Anheuser-Bush Companies, Inc. ................ 1,179,019 0 1,179,019
0 12,600 12,600 Pan American Beverage ........................ 0 431,550 431,550
26,700 23,000 49,700 PepsiCo Inc. ................................. 984,562 848,125 1,832,687
----------------------------------------------
2,163,581 1,279,675 3,443,256
----------------------------------------------
Building Products - Air & Heating - 0.7%
30,150 0 30,150 Armstrong World International ................ 2,078,466 0 2,078,466
----------------------------------------------
Chemicals - Basic - 1.6%
22,150 0 22,150 Dow Chemical Company ......................... 2,187,312 0 2,187,312
0 8,700 8,700 Imperial Chemical Industries PLC ............ 0 517,107 517,107
33,850 0 33,850 PPG Industries, Inc. ......................... 1,961,184 0 1,961,184
----------------------------------------------
4,148,496 517,107 4,665,603
----------------------------------------------
Chemicals - Specialty - 2.4%
26,700 0 26,700 BetzDearborn, Inc. ........................... 1,625,363 0 1,625,363
53,200 0 53,200 Ferro Corporation ............................ 2,038,225 0 2,038,225
29,050 0 29,050 Great Lakes Chemical Corporation ............. 1,303,619 0 1,303,619
39,000 0 39,000 Union Carbide Corporation .................... 1,720,875 0 1,720,875
----------------------------------------------
6,688,082 0 6,688,082
----------------------------------------------
Computer Services - 0.3%
0 13,700 13,700 Bay Networks Inc. + .......................... 0 411,856 411,856
6,350 0 6,350 Automatic Data Processing Inc. ............... 357,187 0 357,187
----------------------------------------------
357,187 411,856 769,043
----------------------------------------------
Computer Software - 1.4%
19,250 0 19,250 Adobe Systems, Inc. . ........................ 808,500 0 808,500
0 3,800 3,800 Citrix Systems Inc.+ .. ...................... 0 272,175 272,175
0 16,600 16,600 Cadence Design Systems, Inc.+ . .............. 0 419,150 419,150
0 13,050 13,050 Computer Associates Inc ...................... 0 679,416 679,416
0 18,100 18,100 Iomega Corporation+ .......................... 0 595,038 595,038
0 12,300 12,300 McAfee Associates Inc.+ ...................... 0 562,725 562,725
0 4,100 4,100 Microsoft Corporation +.. .................... 0 580,150 580,150
----------------------------------------------
808,500 3,108,654 3,917,154
----------------------------------------------
Computer Hardware - 2.6%
0 8,800 8,800 Adaptec, Inc.+ . ............................ 0 435,600 435,600
0 12,300 12,300 Compaq Computers Corporation+. ............... 0 767,982 767,982
0 14,800 14,800 National Semiconductor Corporation+.. ........ 0 490,250 490,250
28,750 0 28,750 Hewlett Packard Company.. .................... 1,755,547 0 1,755,547
19,900 8,200 28,100 Intel Corporation . .......................... 1,544,737 636,525 2,181,262
0 9,600 9,600 Quantum Corporation+ ......................... 0 255,600 255,600
99,550 0 99,550 Silicon Graphics, Inc ........................ 1,306,594 0 1,306,594
0 5,000 5,000 Texas Instruments, Inc. ...................... 0 246,250 246,250
----------------------------------------------
4,606,878 2,832,207 7,439,085
----------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Construction - 0.8%
59,700 0 59,700 Fluor Corporation ............................ $2,145,469 $0 $2,145,469
----------------------------------------------
Containers - 0.3%
19,950 0 19,950 Crown Cork & Seal Inc ........................ 973,809 0 973,809
----------------------------------------------
Cosmetics and Toiletry - 0.9%
0 6,100 6,100 Blyth Industries, Inc.+ ...................... 0 156,694 156,694
0 31,300 31,300 Dial Corporation ............................. 0 606,437 606,437
0 4,700 4,700 Gillette Corporation ......................... 0 433,869 433,869
24,700 0 24,700 Kimberly-Clark Corporation ................... 1,285,944 0 1,285,944
----------------------------------------------
1,285,944 1,197,000 2,482,944
----------------------------------------------
Data Processing/Management - 0.9%
0 9,700 9,700 Cisco Systems, Inc.+ ......................... 0 836,625 836,625
60,825 0 60,825 First Data Corporation........................ 1,722,108 0 1,722,108
----------------------------------------------
1,722,108 836,625 2,558,733
----------------------------------------------
Drugs - 0.4%
17,700 0 17,700 American Home Products Corporation............ 1,236,787 1,236,787
----------------------------------------------
Electric Power - 1.8%
24,500 0 24,500 Baltimore Gas & Electric Company ............. 751,844 0 751,844
38,900 0 38,900 DPL Inc. ..................................... 1,021,125 0 1,021,125
25,350 0 25,350 Duke Energy Corporation ...................... 1,318,200 0 1,318,200
78,400 0 78,400 Entergy Corporation .......................... 2,038,400 0 2,038,400
----------------------------------------------
5,129,569 0 5,129,569
----------------------------------------------
Electronics - 3.4%
42,350 0 42,350 Amp Inc. .. .................................. 1,839,578 0 1,839,578
43,100 0 43,100 Johnson Controls . ........................... 1,974,519 0 1,974,519
32,150 0 32,150 Motorola, Inc. . ............................. 2,021,431 0 2,021,431
75,800 0 75,800 LSI Logic .. ................................. 1,762,350 0 1,762,350
0 10,300 10,300 Philips Electronics.. ........................ 0 690,100 690,100
0 12,500 12,500 SCI Systems, Inc.+ . ......................... 0 572,656 572,656
0 10,500 10,500 Tech Data Corporation+. ...................... 0 423,938 423,938
0 9,600 9,600 Teradyne, Inc.+. ............................. 0 315,000 315,000
----------------------------------------------
7,597,878 2,001,694 9,599,572
----------------------------------------------
Environmental Services - 0.3%
0 14,700 14,700 Calenergy Co., Inc.+ ......................... 0 488,775 488,775
0 11,700 11,700 USA Waste Services Inc. + .................... 0 386,831 386,831
----------------------------------------------
0 875,606 875,606
----------------------------------------------
Financial Services - 0.5%
0 3,100 3,100 Americredit Corporation+.. ................... 0 85,638 85,638
0 19,100 19,100 Green Tree Financial Corporation.. ........... 0 584,937 584,937
0 11,700 11,700 Morgan Stanley Dean Witter, Discover & Company 0 635,456 635,456
----------------------------------------------
0 1,306,031 1,306,031
----------------------------------------------
Food Producers - 1.5%
0 26,200 26,200 ConAgra, Inc.. ............................... 0 941,563 941,563
0 14,200 14,200 Dean Foods Comapny ........................... 0 754,375 754,375
0 21,200 21,200 Interstate Bakeries Corporation .............. 0 732,725 732,725
29,350 0 29,350 Nabisco Holdings Corporation, Class A.. ...... 1,368,444 0 1,368,444
0 10,500 10,500 Sara Lee Corporation.. ....................... 0 555,188 555,188
----------------------------------------------
1,368,444 2,983,851 4,352,295
----------------------------------------------
Food Retailers - 0.9%
0 12,600 12,600 Safeway, Inc.+. .............................. 0 765,449 765,449
36,925 0 36,925 Safeco.. ..................................... 1,804,709 0 1,804,709
----------------------------------------------
1,804,709 765,449 2,570,158
----------------------------------------------
Furniture and Appliances - 1.2%
0 21,400 21,400 General Electric Company .. .................. 0 1,578,250 1,578,250
79,100 0 79,100 Rubbermaid, Inc. . ........................... 1,918,175 0 1,918,175
----------------------------------------------
1,918,175 1,578,250 3,496,425
----------------------------------------------
Insurance - 2.7%
17,775 0 17,775 Aetna Inc. ................................... 1,339,790 0 1,339,790
0 7,400 7,400 Allstate Financial Corporation.. ............. 0 635,475 635,475
15,600 0 15,600 Berkley (W.R.) Corporation.. ................. 649,350 0 649,350
0 13,000 13,000 Conseco, Inc.. ............................... 0 605,313 605,313
0 21,750 21,750 SunAmerica Inc ............................... 0 880,875 880,875
0 19,050 19,050 Travelers Group, Inc.. ....................... 0 962,025 962,025
29,725 0 29,725 Hartford Financial Services Group Inc ........ 2,489,469 0 2,489,469
----------------------------------------------
4,478,609 3,083,688 7,562,297
----------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Machinery and Equipment - 2.2%
0 9,300 9,300 Caterpillar Inc. ............................. $0 $445,819 $445,819
33,400 0 33,400 Foster Wheeler Corp .......................... 1,029,137 0 1,029,137
32,525 0 32,525 General Signal Corporation ................... 1,327,426 0 1,327,426
47,500 0 47,500 Harnischfeger Corporation .................... 1,813,906 0 1,813,906
31,550 0 31,550 Nordson Corporation .......................... 1,656,375 0 1,656,375
----------------------------------------------
5,826,844 445,819 6,272,663
----------------------------------------------
Media - 0.3%
0 12,400 12,400 New York Times, Class A ...................... 0 736,250 736,250
----------------------------------------------
Medical Products and Supplies - 2.5%
19,050 0 19,050 Abbott Laboratories .......................... 1,238,250 0 1,238,250
22,225 0 22,225 Amgen, Inc. .................................. 1,136,253 0 1,136,253
0 9,500 9,500 Boston Scientific Corporation+ ............... 0 429,281 429,281
24,300 0 24,300 Becton, Dickinson & Company .................. 1,252,969 0 1,252,969
23,975 0 23,975 Johnson & Johnson ............................ 1,508,927 0 1,508,927
24,150 0 24,150 Mead Corporation ............................. 1,559,184 0 1,559,184
----------------------------------------------
6,695,583 429,281 7,124,864
----------------------------------------------
Medical Services - 1.2%
0 9,900 9,900 Baxter International ......................... 0 501,188 501,188
0 5,300 5,300 Medpart/Mullkin Inc. ......................... 0 131,175 131,175
0 17,600 17,600 MedPartners, Inc+ ............................ 0 435,600 435,600
0 21,240 21,240 Tenet Healthcare Corporation+ ................ 0 673,043 673,043
0 23,800 23,800 HEALTHSOUTH Corporation+ ..................... 0 624,750 624,750
58,800 0 58,800 Beverly Enterprises+ ......................... 999,600 0 999,600
----------------------------------------------
999,600 2,365,756 3,365,356
----------------------------------------------
Metals and Mining - 0.7%
149,400 0 149,400 Bethlehem Steel .............................. 1,531,350 0 1,531,350
0 5,300 5,300 Minnesota Mining & Manufacturing Company ..... 0 516,419 516,419
----------------------------------------------
1,531,350 516,419 2,047,769
----------------------------------------------
Miscellaneous Services - 0.2%
0 21,200 21,200 Accustaff, Inc. + ............................ 0 626,725 626,725
----------------------------------------------
Miscellaneous Manufacturer - 0.7%
42,400 0 42,400 Dexter Corporation ........................... 1,688,050 0 1,688,050
0 7,300 7,300 CN Coltec Inustries+ ......................... 0 170,181 170,181
----------------------------------------------
1,688,050 170,181 1,858,231
----------------------------------------------
Oil - Domestic - 2.6%
9,800 0 9,800 Amoco Corporation ............................ 882,000 0 882,000
21,650 0 21,650 Apache Corporation ........................... 795,637 0 795,637
0 8,500 8,500 Helmrich & Payne ............................. 0 646,531 646,531
28,300 0 28,300 Repsol S.A., ADR ............................. 1,220,437 0 1,220,437
0 28,500 28,500 USX - Marathon Group ......................... 0 976,125 976,125
21,500 0 21,500 Unocal Corporation ........................... 855,969 0 855,969
65,675 0 65,675 Ultramar Diamond Shamrock Corporation ........ 1,998,983 0 1,998,983
----------------------------------------------
5,753,026 1,622,656 7,375,682
----------------------------------------------
Oil - International - 1.5%
18,925 0 18,925 Mobil Corporation ............................ 1,361,417 0 1,361,417
0 10,371 10,371 British Petroleum PLC ADR+ ................... 0 860,793 860,793
53,250 0 53,250 Dillars International ........................ 1,946,953 0 1,946,953
----------------------------------------------
3,308,370 860,793 4,169,163
----------------------------------------------
Paper Products - 0.5%
0 8,500 8,500 International Paper .......................... 0 403,219 403,219
44,600 0 44,600 Lousianna - Pacific ......................... 900,363 0 900,363
----------------------------------------------
900,363 403,219 1,303,582
----------------------------------------------
Pharmaceuticals - 2.0%
0 12,600 12,600 Bristol-Myers Squibb Company ................. 0 1,179,674 1,179,674
0 13,700 13,700 Dura Pharmaceuticals+ ........................ 0 601,088 601,088
0 14,100 14,100 Eli Lilly & Company .......................... 0 889,180 889,180
0 12,300 12,300 Elan Corporation PLC, ADR+ ................... 0 648,825 648,825
0 8,600 8,600 Merck & Company, Inc. ........................ 0 813,238 813,238
0 13,500 13,500 Pfizer Inc. .................................. 0 982,124 982,124
0 4,400 4,400 Warner Lambert Company ....................... 0 615,450 615,450
----------------------------------------------
0 5,729,579 5,729,579
----------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Recreation - 2.0%
1 0 1 Ascent Entertainment Group, Inc.+ ............ $9 $0 $9
0 11,400 11,400 Callaway Golf ................................ 0 363,375 363,375
17,800 0 17,800 Disney (Walt) Company ........................ 1,689,887 0 1,689,887
0 12,200 12,200 Gtech Holdings Corporation+ .................. 0 392,688 392,688
0 21,000 21,000 Mattel, Inc. ................................. 0 841,312 841,312
0 16,800 16,800 Tyco ......................................... 0 659,400 659,400
60,075 0 60,075 Hasbro Inc ................................... 1,745,930 0 1,745,930
----------------------------------------------
3,435,826 2,256,775 5,692,601
----------------------------------------------
Restaurants and Lodging - 1.6%
0 10,400 10,400 HFS, Inc.+ ................................... 0 713,700 713,700
107,200 0 107,200 La Quinta Inns Inc ........................... 2,036,800 0 2,036,800
81,400 0 81,400 Wendy's International Inc .................... 1,709,400 0 1,709,400
----------------------------------------------
3,746,200 713,700 4,459,900
----------------------------------------------
Retail - Discount - 1.1%
0 16,825 16,825 Consolidated Stores Corporation+ ............. 0 818,115 818,115
0 16,300 16,300 CompUSA, Inc. + .............................. 0 595,969 595,969
0 11,500 11,500 Home Depot, Inc. ............................. 0 643,281 643,281
49,250 0 49,250 Woolworth Corporation+ ....................... 1,065,031 0 1,065,031
----------------------------------------------
1,065,031 2,057,365 3,122,396
----------------------------------------------
Retail - General - 0.6%
34,450 0 34,450 Sears, Roebuck & Company ..................... 1,578,241 0 1,578,241
----------------------------------------------
Retail - Specialty - 1.6%
0 26,700 26,700 General Nutrition Companies+ ................. 0 911,137 911,137
164,500 0 164,500 Heilig-Meyers Company ........................ 2,128,219 0 2,128,219
0 27,875 27,875 Staples+ ..................................... 0 785,727 785,727
0 1,350 1,350 Tuesday Morning Corporation+ ................. 0 33,581 33,581
0 29,850 29,850 U.S. Office Products Company+ ................ 0 593,269 593,269
----------------------------------------------
2,128,219 2,323,714 4,451,933
----------------------------------------------
Steel - 0.8%
0 11,200 11,200 USX United States Steel Corporation .......... 0 350,700 350,700
41,275 0 41,275 Nucor Corporation ............................ 2,063,750 0 2,063,750
----------------------------------------------
2,063,750 350,700 2,414,450
----------------------------------------------
Telecommunications - 1.8%
0 11,500 11,500 ADC Telcommunications, Inc.+ ................. 0 427,656 427,656
37,600 0 37,600 Aspect Communications ........................ 843,650 0 843,650
85,350 0 85,350 Atmel Corporation ............................ 1,915,041 0 1,915,041
35,150 0 35,150 DSC Communications ........................... 793,072 0 793,072
0 3,100 3,100 Lucent Technologies .......................... 0 248,388 248,388
22,800 0 22,800 MCI Communications Corporation ............... 1,001,775 0 1,001,775
----------------------------------------------
4,553,538 676,044 5,229,582
----------------------------------------------
Tobacco - 0.6%
42,050 0 42,050 Philip Morris Companies Inc .................. 1,829,175 0 1,829,175
----------------------------------------------
Transportation - 0.7%
0 6,300 6,300 AMR Corporation+ ............................. 0 763,481 763,481
14,800 0 14,800 Burlington Northern Santa Fe Inc. ............ 1,354,200 0 1,354,200
----------------------------------------------
1,354,200 763,481 2,117,681
----------------------------------------------
Utilities - Natural Gas - 0.6%
0 10,400 10,400 Columbia Gas System, Inc.+ ................... 0 756,600 756,600
27,350 0 27,350 Equitable Resources Inc. ..................... 885,456 0 885,456
----------------------------------------------
885,456 756,600 1,642,056
----------------------------------------------
Utilities - Telephone - 1.5%
15,925 0 15,925 Ameritech Corporation ........................ 1,227,220 0 1,227,220
29,900 0 29,900 GTE Corporation .............................. 1,511,819 0 1,511,819
0 26,200 26,200 LCI International, Inc.+ ..................... 0 722,136 722,136
0 28,200 28,200 WorldCom, Inc.+ .............................. 0 902,399 902,399
----------------------------------------------
2,739,039 1,624,535 4,363,574
----------------------------------------------
Wire and Cable Products - 0.9%
85,650 0 85,650 Bard (CR) Inc. ............................... 2,564,147 0 2,564,147
----------------------------------------------
TOTAL COMMON STOCKS .......................... 122,935,855 50,736,677 173,672,532
==============================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES - 2.2%
$990,000 $0 $990,000 Chase Manhattan Credit Card Master Trust,
Series 1996-4, Class A, 6.730% 02/15/03 ... $998,663 $0 $998,663
1,350,000 0 1,350,000 Circuit City Credit Card Master Trust,
Series 1995-1, Class A, 6.375% 08/15/05 .. 1,354,641 0 1,354,641
1,550,000 0 1,550,000 CS First Boston Mortgage Securities
Corporation, Series 1996-2, Class A4,
6.620% 02/25/18 ........................... 1,559,687 0 1,559,687
EQCC Home Equity Loan Trust:
1,000,000 0 1,000,000 Series 1996-2, Class A2,
6.700% 09/15/08 .......................... 1,004,063 0 1,004,063
1,250,000 0 1,250,000 Premier Auto,
6.530% 12/06/03 .............................. 1,258,594 0 1,258,594
----------------------------------------------
TOTAL ASSET-BACKED SECURITIES 6,175,648 0 6,175,648
==============================================
CORPORATE BONDS AND NOTES - 13.2%
Automotive - 0.7%
1,180,000 0 1,180,000 Ford Motor Credit Company, MTN,
7.500% 08/01/26. ........................... 1,261,514 0 1,261,514
0 500,000 500,000 Ford Motor Credit Company, MTN,
6.80% 04/23/01 ............................. 0 508,136 508,136
0 250,000 250,000 General Motors Acceptance Corporation,
Putable 06/01/00 @ 100
8.875% 06/01/10 .............................. 0 297,652 297,652
----------------------------------------------
1,261,514 805,788 2,067,302
----------------------------------------------
Banking and Finance - 7.2%
900,000 0 900,000 AON Capital Trust, Class A,
8.205% 01/01/27 ........................... 989,658 0 989,658
2,300,000 0 2,300,000 Associates Corporation N.A.,
6.750% 07/15/01 ........................... 2,328,796 0 2,328,796
1,300,000 0 1,300,000 BankAmerica Capital,
8.000% 12/15/26 ........................... 1,371,526 0 1,371,526
1,245,000 0 1,245,000 Bayerische L:andesbank,
6.200% 2/09/06 ............................ 1,217,062 0 1,217,062
900,000 0 900,000 Bear Stearns Company, Senior Notes,
6.750% 05/01/01 ........................... 907,965 0 907,965
0 350,000 350,000 American Express Credit Corp.
Putable 9/20/98 @ 100
8.500% 06/15/99 ........................... 0 361,229 361,229
0 1,000,000 1,000,000 BankAmerica Capital BAC,
6.330% 1/15/98 /.............................. 0 988,362 988,362
1,125,000 0 1,125,000 Chrysler Financial Corporation, Sub. Notes,
6.375% 01/28/00 ........................... 1,126,913 0 1,126,913
650,000 0 650,000 GE Global Insurance Corporation,
7.000% 02/15/26 .............................. 665,451 0 665,451
0 1,000,000 1,000,000 Hutchinson Wampo Putable 8/01/09 @ 100
6.99% 8/01/37 ................................ 0 954,441 954,441
0 500,000 500,000 IAD Bank,
8.400% 09/01/09 .............................. 0 589,060 589,060
1,250,000 0 1,250,000 Lehman Brothers Holdings, MTN,
6.850% 10/08/99 ........................... 1,262,925 0 1,262,925
0 1,000,000 1,000,000 Merrill Lynch & Company,
6.700% 08/01/00 ........................... 0 1,012,127 1,012,127
1,100,000 0 1,100,000 Merrill Lynch & Company,
6.550% 08/01/04 ........................... 1,102,794 0 1,102,794
0 1,000,000 1,000,000 Norwest Financial Inc.,
7.250% 3/15/00 ............................... 0 1,022,893 1,022,893
Paine Webber Group:
800,000 0 800,000 7.700% 02/11/00 ........................... 823,800 0 823,800
825,000 0 825,000 7.300% 10/15/03 ........................... 858,363 0 858,363
0 1,500,000 1,500,000 Travelers Commercial Credit, Putable
06/01/02 @ 100 6.630% 6/01/15 ............. 0 1,511,834 1,511,834
1,250,000 0 1,250,000 Union Planters Corporation, Sub. Notes,
6.750% 11/01/05 ........................... 1,249,212 0 1,249,212
----------------------------------------------
13,904,465 6,439,946 20,344,411
----------------------------------------------
Beverage - 0.4%
Coca Cola Enterprises:
425,000 0 425,000 6.950% 11/15/26 ............................. 426,012 0 426,012
0 500,000 500,000 8.000% 1/04/05 .............................. 0 553,355 553,355
----------------------------------------------
426,012 553,355 979,367
----------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
CORPORATE BONDS AND NOTES - (continued)
Electrical - 0.2%
$0 $500,000 $500,000 General Electric 8.3% 9/20/09 Putable
09/20/98 @ 100 ............................ $0 $575,067 $575,067
----------------------------------------------
Entertainment - 0.5%
615,000 0 615,000 Walt Disney Company,
6.750% 03/30/06 ........................... 628,758 0 628,758
825,000 0 825,000 FMT Fingerhut 1996-1A,
6.450% 02/20/02 ........................... 829,125 0 829,125
----------------------------------------------
1,457,883 0 1,457,883
----------------------------------------------
Industrial - 1.6%
940,000 0 940,000 Auburn Hills Trust Certificates, Deb.,
12.000% 05/01/20++ ........................ 1,479,626 0 1,479,626
350,000 0 350,000 News America Holdings,
7.700% 10/30/2025 ......................... 354,477 0 354,477
750,000 0 750,000 Popular North America,
6.625% 10/27/02 ........................... 756,210 0 756,210
1,350,000 0 1,350,000 Sears Roebuck Acceptance Corporation, MTN,
6.540% 02/20/03 ........................... 1,359,032 0 1,359,032
710,000 0 710,000 Xerox Capital Trust I,
8.000% 02/01/27 ........................... 738,883 0 738,883
----------------------------------------------
4,688,228 0 4,688,228
----------------------------------------------
Insurance - 0.2%
0 500,000 500,000 CNA Financial Corporation, Sr. Note,
8.88% 3/1/98 ................................. 0 503,607 503,607
----------------------------------------------
Oil - International - 0.1%
0 150,000 150,000 Texaco Capital Income Inc.,
8.65% 1/30/98 ................................ 0 150,649 150,649
----------------------------------------------
Retail - 0.4%
0 1,000,000 1,000,000 Safeco Capital Trust,
8.072% 7/15/37 ............................... 0 1,020,621 1,020,621
----------------------------------------------
Utilities Electric - 1.2%
0 500,000 500,000 Central Illinois Public Service Company,
Callable 05/15/98 @ 105.95,
8.5% 5/15/22 .............................. 0 532,441 532,441
0 1,150,000 1,150,000 Citizens Utilities Company, Putable
8/15/03 @ 100, 6.80% 8/15/26 .............. 0 1,197,660 1,197,660
0 750,000 750,000 Northern Power,
5.5% 02/01/99 ................................ 0 745,383 745,383
0 1,000,000 1,000,000 Wisconsin Electric Power Company,
9.13% 9/01/24 ................................ 0 1,061,209 1,061,209
----------------------------------------------
0 3,536,693 3,536,693
----------------------------------------------
Utilities Telephone - 0.7%
0 400,000 400,000 AT&T Corporation Callable 1/15/02
8.125% 01/15/22 ............................. 0 427,805 427,805
0 500,000 500,000 Chesapeake & Potomac Company of Maryland,
8.00% 10/15/29 ............................... 0 588,821 588,821
0 875,000 875,000 NYNEX Capital Funding Company, VRN
7.63% 10/15/09 ............................... 0 995,158 995,158
0 50,000 50,000 PACIFIC Telephone & Telegraph
7.25% 02/01/08 ............................... 0 50,806 50,806
----------------------------------------------
0 2,062,590 2,062,590
----------------------------------------------
TOTAL CORPORATE BONDS AND NOTES .............. 21,738,102 15,648,316 37,386,418
==============================================
MORTGAGE-BACKED SECURITIES - 10.1%
Federal Home Loan Mortgage Corporation (FHLMC) Certificates - 2.8%
0 660,000 660,000 6.20% 9/08/08 ................................ 0 640,626 640,626
0 120,872 120,872 8.0% 6/01/99 ................................. 0 123,662 123,662
0 228,296 228,296 8.0% 7/1/10 .................................. 0 233,979 233,979
0 73,300 73,300 8.50% 7/1/98 ................................. 0 74,396 74,396
0 319,111 319,111 8.5% 2/1/00 .................................. 0 326,703 326,703
0 124,361 124,361 8.50% CMO 02/15/21 ........................... 0 127,002 127,002
0 312,552 312,552 Gold 6.0% 3/1/26 ............................. 0 300,353 300,353
2,094,248 0 2,094,248 Gold 6.500% 08/01/10 ....................... 2,096,845 0 2,096,845
0 2,118,784 2,118,784 Gold 7.50% 9/01/10 ........................... 0 2,173,385 2,173,385
1,796,726 0 1,796,726 Gold, 8.00% 09/01/25 ......................... 1,857,923 0 1,857,923
----------------------------------------------
3,954,768 4,000,106 7,954,874
----------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES - (continued)
Federal National Mortgage Association
(FNMA) Certificates - 3.6%
$0 $500,000 $500,000 6.35% 06/10/05 ............................... $0 $505,743 $505,743
0 1,000,000 1,000,000 6.14% 01/21/04 ............................... 0 982,213 982,213
0 1,000,000 1,000,000 6.48% 02/18/04 ............................... 0 991,151 991,151
0 790,730 790,730 7.00% 01/25/21 ............................... 0 786,676 786,676
0 657,051 657,051 7.00% 05/01/27 ............................... 0 659,613 659,613
0 642,654 642,654 7.50% 08/01/08 ............................... 0 659,106 659,106
1,469,712 0 1,469,712 7.50% 09/01/25 ............................... 1,501,855 0 1,501,855
0 439,334 439,334 7.50% 9/1/26 ................................. 0 448,771 448,771
0 209,131 209,131 7.50% 9/1/26 ................................. 0 213,623 213,623
0 153,906 153,906 8.00% 06/1/99 ................................ 0 157,147 157,147
1,264,063 0 1,264,063 8.00% 09/15/25 ............................... 1,315,421 0 1,315,421
0 0 8.00% 08/15/27 ............................... 0 0 0
0 1,134,121 1,134,121 8.50% 8/1/11 ................................. 0 1,201,692 1,201,692
840,661 0 840,661 9.00% 08/01/24 ............................... 895,565 0 895,565
----------------------------------------------
3,712,841 6,605,735 10,318,576
----------------------------------------------
Government National Mortgage Association
(GNMA) Certificates - 3.7%
0 207,371 207,371 7.5% 6/15/26 ................................. 0 211,804 211,804
0 444,122 444,122 7.5% 9/15/26 ................................. 0 453,618 453,618
1,072,847 0 1,072,847 7.50% 02/15/27 ............................... 1,094,304 0 1,094,304
0 219,111 219,111 7.50% 6/15/27 ............................... 0 223,736 223,736
2,374,198 0 2,374,198 7.50% 10/15/27 ............................... 2,421,682 0 2,421,682
5,901,812 0 5,901,812 8.00% 08/15/27 ............................... 6,104,687 0 6,104,687
0 7,642 7,642 10.0% 02/15/18 ............................... 0 8,398 8,398
----------------------------------------------
9,620,673 897,556 10,518,229
----------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES ............. 17,288,282 11,503,397 28,791,679
==============================================
U.S. TREASURY SECURITIES - 3.7%
U.S. Treasury Bond - 1.8%
0 425,000 425,000 5.75% 11/15/00 .............................. 0 424,336 424,336
2,115,000 0 2,115,000 6.250% 08/15/23 .............................. 2,149,030 0 2,149,030
0 1,075,000 1,075,000 6.75% 8/15/26 ................................ 0 1,165,703 1,165,703
0 500,000 500,000 9.25% 2/15/16 ................................ 0 670,157 670,157
0 500,000 500,000 12.00% 8/15/13 ............................... 0 730,626 730,626
----------------------------------------------
2,149,030 2,990,822 5,139,852
----------------------------------------------
U.S. Treasury Notes - 1.8%
0 750,000 750,000 5.75% 10/31/02 .............................. 0 746,485 746,485
3,480,000 0 3,480,000 6.00% 08/15/99 ............................... 3,490,858 0 3,490,858
715,000 0 715,000 6.125% 08/15/07. ............................. 728,743 0 728,743
0 200,000 200,000 7.00% 07/15/06 ............................... 0 214,250 214,250
----------------------------------------------
4,219,601 960,735 5,180,336
----------------------------------------------
U.S. Treasury Strips - 0.1%
0 500,000 500,000 STRIPS 8/15/08 ............................... 0 263,589 263,589
----------------------------------------------
TOTAL U.S. TREASURY SECURITIES.. ............. 6,368,631 4,215,146 10,583,777
==============================================
UNIT INVESTMENT TRUSTS - 0.4%
Unit Investment Trusts - 0.4%
0 14,900 14,900 S&P 400 Mid-Cap Depository Receipts, Series 1 0 939,864 939,864
0 2,500 2,500 S&P 500 Depository Receipts, Series 1 ........ 0 239,297 239,297
----------------------------------------------
TOTAL UNIT INVESTMENT TRUSTS. ................ 0 1,179,161 1,179,161
==============================================
TAXABLE MUNICIPAL SECURITY - 0.4%
California - 0.4%
0 1,000,000 1,000,000 Los Angeles Airport Callable 5/15/97
@ 100 Insured by AMBAC 5.50% 5/15/98 ...... 0 999,181 999,181
==============================================
TOTAL SECURITIES ............................. 174,506,518 84,281,878 258,788,396
==============================================
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FUNDS
Nations Balanced Assets Fund/Emerald Balanced Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT DESCRIPTION VALUE
===================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Balanced Balanced Combining Balanced Balanced Combining
Assets Fund Fund Portfolios Assets Fund Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
CASH SWEEP ACCOUNT - 0.3%
$0 $871,766 $871,766 Bank of New York ............................. $0 $871,766 $871,766
==============================================
REPURCHASE AGREEMENT - 7.2%
20,523,000 0 20,523,000 Agreement with Smith Barney, 5.50% dated
11/28/97, to be repurchased at $20,532,406
on 12/01/97 .................................. 20,523,000 0 20,523,000
==============================================
TOTAL INVESTMENTS (Cost $191,502,433, $71,658,428 and $263,160,861) .. 98.6% 195,029,518 85,153,644 280,183,162
OTHER ASSETS AND LIABILITIES (Net).. ................................. 1.4% 4,029,616 6,397 4,036,013
------------------------------------------------------------
NET ASSETS ........................................................... 100.0% $199,059,134 85,160,041 284,219,175
============================================================
</TABLE>
- ----------
+ Non-income producing security.
++ Step coupon bond. Current rate remains in effect through maturity date.
Effective yield was 12.39% at acquisition date.
ABBREVIATIONS:
ADR American Depositary Receipt
GOLD Payments are on an accelerated 45-day payment cycle instead of 75-day
cycle
MTN Medium Term Note
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS BALANCED ASSETS FUND
EMERALD BALANCED FUND
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
November 30, 1997
<TABLE>
<CAPTION>
Nations Emerald Adjustments
Balanced Balanced to Pro Forma
Assets Fund Fund Pro Forma Combined (Note 1)
----------- ---- --------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at Value (cost $191,502,433, $71,658,428
and $263,160,861) $195,029,518 $85,153,644 -- $280,183,162
Cash 47 -- -- 47
Receivable for Investments Sold 3,040,502 -- -- 3,040,502
Income Receivable 939,917 553,047 -- 1,492,964
Receivable for Fund Shares Sold 324,417 17,500 -- 341,917
Prepaid and Other Assets 23,045 2,672 -- 25,717
Receivable due from Investment Adviser -- -- 17,129 (a) 17,129
Unamortized Organization Costs -- 17,129 (17,129) (a) --
-- ------ -------- --
Total Assets 199,357,446 85,743,992 0 285,101,438
----------- ---------- - -----------
LIABILITIES:
Income Distribution Payable -- 491,051 -- 491,051
Payable for fund shares redeemed -- 14,484 -- 14,484
Accrued Expenses and other payables 298,312 78,416 -- 376,728
------- ------ -- -------
Total Liabilities 298,312 583,951 0 882,263
------- ------- - -------
Net Assets Applicable to Shares Outstanding $199,059,134 $85,160,041 $0 $284,219,175
============ =========== == ============
Net Assets by Class:
Primary A $103,695,913 $76,868,196 -- $180,564,109
============ =========== == ============
Primary B $7,025,579 -- -- $7,025,579
========== == == ==========
Investor A $14,232,673 $8,291,845 -- $22,524,518
=========== ========== == ===========
Investor B $2,326,585 -- -- $2,326,585
========== == == ==========
Investor C $71,778,382 -- -- $71,778,382
=========== == == ===========
Shares Outstanding by Class:
Primary A 9,714,217 5,564,606 1,636,395(b) 16,915,218
========= ========= ========= ==========
Primary B 659,740 -- -- 659,740
======= == == =======
Investor A 1,337,198 595,508 183,533(b) 2,116,239
========= ======= ======= =========
Investor B 220,055 -- -- 220,055
======= == == =======
Investor C 6,766,905 -- -- 6,766,905
========= == == =========
Primary A Shares:
Net Asset Value per Share $10.67 $13.81 $10.67
====== ====== ======
Primary B Shares:
Net Asset Value per Share $10.65 n/a $10.65
====== === ======
Investor A Shares:
Net Asset Value per Share $10.64 $13.92 $10.64
====== ====== ======
Investor B Shares:
Net Asset Value per Share $10.57 n/a $10.57
====== === ======
Investor C Shares:
Net Asset Value per Share $10.61 n/a $10.61
====== === ======
</TABLE>
See Notes to Pro Forma Financial Statements
(a) Unamortized Organization Costs of the acquired fund will be borne by the
Advisor.
(b) Reflects the difference in net asset value between the acquired fund
shares and the acquiring fund shares.
<PAGE>
NATIONS BALANCED ASSETS FUND
EMERALD BALANCED FUND
Pro Forma Statement of Operations (Unaudited)
For the Twelve Month Period Ending November 30, 1997
<TABLE>
<CAPTION>
Nations Emerald Adjustments
Balanced Balanced to Pro Forma
Assets Fund Fund Pro Forma Combined (Note 1)
----------- ---- --------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $3,394,973 $593,774 -- $3,988,747
Interest 6,205,358 2,540,841 -- 8,746,199
--------- --------- -- ----------
Total Investment Income 9,600,331 3,134,615 -- 12,734,946
--------- ---------- -- ----------
EXPENSES:
Investment Advisory 1,775,083 560,612 139,282 (a) 2,474,977
Administration 236,533 72,413 21,051 (a) 329,997
Transfer Agent 221,867 21,211 -- 243,078
Custodian (d) 51,712 30,082 -- 81,794
Legal and Audit Fees 37,809 4,242 (4,242) (b) 37,809
Trustees' Fees 8,123 1,334 (1,334) (b) 8,123
Amortization of organization costs 1,009 12,620 (12,620) (c) 1,009
Other expenses 79,148 38,194 -- 117,342
------ ------ -- -------
Subtotal 2,411,284 740,708 142,137 3,294,129
Shareholder servicing and distribution fees
Primary B 32,073 -- -- 32,073
Investor A 25,484 35,984 N/A 61,468
Investor B 571,164 -- N/A 571,164
Investor C 13,246 -- N/A 13,246
Fees waived and/or reimbursed by
investment advisor -- (641) 641 (b) 0
-- ----- --- -
Total Expenses 3,053,251 776,051 142,778 3,972,080
--------- ------- ------- ---------
NET INVESTMENT INCOME 6,547,080 2,358,564 (142,778) 8,762,866
--------- --------- --------- ---------
Net Realized and Unrealized Gain/(Loss)
on Investments:
Realized Gain/(Loss) on securities and future 32,254,255 11,083,990 -- 43,338,245
transactions
Net realized gains from foreign currency
transactions -- 0 -- 0
Change in unrealized appreciation/
(depreciation) on securities and futures 901,058 (274,169) -- 626,889
Net change in unrealized appreciation from translation of
assets and liabilities denominated in foreign currencies -- 0 -- 0
Net Realized and Unrealized gain/(loss)
on investments and futures 33,155,313 10,809,821 43,965,134
---------- ---------- ----------
Net Increase/(Decrease) in net assets
resulting from operations $39,702,393 $13,168,385 ($142,778) $52,728,000
=========== =========== ========== ===========
</TABLE>
Legend:
(a) Reflects adjustment to the acquiring fund contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Organization expense of the acquired fund is not an expense of the
combined fund.
(d) Net of expense offset arrangements amounts to less than .01% of average
net assets.
See Notes to Pro Forma Financial Statements.
<PAGE>
Nations Balanced Assets Fund
Emerald Balanced Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
Nations Fund Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end investment company. As of
November 30, 1997 the Trust offers thirty-five separate portfolios. The
unaudited Pro Forma Combining Portfolio of Investments and the unaudited Pro
Forma Combining Statement of Assets and Liabilities assumes the exchange
described in the next paragraph occurred as of November 30, 1997 and the
unaudited Pro Forma Combining Statement of Operations assumes the exchange
occurred as of December 1, 1996. These statements have been derived from books
and records utilized in calculating daily net asset value of each fund at
November 30, 1997 and for the twelve month period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Emerald Balanced Fund in exchange for shares of
Nations Balanced Assets Fund. Under generally accepted accounting principles,
the historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of the Emerald Balanced Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
<PAGE>
Nations Balanced Assets Fund
Emerald Balanced Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
For the twelve month period ended November 30, 1997, the Nations Balanced Assets
Fund's investment advisory fee was computed based on the annual rate of 0.75% of
its average daily net assets. The administration fee was computed based on the
annual rate of 0.10% of average daily net assets of the Trust and the investment
portfolios of Nations Fund Inc. and Nations Fund Portfolios, Inc. (two other
registered open-end investment companies which are part of the Nations Fund
family) on a combined basis.
The Trust has adopted a shareholder administration plan ("Administration Plan")
for the Primary B Shares of the Nations Balanced Assets Fund. Under the
Administration Plan, aggregate payments may not exceed 0.50%, on an annualized
basis, of the average daily net assets of the Fund's Primary B Shares.
The Trust has also adopted a shareholder servicing and distribution plan
("Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act for the Investor A
Shares of the Nations Balanced Assets Fund. Under the Investor A Plan, aggregate
payments may not exceed 0.25%, on an annualized basis, of the average daily net
assets of the Fund's Investor A Shares.
The Trust has also adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act with respect to Investor B Shares ("Investor B Distribution Plan") and
Investor C Shares ("Investor C Distribution Plan") of the Nations Balanced
Assets Fund. Under the Investor B Distribution Plan and Investor C Distribution
Plan, aggregate payments may not exceed 0.75% and 0.75%, on an annualized basis,
of the average daily net assets of the Investor B Shares and Investor C Shares
respectively, of the Fund.
The Trust has also adopted a shareholder servicing plan with respect to Investor
B Shares ("Investor B Servicing Plan") and Investor C Shares ("Investor C
Servicing Plan") of the Nations Balanced Assets Fund. Under
2
<PAGE>
Nations Balanced Assets Fund
Emerald Balanced Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
the Investor B Servicing Plan and Investor C Servicing Plan, aggregate payments
may not exceed 0.25% on an annualized basis of the average daily net assets of
the Investor B Shares and Investor C Shares of the Fund.
2. Portfolio Valuation
Securities of Nations Balanced Assets Fund which are traded on a recognized
stock exchange are valued at the last sale price on the securities exchange on
which such securities are primarily traded or at the last sale price on the
national securities market. Securities traded only on over-the-counter markets
(but not including securities reported on the NASDAQ National Market System) are
valued on the basis of the closing over-the-counter bid prices or, if no sale
occurred on such day, at the mean of the current bid and asked prices. Certain
securities may be valued by one or more principal market makers. Securities
reported on the NASDAQ National Market System are valued at the last sale price
on the valuation date. Debt obligations are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as yield, type of issue, coupon rate, maturity
and general market conditions. Restricted securities, if any, securities for
which market quotations are not readily available and other assets are valued at
fair market value under the supervision of the Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost. Emerald
Balanced Fund uses similar rules for determining portfolio valuation.
3
<PAGE>
Nations Balanced Assets Fund
Emerald Balanced Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Nations Balanced Assets Fund which would have been issued at November
30, 1997 in connection with the proposed reorganization. The pro forma number of
shares outstanding of 26,678,157 consists of 7,980,042 shares assumed issued in
the reorganization plus 18,698,115 shares of Nations Balanced Assets Fund at
November 30, 1997.
4
<PAGE>
Nations Short-Term Income Fund/Emerald Short-Term Fixed Income Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT DESCRIPTION VALUE
===================================================================================================================================
Emerald
Nations Short-Term Pro Forma Nations Emerald Pro Forma
Short-Term Fixed Income Combining Short-Term Short-Term Combining
Income Fund Fund Portfolios Income Fund Fixed Income Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES - 22.8%
$10,300,000 $0 $10,300,000 Banc One Credit Card Master Trust,
Series 1994-C, Class A, 7.800% 11/15/98 . $10,435,136 $0 $10,435,136
7,900,000 0 7,900,000 BankBoston Revenue, 6.480% 07/15/08 ..... 7,959,250 0 7,959,250
11,000,000 0 11,000,000 Chase Manhattan Auto Owner Trust,
Series 1996-C, Class A4, 6.150% 03/15/02 10,958,750 0 10,958,750
7,000,000 0 7,000,000 Discover Card Master Trust, Series
1995-2, Class A, 6.550% 02/15/03 ........ 7,041,510 0 7,041,510
9,345,000 0 9,345,000 EQCC Home Equity Loan Trust, Series
1996-2, Class A2, 6.700% 09/15/08 ....... 9,382,969 0 9,382,969
9,000,000 0 9,000,000 Fingerhut Metris Master Trust,
Series 1996-1, Class A, 6.450% 02/20/02 . 9,045,000 0 9,045,000
6,000,000 0 6,000,000 Green Tree Financial Corporation,
Series 1996-9, Class A2, 6.250% 01/15/28 6,001,860 0 6,001,860
6,350,000 0 6,350,000 Household Affinity Credit Card Master
Trust I, Series 1993-1, Class B,
5.300% 09/15/00 ......................... 6,266,625 0 6,266,625
10,500,000 0 10,500,000 IMC Home Equity Loan Trust, Series
1997-1, Class A3, 6.820% 10/25/11 ....... 10,532,813 0 10,532,813
4,668,867 0 4,668,867 Keystone Auto Grantor Trust, Series
1996-B, Class A, 6.150% 04/15/03** ...... 4,667,410 0 4,667,410
10,400,000 0 10,400,000 Premier Auto, 6.320% 03/06/02 ........... 10,406,448 0 10,406,448
5,500,000 0 5,500,000 Prime Credit Card Master Trust,
Series 1992-2, Class B2, 7.950% 11/15/02 5,642,615 0 5,642,615
5,350,000 0 5,350,000 Sears Credit Account Master Trust,
Series 1995-4, Class A, 6.250% 01/15/03 . 5,353,317 0 5,353,317
10,300,000 0 10,300,000 Spiegel Master Trust, Series 1995-A,
Class A, 7.500% 09/15/04 ................ 10,580,036 0 10,580,036
5,150,000 0 5,150,000 Standard Credit Card Market,
Series 1993-3, Class A, 5.500% 02/07/00 . 5,109,727 0 5,109,727
---------------------------------------------
TOTAL ASSET-BACKED SECURITIES ........... 119,383,466 0 119,383,466
=============================================
CORPORATE BONDS AND NOTES - 59.4%
Banking - 6.3%
0 4,000,000 4,000,000 BankAmerica Capital BAC, 6.330%
01/15/98*** ............................. 0 3,953,448 3,953,448
9,142,000 0 9,142,000 Chemical Bank (N.Y.) Corporation,
9.750% 06/15/99 ......................... 9,599,008 0 9,599,008
9,600,000 0 9,600,000 First Chicago NBD Corporation, Sr.
Notes, 6.250% 07/21/00 .................. 9,613,824 0 9,613,824
0 700,000 700,000 South Trust Bank, Alabama, 5.580%
02/06/06 ................................ 0 682,889 682,889
9,000,000 0 9,000,000 Union Planters National Bank, Notes
6.470% 10/29/99 ......................... 9,057,240 0 9,057,240
---------------------------------------------
28,270,072 4,636,337 32,906,409
---------------------------------------------
Brokerage - 9.6%
0 1,000,000 1,000,000 Donaldson, Lufkin & Jenrette, MTN,
5.630% 02/15/16. ........................ 0 985,477 985,477
Goldman Sachs Group, L.P., Notes:
0 1,000,000 1,000,000 6.200% 12/15/00** ..................... 0 991,559 991,559
3,400,000 0 3,400,000 6.875% 09/15/99** ..................... 3,448,076 0 3,448,076
Lehman Brothers Holdings Inc., MTN:
8,475,000 0 8,475,000 6.850% 10/08/99 ....................... 8,562,632 0 8,562,632
0 2,000,000 2,000,000 7.380% 05/15/07 ....................... 0 2,132,204 2,132,204
Merrill Lynch & Company, MTN:
0 149,000 149,000 10.380% 02/01/99 ...................... 0 156,063 156,063
5,000,000 0 5,000,000 6.475% 03/01/00 ....................... 5,034,450 0 5,034,450
0 500,000 500,000 Morgan Stanley Group, Inc., Notes,
7.500% 09/01/99 ......................... 0 510,890 510,890
Paine Webber Group Inc., Sr. Notes:
2,500,000 2,000,000 4,500,000 6.250% 06/15/98 ....................... 2,503,800 2,000,816 4,504,616
8,800,000 0 8,800,000 7.700% 02/11/00 ....................... 9,061,800 0 9,061,800
4,500,000 0 4,500,000 Salomon Inc., MTN, 9.000% 02/15/99 ...... 4,651,065 0 4,651,065
10,000,000 0 10,000,000 Smith Barney Holdings, Inc., Notes, .....
7.980% 03/01/00 ......................... 10,322,900 0 10,322,900
---------------------------------------------
43,584,723 6,777,009 50,361,732
---------------------------------------------
Captive Finance - 2.0%
AT&T Capital Corporation, MTN:
9,850,000 0 9,850,000 5.650% 01/15/99 ....................... 9,790,900 0 9,790,900
0 1,000,000 1,000,000 7.800% 02/10/98 ....................... 0 1,003,477 1,003,477
---------------------------------------------
9,790,900 1,003,477 10,794,377
---------------------------------------------
Computer Software - 0.4%
0 2,000,000 2,000,000 IBM Corporation, 6.040% 08/07/00 ........ 0 1,998,060 1,998,060
---------------------------------------------
Construction/Agricultural
Equipment - 0.5%
0 1,000,000 1,000,000 Caterpillar Finance Corporation,
MTN, 6.840% 09/15/99 .................... 0 1,011,033 1,011,033
0 1,500,000 1,500,000 John Deere Capital Corporation,
MTN, 6.000% 02/01/99 .................... 0 1,500,176 1,500,176
---------------------------------------------
0 2,511,209 2,511,209
---------------------------------------------
Diversified Electronic Products - 0.5%
0 2,950,000 2,950,000 Harris Corporation, Note, 6.650%
08/01/06 ................................ 0 3,007,035 3,007,035
---------------------------------------------
Electrical Products - 0.6%
0 3,000,000 3,000,000 Black & Decker, 6.630% 11/15/00 ......... 0 3,024,333 3,024,333
---------------------------------------------
Financial - 23.2%
0 3,380,000 3,380,000 American Express Master Trust 92,
6.600% 07/15/99 ......................... 0 3,407,850 3,407,850
7,100,000 0 7,100,000 Aristar, Inc., Notes, 6.125% 12/01/00 ... 7,051,436 0 7,051,436
Associates Corporation N.A.:
8,500,000 0 8,500,000 6.375% 06/15/00 ....................... 8,519,890 0 8,519,890
0 4,000,000 4,000,000 5.781% 02/21/98*** .................... 0 3,987,600 3,987,600
9,300,000 0 9,300,000 Banponce Financial Corporation,
MTN, 6.560% 04/22/99 .................... 9,357,009 0 9,357,009
6,700,000 0 6,700,000 Bear Stearns Companies, Inc.,
MTN, 6.560% 06/20/00 .................... 6,763,516 0 6,763,516
0 3,000,000 3,000,000 Chase Capital II, 6.250% 02/01/98*** .... 0 2,878,017 2,878,017
11,000,000 0 11,000,000 Chrysler Financial Corporation,
Notes, 6.375% 01/28/00 .................. 11,018,700 0 11,018,700
0 1,000,000 1,000,000 Commercial Credit, 10.000% 05/01/99 0 1,050,151 1,050,151
7,000,000 0 7,000,000 Dean Witter Discover and Company,
MTN, 7.580% 06/11/01 .................... 7,261,660 0 7,261,660
Finova Capital Corporation, Notes:
3,000,000 0 3,000,000 6.380% 04/15/99 ....................... 3,016,830 0 3,016,830
6,500,000 0 6,500,000 6.250% 08/15/00 ....................... 6,475,105 0 6,475,105
1,950,000 0 1,950,000 Fletcher Challenge Finance USA,
9.800% 06/15/98 ......................... 1,988,727 0 1,988,727
Ford Motor Credit Company, MTN:
0 1,500,000 1,500,000 5.670% 02/15/01 ....................... 0 1,475,856 1,475,856
0 1,000,000 1,000,000 6.110% 12/28/01 ....................... 0 991,613 991,613
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
Nations Short-Term Income Fund/Emerald Short-Term Fixed Income Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Emerald
Nations Short-Term Pro Forma Nations Emerald Pro Forma
Short-Term Fixed Income Combining Short-Term Short-Term Combining
Income Fund Fund Portfolios Income Fund Fixed Income Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
CORPORATE BONDS AND NOTES (continued)
Financial (continued) General Motors
Acceptance Corporation,
MTN:
$0 $3,500,000 $3,500,000 5.910% 01/29/98*** .................... $0 $3,505,772 $3,505,772
0 1,000,000 1,000,000 5.630% 02/25/00 ....................... 0 986,536 986,536
5,000,000 0 5,000,000 7.375% 06/22/00 ....................... 5,124,550 0 5,124,550
8,850,000 0 8,850,000 Heller Financial, Inc., MTN, 6.510%
09/20/99 ................................ 8,928,145 0 8,928,145
4,500,000 0 4,500,000 Norwest Financial Inc., Sr. Notes,
8.375% 01/15/00 ......................... 4,599,585 0 4,599,585
10,000,000 0 10,000,000 NYNEX, MTN, 6.720% 06/15/98** ........... 10,050,000 0 10,050,000
1,850,000 0 1,850,000 PACCAR Financial Corporation,
5.910% 10/15/99 ......................... 1,844,524 0 1,844,524
0 2,500,000 2,500,000 Residential Accredit Loans, Inc.,
6.750% 09/25/27 ......................... 0 2,489,050 2,489,050
8,000,000 0 8,000,000 Salomon Inc., 7.000% 05/15/99 ........... 8,070,560 0 8,070,560
0 1,000,000 1,000,000 Transamerica Finance Corporation,
6.380% 11/15/01 ......................... 0 1,000,668 1,000,668
---------------------------------------------
100,070,237 21,773,113 121,843,350
---------------------------------------------
Foreign Government Issues - 0.8%
0 2,000,000 2,000,000 Croatia Government National, 7.000%
02/27/02 ................................ 0 1,905,000 1,905,000
0 2,000,000 2,000,000 Province of Quebec, Note, 7.500%
07/15/02 ................................ 0 2,086,440 2,086,440
---------------------------------------------
0 3,991,440 3,991,440
---------------------------------------------
Independent Finance - 1.5%
North American Mortgage Company, MTN:
2,500,000 0 2,500,000 5.800% 11/02/98 ....................... 2,490,075 0 2,490,075
5,500,000 0 5,500,000 5.840% 11/04/98 ....................... 5,479,980 0 5,479,980
---------------------------------------------
7,970,055 0 7,970,055
---------------------------------------------
Industrial - 8.7%
Comdisco, Inc., MTN:
5,000,000 0 5,000,000 6.470% 09/30/98 ....................... 5,015,250 0 5,015,250
5,000,000 0 5,000,000 6.500% 06/15/00 ....................... 5,009,750 0 5,009,750
3,000,000 0 3,000,000 Crane Company, Notes, 7.250% 06/15/99 ... 3,038,760 0 3,038,760
3,786,000 0 3,786,000 Hertz Corporation, Sr. Notes, 7.000%
04/15/01 ................................ 3,850,703 0 3,850,703
8,140,000 0 8,140,000 News America Holdings Inc., Sr.
Notes, 7.500% 03/01/00 .................. 8,304,754 0 8,304,754
6,250,000 0 6,250,000 PDV America, Inc., Sr. Notes, 7.750%
08/01/00 ................................ 6,436,688 0 6,436,688
10,000,000 0 10,000,000 Time Warner-Pats, 4.900% 07/29/99** ..... 9,770,200 0 9,770,200
4,000,000 0 4,000,000 Union Oil of California, MTN, 8.810%
05/18/98 ................................ 4,048,120 0 4,048,120
---------------------------------------------
45,474,225 0 45,474,225
---------------------------------------------
Packaged Goods/Cosmetics - 0.3%
0 1,586,000 1,586,000 Federal Express, 9.880% 04/01/02 ........ 0 1,789,547 1,789,547
---------------------------------------------
Railroads - 0.5%
0 3,000,000 3,000,000 Mass Transit Railway, 6.000% 10/01/00 ... 0 2,934,351 2,934,351
---------------------------------------------
Retail - 1.9% Sears,
Roebuck & Company, MTN:
7,300,000 0 7,300,000 6.230% 07/12/00 ....................... 7,300,000 0 7,300,000
Series I:
0 1,500,000 1,500,000 6.110% 11/15/05 ....................... 0 1,510,145 1,510,145
0 1,000,000 1,000,000 6.150% 11/15/05 ....................... 0 1,006,491 1,006,491
---------------------------------------------
7,300,000 2,516,636 9,816,636
---------------------------------------------
Utiltiy - Electric - 2.6%
0 1,700,000 1,700,000 Arizona Public Service, Note, 5.750%
09/15/00 ................................ 0 1,672,220 1,672,220
0 1,345,000 1,345,000 Carolina Power & Light, Note, 6.130%
02/01/00 ................................ 0 1,344,161 1,344,161
8,299,000 0 8,299,000 Columbia Gas System, Series A, 6.390%
11/28/00 ................................ 8,344,312 0 8,344,312
0 900,000 900,000 Southern California Edison, Note,
5.880% 01/15/01 ......................... 0 892,244 892,244
0 750,000 750,000 Southern California Edison, Series
93-E, Note, 5.450% 06/15/98 ............. 0 747,862 747,862
0 700,000 700,000 Virginia Electric & Power, Series D,
MTN, 7.910% 12/13/01 .................... 0 739,019 739,019
---------------------------------------------
8,344,312 5,395,506 13,739,818
---------------------------------------------
TOTAL CORPORATE BONDS AND NOTES ......... 250,804,524 61,358,053 312,162,577
=============================================
FOREIGN BONDS AND NOTES - 5.1%
Bladex, Notes:
0 2,250,000 2,250,000 7.050% 07/19/99** ..................... 0 2,261,025 2,261,025
8,000,000 0 8,000,000 7.000% 09/24/99** ..................... 8,018,960 0 8,018,960
7,000,000 0 7,000,000 Corporacion Andina De Fomento,
Eurobonds, 6.625% 10/14/98** ............ 7,028,000 0 7,028,000
9,500,000 0 9,500,000 Skandia Capital AB, Guaranteed
Eurobonds, 6.000% 11/02/98 .............. 9,500,000 0 9,500,000
---------------------------------------------
TOTAL FOREIGN BONDS AND NOTES ........... 24,546,960 2,261,025 26,807,985
=============================================
MORTGAGE-BACKED SECURITIES - 6.2%
Federal Home Loan Bank - 0.1%
0 500,000 500,000 6.320% 12/26/00 ....................... 0 498,978 498,978
---------------------------------------------
Federal Home Loan Mortgage Corporation - 0.4%
0 1,291,002 1,291,002 5.500% 07/01/01 ....................... 0 1,271,921 1,271,921
0 843,695 843,695 7.500% 09/01/01 ....................... 0 860,383 860,383
---------------------------------------------
0 2,132,304 2,132,304
---------------------------------------------
Federal National Mortgage Association - 5.7%
0 3,000,000 3,000,000 6.770% 05/18/00 ....................... 0 3,010,485 3,010,485
0 2,306,325 2,306,325 6.000% 06/01/01 ....................... 0 2,292,417 2,292,417
14,557,622 0 14,557,622 6.000% 11/01/03 ....................... 14,325,864 0 14,325,864
0 1,095,430 1,095,430 6.000% 05/01/04 ....................... 0 1,087,313 1,087,313
0 992,113 992,113 6.500% 08/01/04 ....................... 0 993,640 993,640
0 1,571,338 1,571,338 7.500% 11/01/09 ....................... 0 1,609,160 1,609,160
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
Nations Short-Term Income Fund/Emerald Short-Term Fixed Income Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
===================================================================================================================================
Emerald
Nations Short-Term Pro Forma Nations Emerald Pro Forma
Short-Term Fixed Income Combining Short-Term Short-Term Combining
Income Fund Fund Portfolios Income Fund Fixed Income Fund Portfolios
===================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (continued)
Federal National Mortgage Association (continued)
REMIC:
$0 $1,950,000 $1,950,000 7.000% 07/25/00 ....................... $0 $1,967,507 $1,967,507
0 1,219,676 1,219,676 7.000% 06/18/01 ....................... 0 1,234,184 1,234,184
0 3,380,000 3,380,000 4.000% 06/25/18 ....................... 0 3,183,453 3,183,453
---------------------------------------------
14,325,864 15,378,159 29,704,023
---------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES ........ 14,325,864 18,009,441 32,335,305
=============================================
MUNICIPAL BOND - 0.2%
0 1,000,000 1,000,000 Los Angeles Airport, 5.500% 05/15/98 .... 0 999,181 999,181
=============================================
U.S. TREASURY OBLIGATIONS - 4.8%
U.S. Treasury Bills - 0.5%
0 2,750,000 2,750,000 5.200% 10/15/98 ....................... 0 2,625,626 2,625,626
---------------------------------------------
U.S. Treasury Notes - 4.3%
12,000,000 0 12,000,000 5.875% 01/31/99 ....................... 12,015,000 0 12,015,000
0 3,000,000 3,000,000 5.880% 07/31/99 ....................... 0 3,002,814 3,002,814
0 3,000,000 3,000,000 5.880% 08/31/99 ....................... 0 3,003,753 3,003,753
0 2,500,000 2,500,000 5.880% 02/15/00 ....................... 0 2,503,128 2,503,128
0 2,000,000 2,000,000 5.750% 10/31/02 ....................... 0 1,990,626 1,990,626
---------------------------------------------
12,015,000 10,500,321 22,515,321
---------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS ......... 12,015,000 13,125,947 25,140,947
=============================================
TOTAL SECURITIES ........................ 421,075,814 95,753,647 516,829,461
=============================================
REPURCHASE AGREEMENT - 0.3%
1,718,000 0 1,718,000 Agreement with Smith Barney, 5.680%
dated 11/28/97 to be repurchased at
$1,718,813 on 12/01/97 .................
1,718,000 0 1,718,000
---------------------------------------------
CASH SWEEP ACCOUNT - 0.3%
0 1,314,038 1,314,038 Bank of New York ........................ 0 1,314,038 1,314,038
---------------------------------------------
TOTAL INVESTMENTS (Cost $422,565,873, $96,728,832 and $519,294,705) 99.1% 422,793,814 97,067,685 519,861,499
OTHER ASSETS AND LIABILITIES (Net) ................................. 0.9 3,722,822 831,544 4,554,366
---------- --------------------------------------------
NET ASSETS ......................................................... 100.0% $426,516,636 97,899,229 524,415,865
========== ============================================
</TABLE>
- ----------
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
*** Floating Rate Note.
ABBREVIATION:
MTN Medium Term Note
See Notes to Pro Forma Financial Statements.
<PAGE>
NATIONS SHORT-TERM INCOME FUND
EMERALD SHORT-TERM FIXED INCOME FUND
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
November 30, 1997
<TABLE>
<CAPTION>
Nations Short-Term Emerald Short-Term Adjustments to Pro Forma
Income Fund Fixed Income Fund Pro Forma Combined (Note 1)
----------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at Value (cost $422,565,873,$96,728,832
and $519,294,705) $422,793,814 $97,067,685 -- $519,861,499
Cash 649 -- -- 649
Income Receivable 5,952,932 1,121,337 -- 7,074,269
Receivable for Fund Shares Sold -- 188,079 -- 188,079
Receivable due from Investment Adviser -- -- 17,128 (a) 17,128
Deferred Organization Costs -- 17,128 (17,128) (a) --
Prepaid and Other Assets 107,929 3,671 -- 111,600
-------- ------ -- -------
Total Assets 428,855,324 98,397,900 -- 527,253,224
------------ ----------- -- -----------
LIABILITIES:
Income Distribution Payable 2,022,626 439,224 -- 2,461,850
Payable for fund shares redeemed 2,440 1,101 -- 3,541
Accrued Expenses 313,622 58,346 -- 371,968
-------- ------- -- -------
Total Liabilities 2,338,688 498,671 -- 2,837,359
---------- -------- -- ---------
Net Assets Applicable to Shares Outstanding $426,516,636 $97,899,229 $524,415,865
============ =========== ============
Net Assets by Class:
Primary A/Institutional $406,941,023 $93,446,918 -- $500,387,941
============= ============ == ============
Primary B $9,879 n/a -- $9,879
======= === == ======
Investor A/Retail $11,627,453 $4,452,311 -- $16,079,764
============ =========== == ===========
Investor B $4,931,934 n/a -- $4,931,934
=========== === == ==========
Investor C $3,006,347 n/a -- $3,006,347
=========== === == ==========
Shares Outstanding by Class:
Primary A/Institutional 41,715,554 9,339,203 240,047(b) 51,294,804
=========== ========== ======= ==========
Primary B 1,013 n/a -- 1,013
====== === = =====
Investor A/Retail 1,191,943 445,111 11,300(b) 1,648,354
========== ======== ======= =========
Investor B 505,564 n/a -- 505,564
======== === = =======
Investor C 308,136 n/a -- 308,136
======== === = =======
Primary A Shares:
Net Asset Value per Share $9.76 $10.01 $9.76
===== ======= =====
Primary B Shares:
Net Asset Value per Share $9.75 n/a $9.75
===== === =====
Investor A Shares:
Net Asset Value per Share $9.76 $10.00 $9.76
===== ======= =====
Investor B Shares:
Net Asset Value per Share $9.76 n/a $9.76
===== === =====
Investor C Shares:
Net Asset Value per Share $9.76 n/a $9.76
===== === =====
</TABLE>
See Notes to Pro Forma Financial Statements
(a) Unamortized Organization Costs of the acquired fund will be borne by the
Adviser.
(b) Reflects the difference in net asset value between the acquiring fund
shares and the acquired fund shares.
<PAGE>
NATIONS SHORT-TERM INCOME FUND
EMERALD SHORT-TERM FIXED INCOME FUND
Pro Forma Combining Statement of Operations (Unaudited)
For the Twelve Month Period Ending November 30, 1997
<TABLE>
<CAPTION>
Nations Short-Term Emerald Short-Term Adjustments to Pro Forma
Income Fund Fixed Income Fund Pro Forma Combined (Note 1)
----------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Dividends $17,103,158 $4,706,507 -- $21,809,665
----------- ---------- -- -----------
Total Investment Income 17,103,158 4,706,507 -- 21,809,665
----------- ---------- -- -----------
EXPENSES:
Investment Advisory 1,621,107 299,547 149,952 (a) 2,070,606
Administration 270,184 58,033 16,884 (a) 345,101
Transfer Agent 187,188 16,163 -- 203,351
Custodian (e) 34,193 11,895 -- 46,088
Legal and Audit Fees 50,893 4,919 (4,919) (b) 50,893
Trustees' Fees 13,877 2,847 (2,847) (b) 13,877
Other Expenses 152,741 53,317 (25,344) (b) 180,714
Amortization of organization costs 3,360 12,585 (12,585) (c) 3,360
----------- ---------- -------- -----------
Subtotal 2,333,543 459,306 121,141 2,913,990
Shareholder servicing and distribution fees
Primary B 2,596 0 -- 2,596
Investor A/Retail 15,250 9,856 (5,914) (a) 19,192
Investor C 15,965 0 -- 15,965
Investor B 20,301 0 -- 20,301
Fees waived and/or reimbursed by
investment advisor (809,644) (8,106) (217,553) (d) (1,035,303)
----------- ---------- -------- -----------
Total Expenses 1,578,011 461,056 (102,326) 1,936,741
----------- ---------- -------- -----------
NET INVESTMENT INCOME 15,525,147 4,245,451 102,326 19,872,924
----------- ---------- -------- -----------
Net Realized and Unrealized Gain/(Loss)
on Investments:
Realized Gain/(Loss) on securities 611,430 (126,627) -- 484,803
Change in unrealized appreciation/
(depreciation) on securities (1,128,677) (150,440) -- (1,279,117)
----------- ---------- -----------
Net Realized and Unrealized gain/(loss)
on investments (517,247) (277,067) -- (794,314)
----------- ---------- -----------
Net Increase/(Decrease) in net assets
resulting from operations $15,007,900 $3,968,384 $102,326 $19,078,610
=========== ========== ======== ===========
</TABLE>
Legend:
(a) Reflects adjustment to the acquiring fund contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Organization expense of the acquired fund is not an expense of the
combined fund.
(d) Reflects adjustment to the level of the acquiring fund's voluntary expense
reimbursement.
(e) Net of expense offset arrangements amount to less than .01% of average net
assets.
See Notes to Pro Forma Financial Statements
<PAGE>
Nations Short-Term Income Fund
Emerald Short-Term Fixed Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
Nations Short-Term Income Fund
1. Basis of Combination
Nations Fund Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end investment company. As of
November 30, 1997 the Trust offers thirty-five separate portfolios. The
unaudited Pro Forma Combining Portfolio of Investments and the unaudited Pro
Forma Combining Statement of Assets and Liabilities assumes the exchange
described in the next paragraph occurred as of November 30, 1997 and the
unaudited Pro Forma Combining Statement of Operations assumes the exchange
occurred as of December 1, 1996. These statements have been derived from books
and records utilized in calculating daily net asset value of each fund at
November 30, 1997 and for the twelve month period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Emerald Short-Term Fixed Income Fund in exchange for
shares of Nations Short-Term Income Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving entity and the results of operations of the Emerald Short-Term
Fixed Income Fund for pre-combination periods will not be restated. The pro
forma statements do not reflect the expenses of either fund in carrying out its
obligations under the proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
<PAGE>
Emerald Short-Term Fixed Income Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
For the twelve month period ended November 30, 1997, the Nations Short-Term
Income Fund's investment advisory fee was computed based on the annual rate of
0.60% of its average daily net assets. The administration fee was computed based
on the annual rate of 0.10% of average daily net assets of the Trust and the
investment portfolios of Nations Fund, Inc. and Nations Fund Portfolios, Inc.
(two other registered open-end investment companies which are part of the
Nations Fund family) on a combined basis.
The Trust has adopted a shareholder administration plan ("Administration Plan")
for the Primary B Shares of the Nations Short-Term Income Fund. Under the
Administration Plan, aggregate payments may not exceed 0.35%, on an annualized
basis, of the average daily net assets of the Fund's Primary B Shares.
The Trust has also adopted a shareholder servicing and distribution plan
("Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act for the Investor A
Shares of the Nations Short-Term Income Fund. Under the Investor A Plan,
aggregate payments may not exceed 0.20%, on an annualized basis, of the average
daily net assets of the Fund's Investor A Shares.
The Trust has also adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act with respect to Investor B Shares ("Investor B Distribution Plan") and
Investor C Shares ("Investor C Distribution Plan") of the Nations Short-Term
Income Fund. Under the Investor B Distribution Plan and Investor C Distribution
Plan, aggregate payments may not exceed 0.10% and 0.10%, on an annualized basis,
of the average daily net assets of the Investor B Shares and Investor C Shares
respectively, of the Fund.
The Trust has also adopted a shareholder servicing plan with respect to Investor
B Shares ("Investor B Servicing Plan") and Investor C Shares
2
<PAGE>
("Investor C Servicing Plan") of the Nations Short-Term Income Fund. Under the
Investor B Servicing Plan and Investor C Servicing Plan, aggregate payments may
not exceed 0.25% on an annualized basis of the average daily net assets of the
Investor B Shares and Investor C Shares of the Fund.
2. Portfolio Valuation
Certain securities of Nations Short-Term Income Fund are valued by an
independent pricing service approved by the Board of Trustees. Valuations are
based upon a matrix system and/or appraisals provided by the pricing service
which takes into consideration such factors as yields, prices, maturities,
redemption features and credit ratings on comparable securities. Certain
securities may be valued by one or more principal market makers. Restricted
securities, if any, securities for which market quotations are not readily
available and other assets are valued at fair market value under the supervision
of the Board of Trustees. Short-term investments that mature in 60 days or less
are valued at amortized cost. Emerald Short-Term Fixed Income Fund uses similar
rules for determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Nations Short-Term Income Fund which would have been issued at
November 30, 1997 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 53,757,871 consists of 10,035,661 shares assumed
issued in the reorganization plus 43,722,210 shares of Nations Short-Term Income
Fund at November 30, 1997.
3
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund/Emerald Equity Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
====================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Disciplined Equity Combined Disciplined Equity Combined
Equity Fund Fund Portfolios Equity Fund Fund Portfolios
====================================================================================================================================
COMMON STOCKS - 96.7%
<C> <C> <C> <S> <C> <C> <C>
Aerospace and Defense - 0.6%
35,600 0 35,600 United Technologies Corporation ............ $ 2,667,775 0 2,667,775
--------------------------------------
Apparel and Textiles - 2.1%
63,700 0 63,700 Liz Claiborne Inc. ......................... 3,200,925 0 3,200,925
0 76,400 76,400 Tommy Hilfiger Corp.+ ...................... 0 2,998,700 2,998,700
59,100 0 59,100 VF Corp .................................... 2,729,681 0 2,729,681
--------------------------------------
5,930,606 2,998,700 8,929,306
--------------------------------------
Automotive and Truck Manufacturers - 1.3%
63,800 0 63,800 Ford Motor Company ......................... 2,743,400 0 2,743,400
0 59,300 59,300 Lear Corp.+ ................................ 0 2,775,981 2,775,981
--------------------------------------
2,743,400 2,775,981 5,519,381
--------------------------------------
Automobile Parts Manufacturers - 0.6%
27,500 0 27,500 Eaton Corporation .......................... 2,597,031 0 2,597,031
--------------------------------------
Banks - 3.7%
49,900 0 49,900 Ahmanson (H.F.) & Company .................. 2,969,050 0 2,969,050
43,500 56,800 100,300 BankAmerica Corporation .................... 3,175,500 4,146,400 7,321,900
26,100 24,700 50,800 Chase Manhattan Corporation ................ 2,835,113 2,683,038 5,518,151
--------------------------------------
8,979,663 6,829,438 15,809,101
--------------------------------------
Beverages - 1.6%
0 68,600 68,600 Panamerican Beverages, Inc. Class A ........ 0 2,349,550 2,349,550
0 122,400 122,400 PepsiCo, Inc. .............................. 0 4,513,500 4,513,500
--------------------------------------
0 6,863,050 6,863,050
--------------------------------------
Biotechnology - 0.7%
0 58,100 58,100 Elan Corp., PLC ADR + ...................... 0 3,064,775 3,064,775
--------------------------------------
Chemicals - Basic - 1.8%
60,000 0 60,000 Cytec Industries Inc.+ ..................... 2,745,000 0 2,745,000
0 47,200 47,200 Imperial Chemical Industries PLC ADR ....... 0 2,805,450 2,805,450
26,100 0 26,100 Rohm & Haas Company ........................ 2,399,569 0 2,399,569
--------------------------------------
5,144,569 2,805,450 7,950,019
--------------------------------------
Computer Related - 5.5%
0 52,300 52,300 Cisco Systems, Inc. + ...................... 0 4,510,875 4,510,875
55,800 66,850 122,650 Compaq Computer Corporation+ ............... 3,484,012 4,173,946 7,657,958
43,700 0 43,700 Dell Computer Corporation+ ................. 3,678,994 0 3,678,994
0 97,100 97,100 Iomega Corp. + ............................. 0 3,192,162 3,192,162
0 52,300 52,300 Quantum Corp. + ............................ 0 1,392,488 1,392,488
53,200 0 53,200 Storage Technology Corporation+ ............ 3,434,725 0 3,434,725
--------------------------------------
10,597,731 13,269,471 23,867,202
--------------------------------------
Computer Software - 4.6%
0 89,350 89,350 Cadence Design Systems, Inc. + ............. 0 2,256,088 2,256,088
0 20,700 20,700 Citrix Systems, Inc. + ..................... 0 1,482,638 1,482,638
0 70,612 70,612 Computer Associates International, Inc. .... 0 3,676,262 3,676,262
106,500 0 106,500 Compuware Corporation+ ..................... 3,720,844 0 3,720,844
0 67,000 67,000 McAfee Associates, Inc.+ ................... 0 3,065,250 3,065,250
18,100 21,800 39,900 Microsoft Corporation+ ..................... 2,561,150 3,084,699 5,645,849
--------------------------------------
6,281,994 13,564,937 19,846,931
--------------------------------------
Consumer Specialties - 0.2%
0 33,200 33,200 Blyth Industries, Inc. + ................... 0 852,825 852,825
--------------------------------------
Contract Drilling - 0.9%
0 50,900 50,900 Helmerich & Paine, Inc ..................... 0 3,871,581 3,871,581
--------------------------------------
Cosmetics & Toiletry - 0.5%
0 24,800 24,800 Gillette Co. ............................... 0 2,289,350 2,289,350
--------------------------------------
Diversified - 2.6%
0 122,600 122,600 General Electric Co ........................ 0 9,041,749 9,041,749
21,600 0 21,600 Loews Corporation .......................... 2,292,300 0 2,292,300
--------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund/Emerald Equity Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
====================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Disciplined Equity Combined Disciplined Equity Combined
Equity Fund Fund Portfolios Equity Fund Fund Portfolios
====================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Diversified Commercial Services - 0.8%
0 112,800 112,800 Accustaff, Inc. + .......................... $ 0 $ 3,334,650 $ 3,334,650
--------------------------------------
Drugs - 6.4%
0 66,800 66,800 Bristol Myers Squibb Co .................... 0 6,254,149 6,254,149
0 74,600 74,600 Dura Pharmaceuticals, Inc. + ............... 0 3,273,075 3,273,075
0 75,800 75,800 Eli Lilly & Co. ............................ 0 4,780,137 4,780,137
0 46,700 46,700 Merck & Company Inc. ....................... 0 4,416,069 4,416,069
0 73,000 73,000 Pfizer, Inc. ............................... 0 5,310,749 5,310,749
0 24,200 24,200 Warner Lambert Co .......................... 0 3,384,975 3,384,975
--------------------------------------
0 27,419,154 27,419,154
--------------------------------------
Electrical Equipment - 0.6%
52,000 0 52,000 Sundstrand Corporation ..................... 2,668,250 0 2,668,250
--------------------------------------
Electric Power - 0.2%
36,395 0 36,395 PG&E Corporation ........................... 1,028,159 0 1,028,159
--------------------------------------
Electronics - 5.4%
0 47,700 47,700 Adaptec, Inc. + ............................ 0 2,361,150 2,361,150
0 44,400 44,400 Intel Corp. ................................ 0 3,446,550 3,446,550
81,700 80,900 162,600 National Semiconductor Corporation+ ........ 2,706,313 2,679,813 5,386,126
0 55,100 55,100 Philips Electronics ........................ 0 3,691,700 3,691,700
0 65,300 65,300 SCI Systems, Inc. + ........................ 0 2,991,556 2,991,556
0 55,600 55,600 Tech Data Corp. + .......................... 0 2,244,850 2,244,850
0 52,600 52,600 Teradyne, Inc. + ........................... 0 1,725,938 1,725,938
0 26,800 26,800 Texas Instruments, Inc. .................... 0 1,319,900 1,319,900
--------------------------------------
2,706,313 20,461,457 23,167,770
--------------------------------------
Entertainment - 0.5%
0 65,700 65,700 Gtech Holdings Corp. + ..................... 0 2,114,719 2,114,719
--------------------------------------
Environmental Services - 1.9%
0 79,400 79,400 Calenergy Co., Inc. + ...................... 0 2,640,050 2,640,050
0 90,800 90,800 Tyco International Ltd ..................... 0 3,563,900 3,563,900
0 62,500 62,500 USA Waste Services, Inc. + ................. 0 2,066,406 2,066,406
--------------------------------------
0 8,270,356 8,270,356
--------------------------------------
Financial Services - 5.6%
45,400 0 45,400 GreenPoint Financial Corporation ........... 3,024,775 0 3,024,775
0 101,500 101,500 Green Tree Financial Corp. ................. 0 3,108,438 3,108,438
0 63,400 63,400 Morgan Stanley Dean Witter, Discover & Co. . 0 3,443,413 3,443,413
102,375 0 102,375 Paine Webber Group, Inc. ................... 3,442,359 0 3,442,359
20,200 0 20,200 SLM Holding Corporation .................... 2,608,325 0 2,608,325
66,350 101,349 167,699 Travelers Group Inc. ....................... 3,350,675 5,118,125 8,468,800
--------------------------------------
12,426,134 11,669,976 24,096,110
--------------------------------------
Food Retailers - 1.7%
53,194 67,000 120,194 Safeway Inc.+ .............................. 3,231,535 4,070,250 7,301,785
--------------------------------------
Food Producers - 3.7%
0 139,200 139,200 ConAgra, Inc ............................... 0 5,002,500 5,002,500
0 76,600 76,600 Dean Foods Co. ............................. 0 4,069,375 4,069,375
0 112,800 112,800 Interstate Bakeries Corp. .................. 0 3,898,650 3,898,650
0 56,400 56,400 Sara Lee Corp. ............................. 0 2,982,150 2,982,150
--------------------------------------
0 15,952,675 15,952,675
--------------------------------------
Healthcare - 2.3%
0 131,600 131,600 HEALTHSOUTH Corp. + ........................ 0 3,454,500 3,454,500
0 121,800 121,800 MedPartners, Inc. + ........................ 0 3,014,550 3,014,550
0 114,440 114,440 Tenet Healthcare Corp. + ................... 0 3,626,318 3,626,318
--------------------------------------
0 10,095,368 10,095,368
--------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund/Emerald Equity Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
====================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Disciplined Equity Combined Disciplined Equity Combined
Equity Fund Fund Portfolios Equity Fund Fund Portfolios
====================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Hotels & Resorts - 0.9%
0 55,600 55,600 HFS, Inc + ................................. $0 $3,815,550 $3,815,550
--------------------------------------
Housewares - 0.5%
88,000 0 88,000 Premark International, Inc. ................ 2,299,000 0 2,299,000
--------------------------------------
Insurance - 4.8%
0 40,600 40,600 Allstate Corp .............................. 0 3,486,525 3,486,525
15,700 0 15,700 CIGNA Corporation .......................... 2,625,825 0 2,625,825
0 69,500 69,500 Conseco, Inc ............................... 0 3,236,094 3,236,094
75,000 0 75,000 Equitable Companies, Inc. .................. 3,576,562 0 3,576,562
51,300 0 51,300 MGIC Investment Corporation................. 2,997,844 0 2,997,844
0 116,100 116,100 SunAmerica, Inc ............................ 0 4,702,050 4,702,050
--------------------------------------
9,200,231 11,424,669 20,624,900
--------------------------------------
Machinery and Equipment - 3.0%
50,700 49,800 100,500 Caterpillar Inc. ........................... 2,430,431 2,387,288 4,817,719
36,600 0 36,600 Cummins Engine Inc. ........................ 2,356,125 0 2,356,125
69,700 0 69,700 Ingersoll-Rand Company ..................... 2,848,988 0 2,848,988
63,000 0 63,000 Parker-Hannifin Corporation ................ 2,803,500 0 2,803,500
--------------------------------------
10,439,044 2,387,288 12,826,332
--------------------------------------
Medical Products and Supplies - 2.0%
0 53,400 53,400 Baxter International, Inc. ................. 0 2,703,375 2,703,375
0 51,500 51,500 Boston Scientific Corp. + .................. 0 2,327,156 2,327,156
58,800 0 58,800 Guidant Corporation ........................ 3,777,900 0 3,777,900
--------------------------------------
3,777,900 5,030,531 8,808,431
--------------------------------------
Metals and Mining - 1.2%
0 29,000 29,000 Minnesota Mining & Manufacturing Co. ....... 0 2,825,688 2,825,688
32,200 0 32,200 Phelps Dodge Corporation ................... 2,133,250 0 2,133,250
--------------------------------------
2,133,250 2,825,688 4,958,938
--------------------------------------
Office Equipment - 0.7%
0 159,300 159,300 U.S. Office Products Co. + ................. 0 3,166,088 3,166,088
--------------------------------------
Oil - Domestic - 2.6%
41,300 0 41,300 Pennzoil Company ........................... 2,751,613 0 2,751,613
88,900 154,300 243,200 USX-Marathon Group (New) ................... 3,044,825 5,284,775 8,329,600
--------------------------------------
5,796,438 5,284,775 11,081,213
--------------------------------------
Oil - International - 2.4%
34,100 55,358 89,458 British Petroleum Company Plc, ADR+. ....... 2,830,300 4,594,714 7,425,014
49,000 0 49,000 Texaco Inc. ................................ 2,768,500 0 2,768,500
--------------------------------------
5,598,800 4,594,714 10,193,514
--------------------------------------
Oil Refining and Marketing - 0.5%
65,800 0 65,800 Valero Energy Corporation .................. 2,064,475 0 2,064,475
--------------------------------------
Oil Services - 0.6%
65,700 0 65,700 Baker Hughes Inc. .......................... 2,751,188 0 2,751,188
--------------------------------------
Paper & Related Products - 1.1%
68,100 0 68,100 Fort James Corporation ..................... 2,664,412 0 2,664,412
0 46,500 46,500 International Paper Co. .................... 0 2,205,844 2,205,844
--------------------------------------
2,664,412 2,205,844 4,870,256
--------------------------------------
Printing and Publishing - 0.9%
0 65,900 65,900 New York Times Co., Class A ................ 0 3,912,813 3,912,813
--------------------------------------
Recreation - 1.5%
0 61,400 61,400 Callaway Golf Co ........................... 0 1,957,125 1,957,125
0 111,600 111,600 Mattel, Inc. ............................... 0 4,470,975 4,470,975
--------------------------------------
0 6,428,100 6,428,100
--------------------------------------
Retail - Discount - 2.8%
0 89,550 89,550 Consolidated Stores Corp. + ................ 0 4,354,369 4,354,369
0 150,500 150,500 Staples, Inc. + ............................ 0 4,242,219 4,242,219
97,900 0 97,900 TJX Companies Inc. ......................... 3,377,550 0 3,377,550
--------------------------------------
3,377,550 8,596,588 11,974,138
--------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
NATIONS FUNDS
Nations Disciplined Equity Fund/Emerald Equity Fund
Pro Forma Combining Schedule of Investments (continued)
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
====================================================================================================================================
Nations Emerald Pro Forma Nations Emerald Pro Forma
Disciplined Equity Combined Disciplined Equity Combined
Equity Fund Fund Portfolios Equity Fund Fund Portfolios
====================================================================================================================================
<C> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - (continued)
Retail - 5.0%
0 86,800 86,800 CompUSA, Inc. + ............................ $0 $3,173,625 $3,173,625
76,400 0 76,400 Costco Companies, Inc.+ .................... 3,385,475 0 3,385,475
48,600 0 48,600 Dayton Hudson Corporation .................. 3,228,862 0 3,228,862
0 168,900 168,900 Dial Corporation ........................... 0 3,272,438 3,272,438
0 142,200 142,200 General Nutrition Companies (GNC) + ........ 0 4,852,575 4,852,575
0 61,200 61,200 Home Depot, Inc. ........................... 0 3,423,375 3,423,375
--------------------------------------
6,614,337 14,722,013 21,336,350
--------------------------------------
Steel - 1.1%
80,700 71,200 151,900 USX-U.S. Steel Group ....................... 2,526,919 2,229,450 4,756,369
--------------------------------------
Telecommunications - 4.0%
0 60,600 60,600 ADC Telecommunications, Inc. + ............. 0 2,253,563 2,253,563
0 74,100 74,100 Bay Networks Inc + ......................... 0 2,227,631 2,227,631
0 142,500 142,500 LCI International Inc. + ................... 0 3,927,656 3,927,656
33,200 16,600 49,800 Lucent Technologies ........................ 2,660,150 1,330,075 3,990,225
0 150,400 150,400 WorldCom, Inc. + ........................... 0 4,812,799 4,812,799
--------------------------------------
2,660,150 14,551,724 17,211,874
--------------------------------------
Transportation - Airlines - 1.7%
0 33,600 33,600 AMR Corporation + .......................... 0 4,071,900 4,071,900
36,900 0 36,900 UAL Corporation+ ........................... 3,136,500 0 3,136,500
--------------------------------------
3,136,500 4,071,900 7,208,400
--------------------------------------
Trucking and Shipping - 0.7%
44,500 0 44,500 Federal Express Corporation+ ............... 2,984,281 0 2,984,281
--------------------------------------
Utilities - Natural Gas - 2.2%
38,800 52,700 91,500 Columbia Gas Systems Inc.+ ................. 2,822,700 3,833,925 6,656,625
65,300 0 65,300 NICOR Inc. ................................. 2,628,325 0 2,628,325
--------------------------------------
5,451,025 3,833,925 9,284,950
--------------------------------------
Utilities - Telephone - 0.5%
78,200 0 78,200 Cincinnati Bell Inc. ....................... 2,306,900 0 2,306,900
--------------------------------------
TOTAL COMMON STOCKS ........................ 145,077,860 270,697,572 415,775,432
======================================
CASH SWEEP ACCOUNT - 0.4%
0 1,774,342 1,774,342 Bank of New York ........................... 0 1,774,342 1,774,342
======================================
UNIT INVESTMENT TRUSTS - 2.3%
0 85,300 85,300 S&P 400 Mid-Cap Depository Receipts,
Series I ................................... 0 5,380,564 5,380,564
0 47,500 47,500 S&P 500 Depository Receipts, Series I ...... 0 4,546,641 4,546,641
--------------------------------------
TOTAL UNIT INVESTMENT TRUSTS ............... 0 9,927,205 9,927,205
======================================
TOTAL INVESTMENTS (Cost $103,585,079, $211,541,142 and $315,126,221)........... 99.4% 145,077,860 282,399,119 427,476,979
OTHER ASSETS AND LIABILITIES (Net)............................................. 0.6 2,577,764 20,797 2,598,561
----- ------------ ----------- -----------
NET ASSETS..................................................................... 100.0% $147,655,624 282,419,916 430,075,540
===== ============ =========== ===========
</TABLE>
- -------
+Non-income producing security
ABBREVIATION
ADR American Depositary Receipt
<PAGE>
NATIONS DISCIPLINED EQUITY FUND
EMERALD EQUITY FUND
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
November 30, 1997
<TABLE>
<CAPTION>
Nations Disciplined Emerald Equity Adjustments to Pro Forma
Equity Fund Fund Pro Forma Combined (Note 1)
----------- ---- --------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at Value (cost $103,585,079,
$211,541,142 and $315,126,221) $145,077,860 $282,399,119 -- $427,476,979
Cash 44,778 -- -- 44,778
Income Receivable 283,192 273,369 -- 556,561
Receivable for Fund Shares Sold 511,854 6,058 -- 517,912
Receivable for Investments Sold 4,433,888 -- -- 4,433,888
Prepaid and Other Assets 5,471 6,906 -- 12,377
----- ----- - ------
Total Assets 150,357,043 282,685,452 0 433,042,495
=========== =========== == ===========
LIABILITIES:
Income Distribution Payable -- 15,474 -- 15,474
Capital Gain Payable 2,504,186 -- -- 2,504,186
Payable for fund shares redeemed -- 33,979 -- 33,979
Accrued Expenses and other payables 197,233 216,083 -- 413,316
------- ------- - -------
Total Liabilities 2,701,419 265,536 0 2,966,955
--------- ------- -- ---------
Net Assets Applicable to Shares Outstanding $147,655,624 $282,419,916 $0 $430,075,540
============ ============ == ============
Net Assets by Class:
Primary A/Institutional $99,127,639 $233,977,362 -- $333,105,001
=========== ============ = ============
Primary B $317,545 n/a -- $317,545
======== === == ========
Investor A/Retail $18,895,922 $48,442,554 -- $67,338,476
=========== =========== == ===========
Investor B $914,223 n/a -- $914,223
======== === == ========
Investor C $28,400,295 n/a -- $28,400,295
=========== === == ===========
Shares Outstanding by Class:
Primary A/Institutional 5,116,031 12,894,783 (819,084)(a) 17,191,730
========= ========== ======== ==========
Primary B 16,428 n/a -- 16,428
====== === == ======
Investor A/Retail 978,068 2,692,460 (185,035)(a) 3,485,493
======= ========= ======== =========
Investor B 47,565 n/a -- 47,565
====== === == ======
Investor C 1,501,467 n/a -- 1,501,467
========= === == =========
Primary A Shares:
Net Asset Value per Share $19.38 $18.15 $19.38
====== ====== ======
Primary B Shares:
Net Asset Value per Share $19.33 n/a $19.33
====== === ======
Investor A Shares:
Net Asset Value per Share $19.32 $17.99 $19.32
====== ====== ======
Investor B Shares:
Net Asset Value per Share $19.22 n/a $19.22
====== === ======
Investor C Shares:
Net Asset Value per Share $18.92 n/a $18.92
====== === ======
</TABLE>
(a) Reflects the difference in net asset value between the acquiring fund
shares and the acquired fund shares.
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS DISCIPLINED EQUITY FUND
EMERALD EQUITY FUND
Pro Forma Statement of Operations (unaudited)
For the Twelve Month Period Ending November 30, 1997
<TABLE>
<CAPTION>
Nations Disciplined Emerald Equity Adjustments to Pro Forma
Equity Fund Fund Pro Forma Combined (Note 1)
----------- ---- --------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $2,149,467 $2,505,394 -- 4,654,861
Interest 120,978 11,984 -- 132,962
----------- ----------- ------------
Total Investment Income 2,270,445 2,517,378 -- 4,787,823
----------- ----------- ------------
EXPENSES:
Investment Advisory 1,197,809 1,598,533 399,896 (a) 3,196,238
Administration 159,617 206,476 60,072 (a) 426,165
Transfer Agent 90,233 53,239 -- 143,472
Custodian (d) 30,090 31,442 (10,000)(b) 51,532
Legal and Audit Fees 23,653 18,667 -- 42,320
Trustees' Fees 4,470 13,868 (10,000)(b) 8,338
Amortization of organization costs 2,999 -- -- 2,999
Other expenses 102,676 115,847 -- 218,523
----------- ----------- ------------
Subtotal 1,611,547 2,038,072 439,968 4,089,587
Shareholder servicing and distribution fees
Primary B 5,668 -- -- 5,668
Investor A/Retail 23,832 207,422 (103,711)(a) 127,543
Investor C 232,677 -- N/A 232,677
Investor B 4,450 -- N/A 4,450
Fees waived and/or reimbursed by
investment advisor 0 (129) 129 (a) 0
----------- ----------- ------------
Total Expenses 1,878,174 2,245,365 336,386 4,459,925
----------- ----------- ------------
NET INVESTMENT INCOME 392,271 272,013 (336,386) 327,898
----------- ----------- ------------
Net Realized and Unrealized Gain/(Loss)
on Investments:
Realized Gain/(Loss) on securities 32,183,199 53,127,398 -- 85,310,597
Change in unrealized appreciation/
(depreciation) on securities 34,052,149 2,983,542 -- 37,035,691
----------- ----------- ------------
Net Realized and Unrealized gain/(loss)
on investments 66,235,348 56,110,940 -- 122,346,288
----------- ----------- ------------
Net Increase/(Decrease) in net assets
resulting from operations $66,627,619 $56,382,953 ($336,386) $122,674,186
=========== =========== ========== ============
</TABLE>
Legend:
(a) Reflects adjustment to the acquiring fund contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Reflects adjustment to the level of the acquiring fund's voluntary expense
reimbursement.
(d) Net of expense offset arrangements amounts to less than .01% of average
net assets.
See Notes to Pro Forma Financial Statements
<PAGE>
Nations Disciplined Equity Fund
Emerald Equity Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
Nations Fund Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end investment company. As of
November 30, 1997 the Trust offers thirty-five separate portfolios. The
unaudited Pro Forma Combining Portfolio of Investments and the unaudited Pro
Forma Combining Statement of Assets and Liabilities assumes the exchange
described in the next paragraph occurred as of November 30, 1997 and the
unaudited Pro Forma Combining Statement of Operations assumes the exchange
occurred as of December 1, 1996. These statements have been derived from books
and records utilized in calculating daily net asset value of each fund at
November 30, 1997 and for the twelve month period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Emerald Equity Fund in exchange for shares of Nations
Disciplined Equity Fund. Under generally accepted accounting principles, the
historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of the Emerald Equity Fund for
pre-combination periods will not be restated. The pro forma statements do not
reflect the expenses of either fund in carrying out its obligations under the
proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
<PAGE>
Nations Disciplined Equity Fund
Emerald Equity Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
For the twelve month period ended November 30, 1997, the Nations Disciplined
Equity Fund's investment advisory fee was computed based on the annual rate of
0.75% of its average daily net assets. The administration fee was computed based
on the annual rate of 0.10% of average daily net assets of the Trust and the
investment portfolios of Nations Fund, Inc. and Nations Fund Portfolios, Inc.
(two other registered open-end investment companies which are part of the
Nations Fund family) on a combined basis.
The Trust has adopted a shareholder administration plan ("Administration Plan")
for the Primary B Shares of the Nations Disciplined Equity Fund. Under the
Administration Plan, aggregate payments may not exceed 0.50%, on an annualized
basis, of the average daily net assets of the Fund's Primary B Shares.
The Trust has also adopted a shareholder servicing and distribution plan
("Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act for the Investor A
Shares of the Nations Disciplined Equity Fund. Under the Investor A Plan,
aggregate payments may not exceed 0.25%, on an annualized basis, of the average
daily net assets of the Fund's Investor A Shares.
The Trust has also adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act with respect to Investor B Shares ("Investor B Distribution Plan") and
Investor C Shares ("Investor C Distribution Plan") of the Nations Disciplined
Equity Fund. Under the Investor B Distribution Plan and Investor C Distribution
Plan, aggregate payments may not exceed 0.75% and 0.75%, on an annualized basis,
of the average daily net assets of the Investor B Shares and Investor C Shares
respectively, of the Fund.
The Trust has also adopted a shareholder servicing plan with respect to Investor
B Shares ("Investor B Servicing Plan") and Investor C Shares
2
<PAGE>
Nations Disciplined Equity Fund
Emerald Equity Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
("Investor C Servicing Plan") of the Nations Disciplined Equity Fund. Under the
Investor B Servicing Plan and Investor C Servicing Plan, aggregate payments may
not exceed 0.25% on an annualized basis of the average daily net assets of the
Investor B Shares and Investor C Shares of the Fund.
2. Portfolio Valuation
Securities of Nations Disciplined Equity Fund which are traded on a recognized
stock exchange are valued at the last sale price on the securities exchange on
which such securities are primarily traded or at the last sale price on the
national securities market. Securities traded only on over-the-counter markets
(but not including securities reported on the NASDAQ National Market System) are
valued on the basis of the closing over-the-counter bid prices or, if no sale
occurred on such day, at the mean of the current bid and asked prices. Certain
securities may be valued by one or more principal market makers. Securities
reported on the NASDAQ National Market System are valued at the last sale price
on the valuation date. Restricted securities, if any, securities for which
market quotations are not readily available and other assets are valued at fair
market value under the supervision of the Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost. Emerald
Equity Fund uses similar rules for determining portfolio valuation.
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Nations Disciplined Equity Fund which would have been issued at
November 30, 1997 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 22,242,683 consists of 14,583,124 shares
assumed issued in the reorganization plus 7,659,559 shares of Nations
Disciplined Equity Fund at November 30, 1997.
3
<PAGE>
Nations Florida Municipal Bond Fund/Emerald Florida Tax-Exempt Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SECURITY DESCRIPTIONS
==================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
==================================================================================================================
MUNICIPAL BONDS AND NOTES - 93.5%
<C> <C> <C> <S>
FLORIDA - 79.4%
Alachua County, Florida, Health Facilities Authority, Revenue Refunding:
$1,000,000 $ 0 $1,000,000 (Santa Fe Healthcare Facilities Project), ETM,
6.000% 11/15/09. ........................................................
1,000,000 0 1,000,000 (Shands Teaching Hospitals and Clinics Inc. Project), Series A,
(MBIA Insured),
5.000% 12/01/04 .........................................................
1,000,000 0 1,000,000 Alachua County, Florida, Public Improvement Revenue Refunding,
(FSA Insured),
5.000% 08/01/14 ........................................................
0 2,550,000 2,550,000 Brevard County, Florida, Health Care Facility Authority Revenue,
(Holmes Regional), (MBIA Insured)
5.630% 10/01/14 ........................................................
1,000,000 0 1,000,000 Canaveral, Florida, Port Authority Revenue Refunding, Port Improvement,
Series B, (FGIC Insured),
5.700% 06/01/13. ........................................................
0 2,250,000 2,250,000 Charlotte County, Florida, Utility Revenue, (FGIC Insured),
5.630% 10/01/16. ........................................................
1,000,000 0 1,000,000 Citrus County, Florida, PCR Refunding, Crystal River, (Florida Power
Corporation), Series B,
6.350% 02/01/22 .........................................................
Collier County, Florida, Health Facilities Authority Revenue,
(The Moorings, Inc. Project):
0 700,000 700,000 6.250% 12/01/07 .........................................................
0 700,000 700,000 6.380% 12/01/08 .........................................................
0 5,175,000 5,175,000 7.000% 12/01/19. ........................................................
0 2,500,000 2,500,000 Dade County, Florida, Aviation Revenue, (AMT),
(MBIA Insured),
5.750% 10/01/12 .........................................................
1,000,000 0 1,000,000 Dade County, Florida, Health Facilities Authority, Hospital Revenue
Refunding, (Baptist Hospital, Miami Project), Series A, (MBIA Insured),
5.250% 05/15/21 .........................................................
1,000,000 0 1,000,000 Dade County, Florida, School District Revenue Refunding, GO, Series A,
(MBIA Insured),
6.125% 06/01/14 .........................................................
1,500,000 0 1,500,000 Dade County, Florida, Water and Sewer System Revenue Refunding,
(FGIC Insured),
5.000% 10/01/13 .........................................................
Escambia County, Florida, PCR, (Champion International Corporation
Project), AMT:
1,000,000 0 1,000,000 6.900% 08/01/22. ........................................................
1,000,000 0 1,000,000 6.400% 09/01/30. ........................................................
0 3,000,000 3,000,000 Florida Housing Finance Agency, (MBIA Insured)
5.750% 07/01/14 .........................................................
Florida State Board of Education, GO, Capital Outlay, Public Education:
Series A,
0 2,500,000 2,500,000 5.250% 06/01/16 .........................................................
0 3,000,000 3,000,000 5.000% 06/01/18 .........................................................
Refunding, Series A,
1,000,000 0 1,000,000 5.000% 06/01/08 .........................................................
Refunding Series D,
1,000,000 0 1,000,000 5.125% 06/01/18 .........................................................
1,000,000 0 1,000,000 Unrefunded Balance, Series A,
7.250% 06/01/23 .........................................................
1,000,000 0 1,000,000 Florida State Department of Transportation, Fuel Sales Tax Revenue,
(Right-of-Way Bridge), GO,
5.375% 07/01/26 .........................................................
Florida State Housing Finance Agency, Refunding:
Multi-family Housing:
1,000,000 0 1,000,000 (Altamonte Project), Series C,
7.000% 12/01/24. ........................................................
845,000 0 845,000 Single-family Mortgage, Series B, AMT, (GNMA/FNMA Collateral),
6.550% 07/01/17 .........................................................
500,000 0 500,000 (The Vinyards Project), Series H,
6.500% 11/01/25. ........................................................
Florida State Jacksonville Transportation Authority, GO, Refunding:
1,000,000 0 1,000,000 6.000% 07/01/05 .........................................................
1,000,000 0 1,000,000 5.000% 07/01/19. ........................................................
Florida State Municipal Power Agency Revenue:
(Stanton II Project),
Pre-refunded, (AMBAC Insured),
1,000,000 0 1,000,000 6.500% 10/01/20 .........................................................
(St. Lucie Project),
Refunding, (FGIC Insured),
0 1,500,000 1,500,000 5.250% 10/01/21 .........................................................
0 3,000,000 3,000,000 Gainsville, Florida, Utility System Revenue, Series B,
6.500% 10/01/11. ........................................................
<CAPTION>
SECURITY DESCRIPTIONS VALUE
=================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
=================================================================================================================
<S> <C> <C> <C>
FLORIDA - 79.4%
Alachua County, Florida, Health Facilities Authority, Revenue Refunding:
(Santa Fe Healthcare Facilities Project), ETM,
6.000% 11/15/09 ........................................................ $1,079,280 $ 0 $1,079,280
(Shands Teaching Hospitals and Clinics Inc. Project), Series A,
(MBIA Insured),
5.000% 12/01/04 ........................................................ 1,036,450 0 1,036,450
Alachua County, Florida, Public Improvement Revenue Refunding,
(FSA Insured),
5.000% 08/01/14 ....................................................... 992,110 0 992,110
Brevard County, Florida, Health Care Facility Authority Revenue,
(Holmes Regional), (MBIA Insured)
5.630% 10/01/14 ....................................................... 0 2,656,412 2,656,412
Canaveral, Florida, Port Authority Revenue Refunding, Port Improvement,
Series B, (FGIC Insured),
5.700% 06/01/13 ........................................................ 1,044,200 1,044,200
Charlotte County, Florida, Utility Revenue, (FGIC Insured),
5.630% 10/01/16 ........................................................ 0 2,339,663 2,339,663
Citrus County, Florida, PCR Refunding, Crystal River, (Florida Power
Corporation), Series B,
6.350% 02/01/22 ........................................................ 1,067,990 0 1,067,990
Collier County, Florida, Health Facilities Authority Revenue,
(The Moorings, Inc. Project):
6.250% 12/01/07 ........................................................ 0 758,282 758,282
6.380% 12/01/08 ........................................................ 0 760,361 760,361
7.000% 12/01/19 ........................................................ 0 5,673,456 5,673,456
Dade County, Florida, Aviation Revenue, (AMT),
(MBIA Insured),
5.750% 10/01/12 ........................................................ 0 2,633,850 2,633,850
Dade County, Florida, Health Facilities Authority, Hospital Revenue
Refunding, (Baptist Hospital, Miami Project), Series A, (MBIA Insured),
5.250% 05/15/21 ........................................................ 977,550 0 977,550
Dade County, Florida, School District Revenue Refunding, GO, Series A,
(MBIA Insured),
6.125% 06/01/14 ........................................................ 1,073,160 0 1,073,160
Dade County, Florida, Water and Sewer System Revenue Refunding,
(FGIC Insured),
5.000% 10/01/13 ........................................................ 1,490,175 0 1,490,175
Escambia County, Florida, PCR, (Champion International Corporation
Project), AMT:
6.900% 08/01/22 ........................................................ 1,110,740 0 1,110,740
6.400% 09/01/30 ........................................................ 1,084,090 0 1,084,090
Florida Housing Finance Agency, (MBIA Insured)
5.750% 07/01/14 ........................................................ 0 3,084,210 3,084,210
Florida State Board of Education, GO, Capital Outlay, Public Education:
Series A,
5.250% 06/01/16 ........................................................ 0 2,516,725 2,516,725
5.000% 06/01/18 ........................................................ 0 2,921,160 2,921,160
Refunding, Series A,
5.000% 06/01/08 ........................................................ 1,031,350 0 1,031,350
Refunding Series D,
5.125% 06/01/18 ........................................................ 980,720 0 980,720
Unrefunded Balance, Series A,
7.250% 06/01/23 ........................................................ 1,083,670 0 1,083,670
Florida State Department of Transportation, Fuel Sales Tax Revenue,
(Right-of-Way Bridge), GO,
5.375% 07/01/26 ........................................................ 1,001,800 0 1,001,800
Florida State Housing Finance Agency, Refunding:
Multi-family Housing:
(Altamonte Project), Series C,
7.000% 12/01/24 ........................................................ 1,101,060 0 1,101,060
Single-family Mortgage, Series B, AMT, (GNMA/FNMA Collateral),
6.550% 07/01/17 ........................................................ 893,790 0 893,790
(The Vinyards Project), Series H,
6.500% 11/01/25 ........................................................ 519,220 0 519,220
Florida State Jacksonville Transportation Authority, GO, Refunding:
6.000% 07/01/05 ........................................................ 1,098,880 0 1,098,880
5.000% 07/01/19 ........................................................ 970,400 0 970,400
Florida State Municipal Power Agency Revenue:
(Stanton II Project),
Pre-refunded, (AMBAC Insured),
6.500% 10/01/20 ........................................................ 1,113,770 0 1,113,770
(St. Lucie Project),
Refunding, (FGIC Insured),
5.250% 10/01/21 ........................................................ 0 1,475,850 1,475,850
Gainsville, Florida, Utility System Revenue, Series B,
6.500% 10/01/11 ........................................................ 0 3,481,410 3,481,410
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
Nations Florida Municipal Bond Fund/Emerald Florida Tax-Exempt Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SECURITY DESCRIPTIONS
==================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
==================================================================================================================
MUNICIPAL BONDS AND NOTES - (continued)
<C> <C> <C> <S>
FLORIDA - (continued)
$ 0 $2,000,000 $2,000,000 Hillsborough County, Florida, Aviation Authority Revenue,
(Refunding-Tampa International Airport), Series B,
5.130% 10/01/17. ........................................................
1,000,000 0 1,000,000 Hillsborough County, Florida, Industrial Development Authority, PCR,
(Tampa Electric Company Project),
8.000% 05/01/22. ........................................................
1,000,000 0 1,000,000 Hillsborough County, Florida, Utility Refunding Revenue, (MBIA Insured),
5.500% 08/01/12. ........................................................
0 2,000,000 2,000,000 Jacksonville, Florida, Electric Authority Revenue,
(Water & Sewer System), Series A,
5.400% 10/01/15. ........................................................
Jacksonville, Florida, Health Facilities Authority, Hospital Revenue:
1,500,000 0 1,500,000 (Daughters Of Charity), Series A,
5.000% 11/15/15. ........................................................
Series B,
1,000,000 0 1,000,000 5.250% 08/15/27. ........................................................
750,000 0 750,000 Jacksonville, Florida, PCR Refunding, (Anheuser-Busch
Companies Project),
5.700% 08/01/31 .........................................................
Jacksonville, Florida, Sales Tax Revenue,
(River City Renaissance Project):
0 5,000,000 5,000,000 5.650% 10/01/14 .........................................................
0 5,000,000 5,000,000 5.380% 10/01/18 .........................................................
0 2,430,000 2,430,000 Leon County, Florida, Capital Improvement Revenue,
(AMBAC Insured),
5.250% 10/01/17 .........................................................
Martin County, Florida, Industrial Development Authority Revenue,
(Indiantown Cogeneration Project) (AMT):
Series A,
1,000,000 2,500,000 3,500,000 7.875% 12/15/25 .........................................................
Series B,
0 2,500,000 2,500,000 8.050% 12/15/25 .........................................................
0 2,620,000 2,620,000 Miami Beach, Florida, Water and Sewer Revenue, (FSA Insured),
5.380% 09/01/15. ........................................................
North Broward, Florida, Hospital Revenue, (MBIA Insured):
1,000,000 0 1,000,000 6.250% 01/01/06. ........................................................
0 2,000,000 2,000,000 5.250% 01/15/17. ........................................................
0 5,000,000 5,000,000 Okaloosa County, Florida, Gas Distribution Tax Revenue,
(MBIA Insured),
6.880% 10/01/19 ........................................................
Orange County, Florida, Health Facilities Authority Revenue Refunding,
(Orlando Regional Medical Center Hospital), (MBIA Insured):
Series A,
0 4,520,000 4,520,000 6.250% 10/01/16. ........................................................
Series B,
1,000,000 0 1,000,000 5.000% 10/01/10. ........................................................
0 3,000,000 3,000,000 Orlando, Florida, Utility Commission Water and Electric Revenue,
(Refunding), Series D,
6.750% 10/01/17. ........................................................
1,000,000 0 1,000,000 Orange County, Florida, Sales Tax Revenue, Series B,
5.375% 01/01/24. ........................................................
1,000,000 0 1,000,000 Orange County, Florida, Tourist Development Tax Revenue, Series B,
(MBIA Insured),
6.000% 10/01/14 .........................................................
1,000,000 0 1,000,000 Osceola County, Florida, Health Facilities Authority Revenue Refunding,
Lutheran Good Samaritan Society, (AMBAC Insured),
6.000% 05/01/10. ........................................................
1,500,000 0 1,500,000 Palm Beach County, Florida, Health Facilities Authority Revenue,
(Good Samaritans Health System),
6.200% 10/01/11. ........................................................
665,000 0 665,000 Palm Beach County, Florida, Housing Finance Authority, Single-family
Mortgage Purchase Revenue, Series A, (GNMA/FNMA Collateral),
6.500% 10/01/21 .........................................................
0 6,000,000 6,000,000 Palm Beach County, Florida, Solid Waste Authority Revenue,
(AMBAC Insured),
6.000% 10/01/10 .........................................................
0 2,000,000 2,000,000 Pensacola, Florida, Airport Revenue, (AMT), (MBIA Insured),
5.630% 10/01/14 .........................................................
1,000,000 0 1,000,000 Polk County, Florida, Industrial Development Authority, Solid Waste
Disposal Facilities Revenue, (Tampa Electric Company Project),
5.850% 12/01/30 .........................................................
950,000 0 950,000 Putnam County, Florida, Development Authority, PCR, (Seminole
Electric Cooperative, Inc. Project), Series H4,
3.700% 03/15/14+ ........................................................
<CAPTION>
SECURITY DESCRIPTIONS VALUE
=================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
=================================================================================================================
<S> <C> <C> <C>
FLORIDA - (continued)
Hillsborough County, Florida, Aviation Authority Revenue,
(Refunding-Tampa International Airport), Series B,
5.130% 10/01/17 ...................................................... $ 0 $1,974,360 $1,974,360
Hillsborough County, Florida, Industrial Development Authority, PCR,
(Tampa Electric Company Project),
8.000% 05/01/22 ...................................................... 1,158,330 0 1,158,330
Hillsborough County, Florida, Utility Refunding Revenue, (MBIA Insured),
5.500% 08/01/12 ...................................................... 1,028,000 0 1,028,000
Jacksonville, Florida, Electric Authority Revenue,
(Water & Sewer System), Series A,
5.400% 10/01/15 ...................................................... 0 2,028,620 2,028,620
Jacksonville, Florida, Health Facilities Authority, Hospital Revenue:
(Daughters Of Charity), Series A,
5.000% 11/15/15 ...................................................... 1,449,930 0 1,449,930
Series B,
5.250% 08/15/27 ...................................................... 980,740 0 980,740
Jacksonville, Florida, PCR Refunding, (Anheuser-Busch
Companies Project),
5.700% 08/01/31 ...................................................... 770,460 0 770,460
Jacksonville, Florida, Sales Tax Revenue,
(River City Renaissance Project):
5.650% 10/01/14 ...................................................... 0 5,211,450 5,211,450
5.380% 10/01/18 ...................................................... 0 5,001,350 5,001,350
Leon County, Florida, Capital Improvement Revenue,
(AMBAC Insured),
5.250% 10/01/17 ...................................................... 0 2,444,750 2,444,750
Martin County, Florida, Industrial Development Authority Revenue,
(Indiantown Cogeneration Project) (AMT):
Series A,
7.875% 12/15/25 ...................................................... 1,162,110 2,910,100 4,072,210
Series B,
8.050% 12/15/25 ...................................................... 0 2,934,425 2,934,425
Miami Beach, Florida, Water and Sewer Revenue, (FSA Insured),
5.380% 09/01/15 ...................................................... 0 2,670,592 2,670,592
North Broward, Florida, Hospital Revenue, (MBIA Insured):
6.250% 01/01/06 ...................................................... 1,089,600 0 1,089,600
5.250% 01/15/17 ...................................................... 0 1,992,700 1,992,700
Okaloosa County, Florida, Gas Distribution Tax Revenue,
(MBIA Insured),
6.880% 10/01/19 ..................................................... 0 5,802,999 5,802,999
Orange County, Florida, Health Facilities Authority Revenue Refunding,
(Orlando Regional Medical Center Hospital), (MBIA Insured):
Series A,
6.250% 10/01/16 ...................................................... 0 5,143,037 5,143,037
Series B,
5.000% 10/01/10 ...................................................... 1,004,440 0 1,004,440
Orlando, Florida, Utility Commission Water and Electric Revenue,
(Refunding), Series D,
6.750% 10/01/17 ...................................................... 0 3,612,990 3,612,990
Orange County, Florida, Sales Tax Revenue, Series B,
5.375% 01/01/24 ...................................................... 989,570 0 989,570
Orange County, Florida, Tourist Development Tax Revenue, Series B,
(MBIA Insured),
6.000% 10/01/14 ...................................................... 1,068,470 0 1,068,470
Osceola County, Florida, Health Facilities Authority Revenue Refunding,
Lutheran Good Samaritan Society, (AMBAC Insured),
6.000% 05/01/10 ...................................................... 1,073,070 0 1,073,070
Palm Beach County, Florida, Health Facilities Authority Revenue,
(Good Samaritans Health System),
6.200% 10/01/11 ...................................................... 1,590,510 0 1,590,510
Palm Beach County, Florida, Housing Finance Authority, Single-family
Mortgage Purchase Revenue, Series A, (GNMA/FNMA Collateral),
6.500% 10/01/21 ...................................................... 706,130 0 706,130
Palm Beach County, Florida, Solid Waste Authority Revenue,
(AMBAC Insured),
6.000% 10/01/10 ...................................................... 0 6,689,879 6,689,879
Pensacola, Florida, Airport Revenue, (AMT), (MBIA Insured),
5.630% 10/01/14 ...................................................... 0 2,068,940 2,068,940
Polk County, Florida, Industrial Development Authority, Solid Waste
Disposal Facilities Revenue, (Tampa Electric Company Project),
5.850% 12/01/30 ...................................................... 1,031,190 0 1,031,190
Putnam County, Florida, Development Authority, PCR, (Seminole
Electric Cooperative, Inc. Project), Series H4,
3.700% 03/15/14+ ..................................................... 949,839 0 949,839
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
Nations Florida Municipal Bond Fund/Emerald Florida Tax-Exempt Fund
Pro Forma Combining Schedule of Investments
November 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT SECURITY DESCRIPTIONS
==================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
==================================================================================================================
MUNICIPAL BONDS AND NOTES - (continued)
<C> <C> <C> <S>
FLORIDA - (continued)
$2,000,000 $ 0 $2,000,000 South Broward, Florida, Hospital District Revenue Refunding,
(FSA Insured),
5.500% 05/01/28..........................................................
0 4,000,000 4,000,000 South Miami, Florida, Health Facilities Revenue, (MBIA Insured),
5.380% 10/01/16..........................................................
0 2,500,000 2,500,000 Sunrise Lakes, Florida, Phase 4 Recreation District Revenue,
(Series A),
6.750% 08/01/24..........................................................
Tampa, Florida, Sports Authority Revenue, (MBIA Insured),
(Stadium Project):
1,000,000 0 1,000,000 5.125% 01/01/12..........................................................
0 2,000,000 2,000,000 5.250% 01/01/17..........................................................
(Tampa Bay Arena),
0 2,500,000 2,500,000 5.750% 10/01/15..........................................................
Venice, Florida, Health Facilities Revenue Refunding, (Venice Hospital
Inc. Project):
900,000 0 900,000 5.600% 12/01/05..........................................................
1,000,000 0 1,000,000 5.700% 12/01/06..........................................................
1,000,000 0 1,000,000 Volusia County, Florida, Educational Facilities Authority Revenue, Series A
6.125% 10/15/26 .........................................................
GUAM - 7.5%
Guam Airport Authority Revenue:
Series A,
0 3,820,000 3,820,000 6.380% 10/01/10 .........................................................
Series B,
0 2,435,000 2,435,000 6.400% 10/01/05 .........................................................
0 2,500,000 2,500,000 Guam Government, GO, Series A,
5.750% 09/01/04 .........................................................
0 3,000,000 3,000,000 Guam Power Authority Revenue, Series A,
6.750% 10/01/24 .........................................................
PUERTO RICO - 6.6%
0 4,190,000 4,190,000 Puerto Rico, Commonwealth, (MBIA Insured),
6.500% 07/01/15 .........................................................
0 2,000,000 2,000,000 Puerto Rico, Commonwealth Infrastructure Finance Authority,
Series A, (AMBAC Insured),
5.000% 07/01/16 .........................................................
0 1,000,000 1,000,000 Puerto Rico, Electric Power Authority Revenue,
Series AA, (MBIA Insured),
5.250% 07/01/17 .........................................................
0 1,000,000 1,000,000 Puerto Rico, Industrial Tourist EDL Medical and Environmental
Control Facility Financing Authority,
(Auxilio Mutuo Hospital), Series A, (MBIA Insured),
6.250% 07/01/16 .........................................................
995,000 0 995,000 Puerto Rico, Housing, Bank and Finance Agency, Single-family Mortgage
Revenue, (Affordable Housing Mortgage-Portfolio I), AMT, (GNMA/
FNMA/FHLMC Collateral),
6.250% 04/01/29 .........................................................
1,000,000 0 1,000,000 Puerto Rico Municipal Finance Agency, Series B,
5.000% 07/01/99..........................................................
TOTAL MUNICIPAL BONDS AND NOTES
U.S. GOVERNMENT AGENCY OBLIGATION - 1.8%
0 3,000,000 3,000,000 Federal Home Loan Bank,
6.810% 09/04/02.
Shares
- ------------------------------------
MONEY MARKET FUNDS - 5.7%
2,417,000 0 2,417,000 AIM Tax-Exempt Fund .......................................................
0 5,044,322 5,044,322 Dreyfus Municipal Cash Management Plus Fund ...............................
292,000 0 292,000 Nuveen Tax-Exempt Fund ....................................................
0 1 1 Provident Institutional Municipal Fund ....................................
0 1,813,692 1,813,692 Valiant Tax-Free Money Market Fund ........................................
TOTAL MONEY MARKET FUNDS
<CAPTION>
SECURITY DESCRIPTIONS VALUE
=================================================================================================================
Nations Emerald
Florida Florida Pro Forma
Municipal Tax-Exempt Combining
Bond Fund Fund Portfolios
=================================================================================================================
MUNICIPAL BONDS AND NOTES - (continued)
<S> <C> <C> <C>
FLORIDA - (continued)
South Broward, Florida, Hospital District Revenue Refunding,
(FSA Insured),
5.500% 05/01/28 ...................................................... $ 2,003,520 $ 0 $ 2,003,520
South Miami, Florida, Health Facilities Revenue, (MBIA Insured),
5.380% 10/01/16 ...................................................... 0 4,034,680 4,034,680
Sunrise Lakes, Florida, Phase 4 Recreation District Revenue,
(Series A),
6.750% 08/01/24 ...................................................... 0 2,766,075 2,766,075
Tampa, Florida, Sports Authority Revenue, (MBIA Insured),
(Stadium Project):
5.125% 01/01/12 ...................................................... 1,008,800 0 1,008,800
5.250% 01/01/17 ...................................................... 0 2,011,600 2,011,600
(Tampa Bay Arena),
5.750% 10/01/15 ...................................................... 0 2,714,800 2,714,800
Venice, Florida, Health Facilities Revenue Refunding, (Venice Hospital
Inc. Project):
5.600% 12/01/05 ...................................................... 970,533 0 970,533
5.700% 12/01/06 ...................................................... 1,083,820 0 1,083,820
Volusia County, Florida, Educational Facilities Authority Revenue,
Series A, 6.125% 10/15/26 ............................................. 1,048,090 0 1,048,090
------------ ------------ ------------
42,917,557 90,314,726 133,232,283
------------ ------------ ------------
GUAM - 7.5%
Guam Airport Authority Revenue:
Series A,
6.380% 10/01/10 ....................................................... 0 4,095,919 4,095,919
Series B,
6.400% 10/01/05 ....................................................... 0 2,615,190 2,615,190
Guam Government, GO, Series A,
5.750% 09/01/04 ....................................................... 0 2,528,450 2,528,450
Guam Power Authority Revenue, Series A,
6.750% 10/01/24 ....................................................... 0 3,268,710 3,268,710
------------ ------------ ------------
0 12,508,269 12,508,269
------------ ------------ ------------
PUERTO RICO - 6.6%
Puerto Rico, Commonwealth, (MBIA Insured),
6.500% 07/01/15 ....................................................... 0 4,916,756 4,916,756
Puerto Rico, Commonwealth Infrastructure Finance Authority,
Series A, (AMBAC Insured),
5.000% 07/01/16 ....................................................... 0 1,976,060 1,976,060
Puerto Rico, Electric Power Authority Revenue,
Series AA, (MBIA Insured),
5.250% 07/01/17 ....................................................... 0 1,005,990 1,005,990
Puerto Rico, Industrial Tourist EDL Medical and Environmental
Control Facility Financing Authority,
(Auxilio Mutuo Hospital), Series A, (MBIA Insured),
6.250% 07/01/16 ....................................................... 0 1,085,400 1,085,400
Puerto Rico, Housing, Bank and Finance Agency, Single-family Mortgage
Revenue, (Affordable Housing Mortgage-Portfolio I), AMT, (GNMA/
FNMA/FHLMC Collateral),
6.250% 04/01/29 ....................................................... 1,037,049 0 1,037,049
Puerto Rico Municipal Finance Agency, Series B,
5.000% 07/01/99 ...................................................... 1,015,700 0 1,015,700
------------ ------------ ------------
2,052,749 8,984,206 11,036,955
------------ ------------ ------------
TOTAL MUNICIPAL BONDS AND NOTES ......................................... 44,970,306 11,807,201 156,777,507
============ ============ ============
Federal Home Loan Bank,
6.810% 09/04/02 ....................................................... 0 3,000,000 3,000,000
============ ============ ============
AIM Tax-Exempt Fund ..................................................... 2,417,000 0 2,417,000
Dreyfus Municipal Cash Management Plus Fund ............................. 0 5,044,322 5,044,322
Nuveen Tax-Exempt Fund .................................................. 292,000 0 292,000
Provident Institutional Municipal Fund .................................. 0 1 1
Valiant Tax-Free Money Market Fund ...................................... 0 1,813,692 1,813,692
------------ ------------ ------------
TOTAL MONEY MARKET FUNDS ................................................ 2,709,000 6,858,015 9,567,015
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS (Cost $45,089,755, $113,566,211 and $158,655,966).... 101.0 47,679,306 121,665,216 169,344,522
OTHER ASSETS AND LIABILITIES (Net) .................................... (1.0) 533,862 (2,201,191) (1,667,329)
----- ------------- ------------- -------------
NET ASSETS............................................................. 100.0% $ 48,213,168 $ 119,464,025 $ 167,677,193
===== ============= ============= =============
</TABLE>
- ----------
+ Variable rate note. The interest rate shown reflects the rate in effect at
November 30, 1997.
See Notes to Pro Forma Financial Statements.
ABBREVIATIONS:
AMBAC American Municipal Bond Assurance Corporation
AMT Alternative Minimum Tax
ETM Escrow to Maturity
FGIC Federal Guaranty Insurance Corporation
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GO General Obligation
MBIA Municipal Bond Investors Assurance
PCR Pollution Control Revenue
<PAGE>
NATIONS FLORIDA MUNICIPAL BOND FUND
EMERALD FLORIDA TAX-EXEMPT FUND
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
November 30, 1997
<TABLE>
<CAPTION>
Nations Florida Emerald Florida Adjustments to Pro Forma
Municipal Bond Fund Tax-Exempt Fund Pro Forma Combined (Note 1)
------------------- --------------- --------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at Value (cost $45,089,755,$113,566,211
and $158,655,966) $47,679,306 $121,665,216 -- $169,344,522
Cash 926 -- -- 926
Income Receivable 776,669 1,735,947 -- 2,512,616
Receivable for Fund Shares Sold 10,000 679,862 -- 689,862
Prepaid and Other Assets 1,082 66,720 -- 67,802
----- ------ -- ------
Total Assets 48,467,983 124,147,745 -- 172,615,728
---------- ----------- -- -----------
LIABILITIES:
Income Distribution Payable -- 454,200 -- 454,200
Payable for Investments Purchased 174,610 3,897,900 -- 4,072,510
Payable for fund shares redeemed -- 183,107 -- 183,107
Accrued Expenses and other payables 80,205 148,513 -- 228,718
------ ------- -- -------
Total Liabilities 254,815 4,683,720 -- 4,938,535
------- --------- -- ---------
Net Assets Applicable to Shares Outstanding $48,213,168 $119,464,025 $0 $167,677,193
=========== ============ == ============
Net Assets by Class:
Primary A/Institutional $28,780,232 $39,064,802 -- $67,845,034
=========== =========== == ===========
Primary B n/a n/a -- n/a
=== === == ===
Investor A/Retail $1,956,226 $80,399,223 -- $82,355,449
========== =========== == ===========
Investor B $2,690 n/a -- $2,690
========== =========== == ===========
Investor C $17,474,020 n/a -- $17,474,020
=========== =========== == ===========
Shares Outstanding by Class:
Primary A/Institutional 2,909,136 3,467,292 481,440(a) 6,857,868
========= ========= ======= =========
Primary B n/a n/a -- n/a
=== === == ===
Investor A/Retail 197,738 7,143,927 982,936(a) 8,324,601
======= ========= ======= =========
Investor B 272 n/a -- 272
=== === == ===
Investor C 1,766,309 n/a -- 1,766,309
========= === == =========
Primary A Shares:
Net Asset Value per Share $9.89 $11.27 $9.89
===== ====== =====
Primary B Shares:
Net Asset Value per Share n/a n/a n/a
=== === ===
Investor A Shares:
Net Asset Value per Share $9.89 $11.25 $9.89
===== ====== =====
Investor B Shares:
Net Asset Value per Share $9.89 n/a $9.89
===== === =====
Investor C Shares:
Net Asset Value per Share $9.89 n/a $9.89
===== === =====
</TABLE>
(a) Reflects the difference in net asset value between the acquiring fund
shares and the acquired fund shares.
See Notes to Pro Forma Financial Statements
<PAGE>
NATIONS FLORIDA MUNICIPAL BOND FUND
EMERALD FLORIDA TAX-EXEMPT FUND
Pro Forma Statement of Operations (Unaudited)
For the Twelve Month Period Ending November 30, 1997
<TABLE>
<CAPTION>
Nations Florida Emerald Florida Adjustments to Pro Forma
Municipal Bond Fund Tax-Exempt Fund Pro Forma Combined (Note 1)
------------------- --------------- --------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and Dividends $2,309,576 $6,539,826 -- $8,849,402
---------- ---------- ----------
Total Investment Income 2,309,576 6,539,826 -- 8,849,402
---------- ---------- ----------
EXPENSES:
Investment Advisory 250,711 464,431 232,444 (a) 947,586
Administration 41,785 89,984 26,162 (a) 157,931
Transfer Agent 32,825 26,371 - 59,196
Custodian (e) 4,798 15,938 (9,000) (b) 11,736
Legal and Audit Fees 15,042 9,283 (2,000) (b) 22,325
Trustees' Fees 848 6,735 (5,735) (b) 1,848
Amortization of organization costs 208 24 (24) (c) 208
Other expenses 26,319 87,565 (44,000) (b) 69,884
---------- ---------- -------- ----------
Subtotal 372,536 700,331 197,847 1,270,714
Shareholder servicing and distribution fees
Investor A 3,905 399,848 (239,909) (a) 163,844
Investor B 137,649 -- N/A 137,649
Investor C 252 -- N/A 252
Fees waived and/or reimbursed by
investment advisor and administrator (122,517) (150,286) (50,325) (d) (323,128)
---------- ---------- -------- ----------
Total Expenses 391,825 949,893 (92,387) 1,249,331
---------- ---------- -------- ----------
NET INVESTMENT INCOME 1,917,751 5,589,933 92,387 7,600,071
---------- ---------- -------- ----------
Net Realized and Unrealized Gain/(Loss)
on Investments:
Realized Gain/(Loss) on securities (2,787,695) 922,783 -- (1,864,912)
Change in unrealized appreciation/
(depreciation) on securities 870,699 981,574 -- 1,852,273
---------- ---------- ----------
Net Realized and Unrealized gain/(loss)
on investments (1,916,996) 1,904,357 -- (12,639)
---------- ---------- ----------
Net Increase in net assets
resulting from operations $ 755 $7,494,290 $ 92,387 $7,587,432
========== ========== ======== ==========
</TABLE>
Legend:
(a) Reflects adjustment to the acquiring fund contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Organization expense of the acquired fund is not an expense of the
combined fund.
(d) Reflects adjustment to the level of the acquiring fund's voluntary expense
reimbursement.
(e) Net of expense offset arrangements amounts to less than .01% of average
net assets.
See Notes to Pro Forma Financial Statements
<PAGE>
Nations Florida Municipal Bond Fund
Emerald Florida Tax-Exempt Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
Nations Fund Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end investment company. As of
November 30, 1997 the Trust offers thirty-five separate portfolios. The
unaudited Pro Forma Combining Portfolio of Investments and the unaudited Pro
Forma Combining Statement of Assets and Liabilities assumes the exchange
described in the next paragraph occurred as of November 30, 1997 and the
unaudited Pro Forma Combining Statement of Operations assumes the exchange
occurred as of December 1, 1996. These statements have been derived from books
and records utilized in calculating daily net asset value of each fund at
November 30, 1997 and for the twelve month period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Emerald Florida Tax-Exempt Fund in exchange for shares
of Nations Florida Municipal Bond Fund. Under generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving entity and the results of operations of the Emerald Florida
Tax-Exempt Fund for pre-combination periods will not be restated. The pro forma
statements do not reflect the expenses of either fund in carrying out its
obligations under the proposed Agreement and Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
<PAGE>
Nations Florida Municipal Bond Fund
Emerald Florida Tax-Exempt Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
For the twelve month period ended November 30, 1997, the Nations Florida
Municipal Bond Fund's investment advisory fee was computed based on the annual
rate of 0.60% of average daily net assets. The administration fee was computed
based on the annual rate of 0.10% of average daily net assets of the Trust and
the investment portfolios of Nations Fund, Inc. and Nations Fund Portfolios,
Inc. (two other registered open-end investment companies which are part of the
Nations Fund family) on a combined basis.
The Trust has adopted a shareholder servicing and distribution plan ("Investor A
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Investor A Shares of
the Nations Florida Municipal Bond Fund. Under the Investor A Plan, aggregate
payments may not exceed 0.20%, on an annualized basis, of the average daily net
assets of the Fund's Investor A Shares.
The Trust has also adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act with respect to Investor B Shares ("Investor B Distribution Plan") and
Investor C Shares ("Investor C Distribution Plan") of the Nations Florida
Municipal Bond Fund. Under the Investor B Distribution Plan and Investor C
Distribution Plan, aggregate payments may not exceed 0.53% and 0.37%, on an
annualized basis, of the average daily net assets of the Investor B Shares and
Investor C Shares respectively, of the Fund.
The Trust has also adopted a shareholder servicing plan with respect to Investor
B Shares ("Investor B Servicing Plan") and Investor C Shares ("Investor C
Servicing Plan") of the Nations Florida Municipal Bond Fund. Under
2
<PAGE>
Nations Florida Municipal Bond Fund
Emerald Florida Tax-Exempt Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
the Investor B Servicing Plan and Investor C Servicing Plan, aggregate payments
may not exceed 0.25% on an annualized basis of the average daily net assets of
the Investor B Shares and Investor C Shares of the Fund.
2. Portfolio Valuation
Securities of Nations Florida Municipal Bond Fund are valued by an independent
pricing service approved by the Board of Trustees. Valuations are based upon a
matrix system and/or appraisals provided by the pricing service which takes into
consideration such factors as yields, prices, maturities, redemption features
and credit ratings on comparable securities. Certain securities may be valued by
one or more principal market makers. Restricted securities, securities for which
market quotations are not readily available, and other assets are valued by the
investment adviser under the supervision of the Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost. Emerald
Florida Tax-Exempt Fund uses similar rules for determining portfolio valuation.
3
<PAGE>
Nations Florida Municipal Bond Fund
Emerald Florida Tax-Exempt Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
3. Capital Shares
The pro forma net asset value per share assumes the issuance of additional
shares of Nations Florida Municipal Bond Fund which would have been issued at
November 30, 1997 in connection with the proposed reorganization. The pro forma
number of shares outstanding of 16,949,050 consists of 12,075,595 shares assumed
issued in the reorganization plus 4,873,455 shares of Nations Florida Municipal
Bond Fund at November 30, 1997.
4
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
April 7, 1998
Writers Direct Dial Number
(202) 887-8773
Via EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Nations Fund Trust
Registration Statement on Form N-14
SEC File No. 333-46715
----------------------
Dear Sir or Madam:
On behalf of Nations Fund Trust (the "Trust") and pursuant to Rule
497(b) under the Securities Act of 1933, as amended, we are transmitting
herewith for filing the Trust's definitive Proxy/Prospectus and Statement of
Additional Information, each dated March 25, 1998.
If you have any questions, please contact the undersigned at the
number indicated above.
Very truly yours,
/s/ Steven G. Cravath
Steven G. Cravath
Enclosures
cc: Robert H. Gordon
Richard H. Blank, Jr.
Edward D. Bedard
Kelly J. Simeonides
Richard S. Szafran
Robert B. Carroll
Robert M. Kurucza
Marco E. Adelfio
