PACIFIC HORIZON FUNDS, INC.
Flexible Income Fund
National Municipal Bond Fund
Short-Term Government Fund
400 Bellevue Parkway
Wilmington, Delaware 19809
February 8, 1999
Dear Shareholder:
On behalf of the Board of Directors of Pacific Horizon Funds, Inc.
("Pacific Horizon"), we are pleased to invite you to a special meeting of
shareholders of Pacific Horizon, including the Pacific Horizon funds named above
(each a "Pacific Horizon Fund") to be held at 10:00 a.m. (Eastern time) on April
12, 1999, at 400 Bellevue Parkway, Wilmington, Delaware (the "Meeting"). At the
Meeting, you will be asked to approve a proposed Agreement and Plan of
Reorganization, dated as of February 8, 1999 (the "Reorganization Agreement"),
by and between Pacific Horizon and Nations Fund Trust ("Nations"), which
contemplates the reorganization of your Pacific Horizon Fund into a
corresponding fund of Nations (each a "Nations Fund"), and the reorganization of
Pacific Horizon as a whole.
BACKGROUND. As you may recall, BankAmerica Corporation recently
merged with NationsBank Corporation to form the new BankAmerica Corporation
("BankAmerica"). As a result of the merger, both Bank of America National Trust
and Savings Association ("Bank of America"), the investment adviser to the
Pacific Horizon Funds, and NationsBanc Advisors, Inc. ("NBAI"), the investment
adviser to Nations, are indirect, wholly owned subsidiaries of BankAmerica. Bank
of America has decided to consolidate its mutual fund investment advisory
operations with those of NBAI.
At the upcoming Meeting, you will be asked to approve the
reorganization of your Pacific Horizon Fund into a corresponding Nations Fund
(the "Reorganization"). If all approvals are obtained, the Pacific Horizon Funds
will be reorganized into corresponding Nations Funds in May 1999, when your
Pacific Horizon Fund shares will be exchanged for shares of the corresponding
Nations Funds of equal value.
PACIFIC HORIZON'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE TO APPROVE THE PROPOSED REORGANIZATION.
In considering these matters, you should note:
o SIMILAR OBJECTIVES AND POLICIES
The Pacific Horizon Funds are proposed to be reorganized into Nations
Funds with investment policies and objectives that are, in general,
similar to those of the corresponding Pacific Horizon Funds.
o SIMILAR ACCESS AND SERVICE ARRANGEMENTS
Following the Reorganization, you will enjoy access to Nations Funds
through similar distribution, transaction and shareholder servicing
arrangements. The new BankAmerica has one of the most comprehensive
distribution networks of any banking organization in the country.
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 Pacific
Horizon Fund shares that you held immediately before the Reorganization.
THE EXCHANGE OF PACIFIC HORIZON FUND SHARES FOR NATIONS FUND SHARES WILL
BE TAX-FREE UNDER FEDERAL LAW, AND NO FRONT-END OR CONTINGENT DEFERRED
SALES LOADS WILL BE CHARGED AS A RESULT OF THE EXCHANGE.
o THE PROPOSED REORGANIZATION IS EXPECTED TO BENEFIT PACIFIC HORIZON FUND
SHAREHOLDERS BY:
o Offering potential reductions in total operating expense ratios for
certain funds;
o Offering shareholders the opportunity to become part of a larger and more
diverse family of more than seventy mutual funds. Many of you will be able
to exchange your shares among most or all of those funds;
<PAGE>
o Offering access to a broader array of investment products, including a
line of fund-of-funds; 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 Pacific
Horizon Funds named above, more than one Proxy Ballot accompanies these
materials. If you own shares in one or more of the Pacific Horizon Funds not
named above, you will be receiving separately a set of proxy materials
(including Proxy Ballot(s)) for the other funds(s). Please be sure to vote and
return each Proxy Ballot.
Whether or not you plan to attend the Special Meeting, you may vote
by proxy in any of the following ways:
1. Mark, sign, date and return the enclosed Proxy Ballot(s) in the enclosed
postage-paid envelope;
2. Mark, sign, date and fax the enclosed Proxy Ballot(s) to ADP Proxy
Services at (704) 388-2641; or
3. Follow the instructions below to vote on-line or by telephone.
Please return your Proxy Ballot(s), fax it to us or follow the
instructions below to vote on-line or by telephone, 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(S) TODAY, EITHER IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR BY TELEFACSIMILE AT (704) 388-2641. YOU MAY
ALSO VOTE YOUR PROXY BY A TOLL-FREE PHONE CALL OR BY VOTING ON-LINE, AS
INDICATED ON THE ATTACHED INSERT.
The proposed Reorganization and the reasons for the Pacific Horizon
Board's unanimous recommendation are discussed in detail in the enclosed
materials, which you should read carefully. If you have any questions about the
Reorganization, please do not hesitate to contact Pacific Horizon toll free at
1-800-653-9427.
We look forward to your attendance at the Meeting or receiving your
Proxy Ballot(s) or your on-line or telephone instructions so that your shares
may be voted at the Meeting.
Sincerely,
Dr. Cornelius J. Pings
President
<TABLE>
- - --------------------------------------------------------------------------------
TWO QUICK AND EASY WAYS TO VOTE YOUR PROXY PACIFIC
HORIZON
FUNDS
As a valued Pacific Horizon Funds shareholder, your proxy vote is important to
us. That's why we've made it faster and easier to vote your proxy at YOUR
convenience, 24 hours a day. After reviewing the enclosed PROXY
STATEMENT/PROSPECTUS ("PROXY STATEMENT"), which outlines important issues
affecting your funds, select one of the following quick and easy methods to
register your vote - ACCURATELY and QUICKLY.
<S> <C>
VOTE ON-LINE VOTE BY TOLL-FREE PHONE CALL
1. Read the enclosed PROXY STATEMENT and have your PROXY 1. Read the enclosed
PROXY BALLOT (S)* at hand. PROXY STATEMENT and have your PROXY BALLOT(S)* at hand.
2. Go to Web site WWW.PROXYVOTE.COM 2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your 3. Enter the 12-digit Control Number found on your
PROXY BALLOT(S). PROXY BALLOT (S).
4. Cast your vote using the easy-to-follow instructions. 4. Cast your vote using the easy-to-follow instructions.
* DO NOT MAIL THE PROXY BALLOT(S) IF VOTING BY INTERNET OR TELEPHONE.
- - --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
NATIONS FUND TRUST
February 8, 1999
QUESTIONS & ANSWERS
FOR SHAREHOLDERS OF PACIFIC HORIZON FUNDS:
The following questions and answers provide an overview of the proposal to
reorganize your Pacific Horizon Fund into a corresponding portfolio of Nations
Fund Trust. We also encourage you to read the full text of the combined proxy
statement/prospectus (the "Proxy/Prospectus") that follows.
- - --------------------------------------------------------------------------------
Q: WHAT ARE PACIFIC HORIZON FUND SHAREHOLDERS BEING ASKED TO VOTE UPON?
A: Pacific Horizon Fund shareholders are being asked to consider and approve a
proposal to reorganize the Pacific Horizon Funds into corresponding portfolios
within the Nations Funds family of mutual funds.
Q: WHY HAS THE REORGANIZATION OF THE PACIFIC HORIZON FUNDS INTO NATIONS FUNDS
BEEN RECOMMENDED?
A: The Board of Directors of the Pacific Horizon Funds, Inc. ("Pacific Horizon")
and the Boards of Trustees/Directors of Nations Fund Trust, Nations Fund, Inc.
and Nations Institutional Reserves (collectively, "Nations Funds") have each
determined that the consolidation of the Pacific Horizon Funds into
corresponding portfolios of Nations Funds is in the best interests of their
respective shareholders. Among the benefits for Pacific Horizon Fund
shareholders considered by the Pacific Horizon Board were access to a broader
array of mutual funds and the possibility of improved investment performance
from the combining of investment portfolios. A more detailed discussion of the
factors considered by Pacific Horizon's Board in approving the reorganization is
included in the Proxy/Prospectus.
Q: WHAT IS THE ANTICIPATED TIMING OF THE REORGANIZATION?
A: The meeting of shareholders to consider the proposal is scheduled to occur on
April 12, 1999. If all necessary approvals are obtained, the proposed
reorganization will likely take place in May 1999.
Q: WHO WILL RECEIVE THE PROXY/PROSPECTUS MATERIALS?
A: The Proxy/Prospectus has been mailed to all Pacific Horizon Fund shareholders
that held shares of record on January 14, 1999. Please note that in some cases
record ownership of and/or voting authority over Pacific Horizon Fund shares may
reside with a fiduciary or other agent. In these cases, the fiduciary or other
agent may receive the combined Proxy/Prospectus.
Q: HOW WILL THE PACIFIC HORIZON FUNDS BE REORGANIZED?
A: As you may know, Pacific Horizon consists of seventeen separate mutual funds.
The Proxy/Prospectus that accompanies these materials, however, relates only to
the three Pacific Horizon Funds listed below. Shareholders of the other Pacific
Horizon Funds are receiving similar but separate documents. The proposed plan of
reorganization for these three funds, approved by the Pacific Horizon Board of
Directors, contemplates the reorganization of these Pacific Horizon Funds into
three corresponding Nations Funds portfolios having similar investment
objectives and policies. Under the proposed plan of reorganization, the Pacific
Horizon Funds covered by this Proxy/Prospectus would be reorganized into the
following Nations Funds portfolios:
<PAGE>
- - -------------------------------- -----------------------------------------------
PACIFIC HORIZON FUNDS CORRESPONDING NATIONS FUNDS PORTFOLIO
- - -------------------------------- -----------------------------------------------
Flexible Income Fund Nations Diversified Income Fund
- - -------------------------------- -----------------------------------------------
National Municipal Bond Fund Nations Municipal Income Fund
- - -------------------------------- -----------------------------------------------
Short-Term Government Fund Nations Short-Intermediate Government Fund
- - -------------------------------- -----------------------------------------------
Please refer to Table I of the accompanying Proxy/Prospectus for information
regarding the specific classes of shares of the Pacific Horizon Funds and
Nations Funds involved in the Reorganization.
Q: WHAT ARE THE COSTS AND FEDERAL TAX IMPLICATIONS TO SHAREHOLDERS IN
CONNECTION WITH THE PROPOSED REORGANIZATION?
A: The customary costs of the reorganization will not be borne by Pacific
Horizon Fund shareholders. Also, no sales charge will be imposed on the shares
of the Nations Funds issued to you in the reorganization, which means that the
aggregate value of the Nations Fund shares issued to you will be equal to the
aggregate value of the Pacific Horizon Fund shares that you own immediately
prior to the reorganization. In addition, the exchange of Pacific Horizon Funds
shares for Nations Funds shares will be tax-free under federal law.
Q: WHAT WILL HAPPEN TO PACIFIC HORIZON FUND ACCOUNT FEATURES SUCH AS
SYSTEMATIC INVESTMENT PLANS OR AUTOMATIC WITHDRAWAL PLANS?
A: After the reorganization, Nations Funds will generally continue to honor
standing instructions regarding Pacific Horizon Fund accounts, such as
systematic investment plans, automatic withdrawal plans or dividend reinvestment
plans. However, those instructions will be subject to the requirements in place
for the Nations Funds and shareholders will accordingly be notified of any
differences that impact their accounts. Please refer to Appendix IV of the
Proxy/Prospectus for a detailed comparison of Pacific Horizon Funds/Nations
Funds shareholder services.
2
<PAGE>
PACIFIC HORIZON FUNDS, INC.
Flexible Income Fund
National Municipal Bond Fund
Short-Term Government Fund
400 Bellevue Parkway
Wilmington, Delaware 19809
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 12, 1999
To Pacific Horizon Fund Shareholders:
NOTICE IS GIVEN THAT a special meeting of the shareholders (the
"Meeting") of Pacific Horizon Funds, Inc. ("Pacific Horizon"), including the
Pacific Horizon Funds named above (each a "Pacific Horizon Fund" and together,
the "Pacific Horizon Funds"), each of which is a portfolio of Pacific Horizon,
will be held at 10:00 a.m., Eastern time, on April 12, 1999, at 400 Bellevue
Parkway, Wilmington, Delaware, for purpose of considering and voting upon:
ITEM 1. A proposal to approve an Agreement and Plan of
Reorganization, which provides for and contemplates: (a) the transfer
of the assets and liabilities of each Pacific Horizon Fund to a
corresponding fund of Nations Fund Trust in exchange for shares of
designated classes of the corresponding Nations fund of equal value,
(b) the distribution of the shares of the designated classes of the
corresponding Nations fund to shareholders of each Pacific Horizon
Fund; (c) the transfer of all of the assets and liabilities of
Pacific Horizon; and (d) the dissolution under state law and the
deregistration under the Investment Company Act of 1940, as amended,
of Pacific Horizon.
ITEM 2. Such other business as may properly come before the Meeting
or any adjournment(s).
Item 1 is described in the attached Combined Proxy
Statement/Prospectus.
YOUR DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Shareholders of record as of the close of business on January 14,
1999 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 BALLOT, WHICH IS BEING SOLICITED
BY THE PACIFIC HORIZON BOARD OF DIRECTORS. THIS IS IMPORTANT TO ENSURE A QUORUM
AT THE MEETING. SHAREHOLDERS ALSO MAY RETURN PROXIES BY: 1) FACSIMILE AT (704)
388-2641; OR 2) TOUCHTONE VOTING BY DIALING (800) 690-6903; OR 3) VOTING ON-LINE
AT WEBSITE WWW.PROXYVOTE.COM. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE
EXERCISED BY SUBMITTING TO PACIFIC HORIZON A WRITTEN NOTICE OF REVOCATION OR A
SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
By Order of the Board of Directors,
W. Bruce McConnel, III
Secretary
<PAGE>
WE NEED YOUR PROXY VOTE IMMEDIATELY. A SHAREHOLDER MAY THINK HIS OR
HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL. BY LAW, THE SPECIAL MEETING WILL
HAVE TO BE ADJOURNED WITHOUT CONDUCTING ANY BUSINESS IF LESS THAN A MAJORITY OF
THE SHARES ELIGIBLE TO VOTE ARE REPRESENTED. IN THAT EVENT, PACIFIC HORIZON
WOULD CONTINUE TO SOLICIT VOTES IN AN ATTEMPT TO ACHIEVE A QUORUM. YOUR VOTE
COULD BE CRITICAL IN ALLOWING PACIFIC HORIZON TO HOLD THE MEETING AS SCHEDULED,
SO PLEASE RETURN YOUR PROXY BALLOT(S) IMMEDIATELY OR VOTE ON-LINE OR BY
TELEPHONE.
2
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
FEBRUARY 8, 1999
PACIFIC HORIZON FUNDS, INC.
400 BELLEVUE PARKWAY
WILMINGTON, DELAWARE 19809
1-800-653-9427
NATIONS FUND TRUST
ONE NATIONSBANK PLAZA, 33RD FLOOR
CHARLOTTE, NORTH CAROLINA 28255
1-800-321-7854
This combined proxy statement/prospectus ("Proxy/Prospectus") is
being sent to shareholders of the Pacific Horizon Flexible Income Fund, Pacific
Horizon National Municipal Bond Fund and Pacific Horizon Short-Term Government
Fund (each a "Pacific Horizon Fund" and collectively the "Pacific Horizon
Funds"). The Board of Directors of Pacific Horizon Funds, Inc. ("Pacific
Horizon") has called a Special Meeting of Shareholders (the "Meeting") at 10:00
a.m. (Eastern time) on April 12, 1999 at 400 Bellevue Parkway, Wilmington,
Delaware. At the Meeting, shareholders will be asked:
o To approve a proposed Agreement and Plan of Reorganization dated as of
February 8, 1999 (the "Reorganization Agreement") by and between Pacific
Horizon and Nations Fund Trust ("Nations") which provides for and
contemplates: (a) the transfer of the assets and liabilities of each
Pacific Horizon Fund to a corresponding fund of Nations Fund Trust (each a
"Nations Fund" and collectively the "Nations Funds") in exchange for the
shares of designated classes of the corresponding Nations Fund of equal
value; (b) the distribution of the shares of designated classes of the
corresponding Nations Fund to shareholders of each Pacific Horizon Fund;
(c) the transfer of all of the assets and liabilities of Pacific Horizon;
and (d) the dissolution under state law and the deregistration under the
Investment Company Act of 1940, as amended (the "1940 Act"), of Pacific
Horizon.
The Reorganization Agreement, the form of which is attached as
Appendix I, provides for the transfer of assets and liabilities of each Pacific
Horizon Fund to a corresponding Nations Fund in exchange for shares ("Shares")
of designated classes of the corresponding Nations Fund of equal value (the
"Reorganization"). Pacific Horizon and Nations are both registered open-end
management investment companies (mutual funds).
As a result of the Reorganization, shareholders of the Pacific
Horizon Funds will become shareholders of the Nations Funds (the Pacific Horizon
Funds and Nations Funds are sometimes referred to as "Funds"). Table I below
shows each class of each Pacific Horizon Fund and the designated class of each
corresponding Nations Fund:
TABLE I
- - ----------------------------------- ------------------------------------------
PACIFIC HORIZON FUND/SHARE CLASS CORRESPONDING NATIONS FUND/SHARE CLASS
FLEXIBLE INCOME FUND NATIONS DIVERSIFIED INCOME FUND
A Shares Investor A Shares
K Shares Investor C Shares
NATIONAL MUNICIPAL BOND FUND NATIONS MUNICIPAL INCOME FUND
A Shares Investor A Shares
SHORT-TERM GOVERNMENT FUND NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
A Shares Investor A Shares
- - ----------------------------------- ------------------------------------------
1
<PAGE>
Pacific Horizon also offers shares in other funds that are not part
of this Proxy/Prospectus. Pacific Horizon shareholders of those funds are voting
on similar agreements and plans of reorganization, that, in a like manner, would
provide for their reorganization into designated classes and corresponding
portfolios of two other registered investment companies - Nations Funds, 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 funds of Pacific Horizon are approved and
consummated, Pacific Horizon will transfer all of its assets and liabilities,
deregister as a registered investment company and dissolve under Maryland law.
For more information about this aspect of the Reorganization, please see "Voting
Matters."
This Proxy/Prospectus sets forth concisely the information that a
Pacific Horizon Fund shareholder should know before voting, and should be
retained for future reference. It is both Pacific Horizon's proxy statement for
the Meeting and a prospectus for each Nations Fund.
Additional information is set forth in the Statement of Additional
Information relating to this Proxy/Prospectus and in the prospectus dated July
1, 1998, as supplemented, for the Pacific Horizon Funds, both of which are
incorporated herein by reference. Each of these documents is on file with the
Securities and Exchange Commission (the "SEC"), and is available without charge
by calling or writing Pacific Horizon at the telephone number or address stated
above. The information contained in the Nations Funds prospectuses for the
designated share classes, dated August 1, 1998, as supplemented, also is
incorporated by reference into this Proxy/Prospectus. In addition, a prospectus
for the designated share classes of the Nations Funds accompanies this
Proxy/Prospectus. The Annual Report for the year ended March 31, 1998 and the
Semi-Annual Report for the period ended September 30, 1998 for the Nations Funds
are available without charge by calling or writing Nations at the telephone
number or address stated above. Each of these documents is also available on the
SEC's website at www.sec.gov.
This Proxy/Prospectus is expected to be first sent to shareholders on
or about February 8, 1999.
THE SECURITIES 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.
SHARES OF THE PACIFIC HORIZON FUNDS AND NATIONS FUNDS ARE NOT
DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED BY BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, NATIONSBANK, N.A. OR ANY OF THEIR
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 PACIFIC HORIZON FUNDS IS PROVIDENT DISTRIBUTORS, INC. THE DISTRIBUTOR
OF THE NATIONS FUNDS IS STEPHENS INC.
2
<PAGE>
TABLE OF CONTENTS
FEE TABLES.....................................................................5
Table II.......................................................5
SUMMARY........................................................................5
Proposed Reorganization.............................................5
Overview of the Funds...............................................6
Federal Income Tax Consequences.....................................7
Pacific Horizon and Nations Board Consideration.....................7
Principal Risk Factors..............................................8
Voting Information..................................................8
THE REORGANIZATION.............................................................8
Reasons for the Reorganization......................................8
Description of the Reorganization Agreement.........................8
Pacific Horizon Board Consideration................................10
Capitalization.....................................................11
Table III.....................................................11
Federal Income Tax Considerations..................................12
Other Matters......................................................13
COMPARISON OF PACIFIC HORIZON AND NATIONS.....................................13
Investment Objectives and Policies.................................13
Management's Discussion of Nations Fund Performance................13
Investment Advisory Services.......................................13
Table IV......................................................14
Other Service Providers for Pacific Horizon and Nations............14
Sales Load, Distribution and Shareholder Servicing Arrangements
for the Pacific Horizon Funds.................................15
Sales Load, Distribution and Shareholder Servicing Arrangements
for the Nations Funds.........................................15
Administration Agreements..........................................16
Shareholder Transactions and Services..............................16
Fees and Expenses..................................................17
Share Structure....................................................17
Comparison of Corporate/Trust Structure............................17
VOTING MATTERS................................................................18
General Information................................................18
Shareholder and Board Approvals....................................18
Principal Shareholders.............................................19
Table V(A)....................................................19
Table V(B)....................................................20
Quorum.............................................................22
Annual Meetings and Shareholder Meetings...........................22
ADDITIONAL INFORMATION ABOUT NATIONS..........................................22
ADDITIONAL INFORMATION ABOUT PACIFIC HORIZON..................................22
FINANCIAL STATEMENTS..........................................................23
OTHER BUSINESS................................................................23
SHAREHOLDER INQUIRIES.........................................................23
3
<PAGE>
APPENDICES I FORM OF REORGANIZATION AGREEMENT
II EXPENSE SUMMARIES OF PACIFIC HORIZON FUNDS
AND CORRESPONDING NATIONS FUNDS
III INVESTMENT OBJECTIVES, LIMITATIONS AND
CERTAIN SIGNIFICANT INVESTMENT POLICIES
OF THE PACIFIC HORIZON FUNDS AND
CORRESPONDING NATIONS FUNDS
IV SHAREHOLDER TRANSACTIONS AND SERVICES
OF THE NATIONS FUNDS AND CORRESPONDING
PACIFIC HORIZON FUNDS
V MANAGEMENT'S DISCUSSION OF NATIONS
FUND PERFORMANCE
4
<PAGE>
FEE TABLES
The following table shows, as of September 30, 1998, (i) the current
annualized total expense ratio of the Pacific Horizon Funds before and after fee
waivers and/or expense reimbursements and (ii) the PRO FORMA annualized total
expense ratio of the corresponding Nations Funds, before and after fee waivers
and/or expense reimbursements, based upon the fee arrangements and commitments
that will be in place upon consummation of the Reorganization. This table shows
that the PRO FORMA total operating expense ratios for the Nations Funds' classes
and the Combined Funds' classes, before waivers and/or expense reimbursements,
are lower than those of the corresponding Pacific Horizon Funds classes. Taking
into account voluntary waivers and/or expense reimbursements, PRO FORMA total
operating expense ratios for the Nations Funds' classes and the Combined Funds'
classes are higher than those of the corresponding Pacific Horizon Funds'
classes. Detailed PRO FORMA expense information for each proposed reorganization
is included in Appendix II.
<TABLE>
<S> <C> <C>
TABLE II
TOTAL EXPENSE INFORMATION
- - ------------------------------------- --------------------------------------------- --------------------------------------------
PACIFIC HORIZON FUND TOTAL CORRESPONDING TOTAL COMBINED FUND/SHARE PRO FORMA
SHARE CLASS OPERATING NATIONS FUND/SHARE CLASS OPERATING CLASS POST-REORGANIZATION TOTAL
EXPENSES EXPENSES OPERATING
BEFORE/AFTER BEFORE/AFTER EXPENSES
WAIVERS WAIVERS BEFORE/AFTER
WAIVERS
- - ------------------------------------- --------------------------------------------- --------------------------------------------
Pacific Horizon Flexible Income Fund Nations Diversified Income Fund Nations Diversified Income Fund
A Shares 1.38%/0.50% Investor A Shares 1.07%/0.97% Investor A Shares 1.07%/0.97%
K Shares 2.13%/1.00% Investor C Shares 1.82%/1.72% Investor C Shares 1.82%/1.72%
- - ------------------------------------- --------------------------------------------- --------------------------------------------
Pacific Horizon National Nations Municipal Income Fund Nations Municipal Income Fund
Municipal Bond Fund
A Shares 1.27%/0.50% Investor A Shares 1.07%/0.80% Investor A Shares 1.07%/0.80%
- - ------------------------------------- --------------------------------------------- --------------------------------------------
Pacific Horizon Short-Term Government Nations Short-Intermediate Government Nations Short-Intermediate Government
Fund Fund Fund
A Shares 1.02%/0.25% Investor A Shares 0.85%/0.80% Investor A Shares 0.85%/0.80%
- - ------------------------------------- --------------------------------------------- --------------------------------------------
</TABLE>
SUMMARY
The following is a summary of certain information relating to the
proposed Reorganization. More complete information is contained elsewhere in
this Proxy/Prospectus, the Prospectuses and Statements of Additional Information
of Pacific Horizon and Nations, and the Appendices attached hereto.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for
and contemplates: (1) the transfer of all of the assets and liabilities of each
Pacific Horizon Fund to a corresponding Nations Fund in exchange for Shares of
the designated classes of the corresponding Nations Fund of equal value; (2) the
distribution of the Nations Fund Shares to the shareholders of the Pacific
Horizon Funds in liquidation of the Pacific Horizon Funds; (3) the transfer of
all the assets and liabilities of Pacific Horizon; and (4) the dissolution under
state law and the deregistration under the 1940 Act, of Pacific Horizon. The
Reorganization is subject to a number of conditions, including Pacific Horizon
Fund shareholder approval.
5
<PAGE>
The exchange of shares in the Reorganization will be tax-free under
federal law and shareholders will not pay any sales charge as a result of the
exchange of the shares in the Reorganization. As a result of the proposed
Reorganization, a Pacific Horizon Fund shareholder will become a shareholder of
the corresponding Nations Fund and will hold, immediately after the
Reorganization, Nations Fund Shares having a total dollar value equal to the
total dollar value of the shares of the Pacific Horizon Fund that the
shareholder held immediately before the Reorganization. The Reorganization is
expected to occur in May 1999 or such later date as may be determined pursuant
to the Reorganization Agreement. For more information about the Reorganization
and the Reorganization Agreement, see "The Reorganization--Description of the
Reorganization Agreement."
NationsBanc Advisors, Inc. ("NBAI") has advised Pacific Horizon and
Nations Funds that NationsBank, N.A. ("NationsBank"), Bank of America National
Trust and Savings Association ("Bank of America") and their affiliates intend,
with respect to certain of their fiduciary accounts that currently hold A Shares
of a Pacific Horizon Fund, to exchange the Investor A Shares that such accounts
would be entitled to receive as a result of the Reorganization for Primary A
Shares of the same Nations Fund of equal value at or shortly after Closing.
OVERVIEW OF THE FUNDS.
<TABLE>
<S> <C>
Comparison of Investment Objectives
- - ---------------------------------------------------------------- -------------------------------------------------------------
PACIFIC HORIZON FUND CORRESPONDING NATIONS FUND
- - ---------------------------------------------------------------- -------------------------------------------------------------
PACIFIC HORIZON FLEXIBLE INCOME FUND: seeks to provide NATIONS DIVERSIFIED INCOME FUND: seeks total return with
investors with a high current income consistent with an emphasis on current income by investing in a diversified
reasonable investment risk. portfolio of fixed income securities.
- - ---------------------------------------------------------------- -------------------------------------------------------------
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND: seeks to NATIONS MUNICIPAL INCOME FUND: seeks high current income
provide investors with as high a level of current interest exempt from Federal income tax with the potential for
income free of regular Federal income tax as is consistent principal fluctuation associated with investments in
with prudent investment management and preservation of capital. long-term municipal securities.
- - ---------------------------------------------------------------- -------------------------------------------------------------
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND: seeks to provide NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: seeks high
investors with a high level current income consistent with current income consistent with modest fluctuation of
relative stability of principal. principal.
- - ---------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
The investment objectives, policies and restrictions of the Pacific
Horizon Funds are, in general, similar to those of their corresponding Nations
Fund. There are, however, differences. For example, the weighted average
maturity of the Pacific Horizon Short-Term Government Fund's securities
typically ranges from one to two years, while the weighted average maturity of
the Nations Short-Intermediate Government Fund's portfolio is typically between
three and five years. As a result, the share value of the Nations
Short-Intermediate Government Fund may fluctuate more and shareholders of the
Nations Short-Intermediate Government Fund will be subject to increased interest
rate risk. In addition, while the Pacific Horizon National Municipal Bond Fund's
internal policy is not to invest in securities the interest on which is subject
to the federal alternative minimum tax, the Nations Municipal Income Fund may
invest up to 20% of its assets in securities the interest on which is subject to
the federal alternative minimum tax. For additional information, see "Comparison
of Pacific Horizon and Nations--Investment Objectives and Policies" and Appendix
III.
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. Bank of America currently serves as
the investment adviser to the Pacific Horizon Funds. NBAI, TradeStreet and Bank
of America are all indirect, wholly owned subsidiaries of BankAmerica
Corporation. Each Nations Fund's contractual advisory fee is higher than the
corresponding Pacific Horizon Fund's contractual advisory fee, though advisory
fees are only one type of fees and expenses paid by mutual funds. Total
operating expense ratios (before waivers and/or expense reimbursements) are
lower for each Nations Fund compared with its corresponding Pacific Horizon
Fund; total operating expense ratios (after waivers and/or expense
reimbursements) are higher for each Nations Fund. NBAI has agreed that it will
commit to waive fees and/or reimburse expenses as needed to ensure that, for one
year from the date of the Reorganization, the Nations Funds total expense ratios
will not exceed the PRO FORMA after waiver expense rations shown in Table II,
absent a determination by the Nations Board that extraordinary circumstances or
a material reduction in Fund assets has occurred that has made it appropriate to
permit an increase in expense ratios. There can be no assurance that such
expense ratios will continue after this commitment expires. For a more detailed
summary of fees and expenses, see Appendix II.
6
<PAGE>
The Pacific Horizon Funds and Nations Funds have different
administrators, distributors, transfer agents and other service providers. For a
detailed description of the management of the Nations Funds, including NBAI,
TradeStreet and other service providers to the Nations Funds, see the Nations
Fund prospectus accompanying this Proxy/Prospectus.
The purchase, redemption, dividend and other policies and procedures
of the Pacific Horizon Funds and the Nations Funds are generally similar. There
are, however, some differences, such as with respect to categories of
shareholders eligible for sales charge waivers. See "Comparison of Pacific
Horizon and Nations -- Shareholder Transactions and Services" and "Comparison of
Pacific Horizon and Nations -- Share Structure" and Appendix IV to this
Proxy/Prospectus. PLEASE NOTE THAT NO CONTINGENT DEFERRED SALES LOADS WILL BE
IMPOSED ON THE PACIFIC HORIZON FUNDS SHARES AS A RESULT OF THE EXCHANGE OF SUCH
SHARES IN THE REORGANIZATION. IN ADDITION, NO FRONT END SALES LOADS WILL BE
IMPOSED ON ANY OF THE NATIONS FUNDS SHARES ISSUED IN THE REORGANIZATION.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of shares in the
Reorganization is not expected to result in the recognition, for federal income
tax purposes, of gain or loss by the Pacific Horizon Funds, the Nations Funds or
their respective shareholders. The sale of securities by the Pacific Horizon
Funds prior to the Reorganization, whether in the ordinary course of business or
in anticipation of the Reorganization, could result in a taxable capital gains
distribution prior to the Reorganization. See "The Reorganization--Federal
Income Tax Considerations" for additional information.
PACIFIC HORIZON AND NATIONS BOARD CONSIDERATION. During its
deliberations, Pacific Horizon's Board of Directors (with the advice and
assistance of its counsel) reviewed, among other things: (1) the potential
effect of the Reorganization on the shareholders of the Pacific Horizon Funds;
(2) the capabilities, practices and resources of NBAI and the Nations 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 Pacific Horizon Funds and industry peer
groups; (4) the expected cost-savings for certain of the Pacific Horizon Funds,
including other Pacific Horizon funds not described in this Proxy/Prospectus, as
a result of the reorganization of Pacific Horizon; (5) the investment
objectives, policies and limitations of the Nations Funds and their relative
compatibility with those of the Pacific Horizon Funds; (6) the historical
investment performance records of the Pacific Horizon Funds and the Nations
Funds, relative to each other and relative to peer groups; (7) the shareholder
services offered by the Nations Funds Family; (8) the terms and conditions of
the Reorganization Agreement, including those provisions that were intended to
avoid dilution of the interests of Pacific Horizon Fund shareholders; (9) the
anticipated tax consequences of the Reorganization for the respective Pacific
Horizon Funds and their shareholders; (10) the number of investment portfolio
options that would be available to shareholders after the Reorganization; (11)
the viability of any Pacific Horizon Fund on a stand-alone basis apart from the
Nations Funds Family; and (12) the potential benefits of the Reorganization to
other persons, especially NBAI and its affiliates. The Pacific Horizon 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 enhance generally operational efficiencies and
focus with respect to the mutual funds advised by NBAI. It also was noted that
NBAI or an affiliate would assume all customary expenses associated with the
Reorganization and that NBAI would commit to waive fees and/or reimburse
expenses as needed to ensure that, for one year from the date of the
Reorganization, the Nations Funds total operating expense ratios will not exceed
the PRO FORMA after waiver expense ratios shown in Table II, absent a
determination by the Nations Board that extraordinary circumstances or a
material reduction in Fund assets has occurred that has made it appropriate to
permit an increase in expense levels. For additional information, see "The
Reorganization--Pacific Horizon 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
Directors of Pacific Horizon, including all of the non-interested members of the
Board, determined that participation in the Reorganization, as contemplated by
the Reorganization Agreement, was in the best interests of Pacific Horizon and
that the interests of the existing shareholders of Pacific Horizon will not be
diluted as a result of the Reorganization.
PACIFIC HORIZON'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
PACIFIC HORIZON FUND SHAREHOLDERS APPROVE THE REORGANIZATION AGREEMENT.
7
<PAGE>
After considering the relevant factors, the Nations Board similarly
found that participation in the Reorganization 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.
PRINCIPAL RISK FACTORS. Because of the general similarities of the
investment objectives, policies and restrictions of the Pacific Horizon Funds
and their corresponding Nations Funds, an investment in a Nations Fund involves
risks that are similar to those of the corresponding Pacific Horizon Fund.
An investment in each of the Pacific Horizon Funds and Nations Funds
involves risks typically associated with investing in a portfolio of
fixed-income securities, including both interest rate risk and credit risk.
Interest rate risk is the risk that the value of a security will tend to
decrease when market interest rates rise and increase when market interest rates
fall. In general, longer-term debt instruments tend to fluctuate in value more
than shorter-term debt instruments in response to market interest rate
movements. Therefore, because the weighted average maturity range of the Pacific
Horizon Short-Term Government Fund typically is less than that of Nations
Short-Intermediate Government Fund, the share price of the Nations Fund is
likely to fluctuate more in response to market interest rate changes than that
of the Pacific Horizon Fund.
Credit risk is the risk that the issuer of a fixed-income instrument
will be unable to pay principal or interest when due. Credit risk exposure is
substantially similar across Fund pairings, except that Nations
Short-Intermediate Government Fund is subject to less credit risk than the
Pacific Horizon Short-Term Government Fund because the Nations Fund typically
invests fully in U.S. Government obligations, whereas the Pacific Horizon Fund
may invest up to 35% of its assets in corporate bonds.
VOTING INFORMATION. This Proxy/Prospectus is being furnished in
connection with the solicitation of proxies by Pacific Horizon's Board of
Directors. Only shareholders of record at the close of business on January 14,
1999 will be entitled to vote at the Meeting. Shares represented by a properly
executed proxy will be voted in accordance with the instructions thereon. If no
instruction is made, the named 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 Pacific Horizon a written notice of revocation or
a subsequently executed proxy or by attending the Meeting and voting in person.
For additional information, see "Voting Matters."
THE REORGANIZATION
REASONS FOR THE REORGANIZATION. Significant features of the
Reorganization are summarized below. This summary is qualified in its entirety
by reference to the Reorganization Agreement, the form of which is attached as
Appendix I.
The proposed Reorganization is expected to benefit Pacific Horizon
Fund shareholders by, among other things:
(i) Offering shareholders the opportunity to become part of a larger
and more diverse family of more than seventy mutual funds. Many
of you will be able to exchange your shares among most or all of
those funds;
(ii) Offering access to a broader array of investment products,
including a line of fund-of-funds;
(iii) Offering similar access and servicing arrangements; and
(iv) Providing opportunities for enhanced returns through combined
investment portfolios.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. The Reorganization
Agreement provides that, at the Closing, the assets and liabilities of the
Pacific Horizon Funds will be transferred to Nations in exchange for full and
fractional Shares of the designated classes of the corresponding Nations Funds,
as shown in Table I (see page 2 of this Proxy/Prospectus).
The Shares issued by each Nations Fund will have an aggregate dollar
value equal to the aggregate dollar value of the shares of the respective
Pacific Horizon Fund that are outstanding immediately before the Closing.
Immediately after the Closing, each Pacific Horizon Fund will distribute the
Shares of the Nations Fund received in the Reorganization to its shareholders in
liquidation of the Pacific Horizon Fund. Each shareholder owning shares of a
particular Pacific Horizon 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 Pacific
Horizon Fund shares. Nations will establish an account for each former
shareholder of the Pacific Horizon Funds reflecting the number of Nations Fund
Shares distributed to that shareholder. The Shares issued in the Reorganization
will be in uncertificated form. NBAI has advised Pacific Horizon and Nations
Funds that NationsBank, Bank of America and their affiliates intend, with
respect to certain of their fiduciary accounts that currently hold A Shares of a
Pacific Horizon Fund, to exchange the Investor A Shares that such accounts
receive as a result of the Reorganization for Primary A Shares of the same Fund
of equal value at or shortly after Closing.
8
<PAGE>
As indicated above, shareholders of other Pacific Horizon funds are
voting on similar agreements and plans of reorganization that, in a like manner,
would provide for the reorganization of those Pacific Horizon funds into
designated classes of corresponding portfolios of Nations Fund, Inc. and Nations
Institutional Reserves--other registered investment companies that, together
with Nations, comprise a significant part of the Nations Funds Family. Please
note that a vote for or against the approval of the Reorganization Agreement
includes a vote for or against the reorganization of Pacific Horizon into the
Nations Funds Family. If the Reorganization Agreement and the agreements and
plans of reorganization affecting the other Pacific Horizon funds are approved
and consummated, Pacific Horizon will transfer all of its assets and
liabilities, as of the Closing, and all outstanding shares of the Pacific
Horizon Funds will be redeemed and canceled in exchange for shares of the
Nations Funds Family, and Pacific Horizon will wind up its affairs and apply to
be deregistered as an investment company under the 1940 Act and thereafter
dissolve under Maryland law.
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 Pacific Horizon Fund shareholders; approval of the
Reorganization of Pacific Horizon by a majority of all of the shares of the
funds of Pacific Horizon voting in the aggregate; the receipt of certain legal
opinions described in the Reorganization Agreement (which include an opinion of
Nations' counsel addressed to Pacific Horizon 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 independent
accountants 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; the receipt of a certificate relating to the transition of certain
administrative servicing responsibilities to The Bank of New York ("BNY"); the
receipt of an exemptive order with respect to Section 9(a) of the 1940 Act by
Stephens Inc. ("Stephens"); and the parties' performance in all material
respects of their respective covenants and undertakings in the Reorganization
Agreement. It is possible that a majority of a Pacific Horizon Fund's
shareholders may approve the Reorganization Agreement while a sufficient
majority of all shareholders of all Pacific Horizon funds does not approve the
reorganization of Pacific Horizon. In such a case, the Pacific Horizon Board of
Directors will contemplate what further action is appropriate.
The Reorganization Agreement also provides that NBAI or an affiliate
has agreed to assume all customary 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 Pacific Horizon and Nations, or by either Nations or Pacific
Horizon under certain conditions; and that officers of Nations and of Pacific
Horizon 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 any Pacific Horizon Fund without
obtaining the Pacific Horizon Fund shareholders' further approval.
The Reorganization Agreement further provides that Nations, on behalf
of each Nations Fund will use its best efforts to satisfy the conditions of
Section 15(f) of the 1940 Act. Section 15(f) of the 1940 Act provides that when
a change in the control of an investment adviser occurs, the investment adviser
or any of its affiliated persons may receive any amount or benefit in connection
therewith as long as two conditions are satisfied. First, no "unfair burden" may
be imposed on the investment company as a result of the transaction relating to
the change of control, or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden," as defined in the
1940 Act, includes any arrangement during the two-year period after the change
in control whereby the investment adviser (or predecessor or successor adviser),
or any interested person of any such adviser, receives or is entitled to receive
any compensation, directly or indirectly, from the investment company or its
security holders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from, or on behalf of the investment company
(other than fees for bona fide principal underwriting services). The second
condition is that, during the three-year period immediately following
consummation of the transaction, at least 75% of the investment company's board
of directors must not be "interested persons" of the investment adviser, within
the meaning of the 1940 Act. Nations' agreement in this regard is an assumption
of the stated expectation of Pacific Horizon as set forth in the Pacific Horizon
proxy statement dated May 15, 1998 relating to the change in control, if any, of
Bank of America--the Pacific Horizon Funds' investment adviser--which occurred
when NationsBank Corporation and BankAmerica Corporation merged on September 30,
1998.
9
<PAGE>
PACIFIC HORIZON BOARD CONSIDERATION. At meetings held on July 26th
and 27th, 1998, the Pacific Horizon Board of Directors was advised that Bank of
America and NBAI were considering recommending a consolidation of Pacific
Horizon with the Nations Funds Family following the September 30, 1998 merger of
NationsBank Corporation with BankAmerica Corporation. The Pacific Horizon Board
then met again several times in late 1998 and early 1999 to consider the
Reorganization proposal offered by management of Nations, NBAI and its
affiliates. In preparation for each meeting, the Directors were provided with
detailed information about the Reorganization, the Nations Funds and NBAI. These
materials summarized the principal features of the Reorganization, including the
intention that the Reorganization be consummated on a tax-free basis for each
Fund and its shareholders. In addition, the Pacific Horizon Directors received
comparative information about the Pacific Horizon Funds and the corresponding
Nations Funds, including but not limited to the following matters: (1)
investment objectives and policies; (2) advisory, distribution and other
servicing arrangements; (3) expenses (with and without giving effect to current
expense limitations), including PRO FORMA expenses relative to peer groups and
(4) performance relative to peer groups. The Pacific Horizon Board also was
provided with information about NationsBank and its investment advisory
organizations, including information regarding those individuals or teams of
individuals with responsibility for managing each Nations Fund.
The Reorganization was unanimously approved by the Pacific Horizon
Board of Directors on January 14, 1999.
During its deliberations, Pacific Horizon's Board of Directors (with
the advice and assistance of its counsel) reviewed, among other things: (1) the
potential effect of the Reorganization on the shareholders of the Pacific
Horizon Funds; (2) the capabilities, practices and resources of NBAI and the
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 Pacific Horizon Funds and
industry peer groups; (4) the expected cost-savings for certain of the Pacific
Horizon Funds, including other Pacific Horizon funds not described in this
Proxy/Prospectus, as a result of the reorganization of Pacific Horizon; (5) the
investment objectives, policies and limitations of the Nations Funds and their
relative compatibility with those of the Pacific Horizon Funds; (6) the
historical investment performance records of the Pacific Horizon Funds and the
Nations Funds, relative to each other and 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 Pacific Horizon Fund shareholders; (9) the
anticipated tax consequences of the Reorganization for the respective Pacific
Horizon Funds and their shareholders; (10) the number of investment portfolio
options that would be available to shareholders after the Reorganization; (11)
the viability of any Pacific Horizon Fund on a stand-alone basis apart from the
Nations Funds Family; and (12) the potential benefits of the Reorganization to
other persons, especially NBAI and its affiliates. The Pacific Horizon 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 enhance generally operational efficiencies and
focus with respect to the mutual funds advised by NBAI.
With respect to each Nations Fund, Pacific Horizon's Directors
further noted that the per share annualized total operating expense ratios after
the Reorganization, taking into account voluntary fee waivers, would be higher
than those of the corresponding Pacific Horizon Funds before the Reorganization.
See "Table II--Total Expense Information" and Appendix II for more information.
It also noted that NBAI or an affiliate would assume all customary expenses
associated with the Reorganization and that NBAI would commit to waive fees
and/or reimburse expenses as needed to ensure that, for one year from the date
of the Reorganization, the Nations Funds total operating expense ratios will not
exceed the PRO FORMA after waiver expense ratios shown in Table II, absent a
determination by the Nations Board that extraordinary circumstances or a
material reduction in Fund assets has occurred that has made it appropriate to
permit an increase in expense ratios. In addition, it noted that NBAI would
agree to waive fees and/or reimburse expenses, as needed, to ensure that the
total operating expense ratio of any Pacific Horizon Fund that is not
reorganized into a corresponding Nations Fund on the closing date of the
reorganization of the other Pacific Horizon Funds into corresponding Nations
Funds will not, for one year from such date, exceed such Fund's current expense
ratio as shown in Table II, absent a determination by the Pacific Horizon Board
that extraordinary circumstances or a material reduction in Fund assets that
impacts expense levels has occurred that has made it appropriate to permit an
increase in expense levels.
After consideration of the foregoing and other factors, the Pacific
Horizon Directors unanimously determined that the Reorganization is in the best
interest of the shareholders of Pacific Horizon, and that the interest of the
existing shareholders of Pacific Horizon will not be diluted as a result of such
Reorganization.
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<PAGE>
CAPITALIZATION. The following table sets forth, as of September 30,
1998: (1) the capitalization of each of the Pacific Horizon 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. The capitalization of each Pacific Horizon Fund and Nations Fund
is likely to be different at the Closing as a result of daily share purchase and
redemption activity in the Pacific Horizon Funds and Nations Funds as well as
the effects of the other ongoing operations of the respective Funds prior to
Closing.
TABLE III
CAPITALIZATION (AS OF SEPTEMBER 30, 1998)
1. The table below reflects current and PRO FORMA capitalization
information for the combination of the Pacific Horizon Flexible Income Fund with
Nations Diversified Income Fund.
<TABLE>
<S> <C> <C> <C>
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
Pacific Horizon Flexible Income Fund
Class A $38,320,503 2,276,077 $16.84
Class K $470,758 27,942 16.85
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
Nations Diversified Income Fund
Investor A $13,154,000 1,225,596 $10.73
Investor C $1,624,000 151,435 10.73
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
PRO FORMA Combined Fund
Class A/Investor A $51,474,503 4,796,938 $10.73
Class K/Investor C 2,094,758 195,308 10.73
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
2. The table below reflects current and PRO FORMA capitalization information for the combination of the Pacific Horizon
National Municipal Bond Fund with Nations Municipal Income Fund.
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
Pacific Horizon National Municipal Bond Fund
Class A $21,503,672 2,009,639 $10.70
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
Nations Municipal Income Fund
Investor A $24,183,000 2,071,605 $11.67
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
PRO FORMA Combined Fund
Class A/Investor A $45,686,672 3,914,250 $11.67
- - ------------------------------------------------ -------------------------- --------------------------- ----------------------------
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
3. The table below reflects current and PRO FORMA capitalization information for the combination of the Pacific Horizon
Short-Term Government Fund with Nations Short-Intermediate Government Fund.
- - ------------------------------------------------ --------------------------- -------------------------- ----------------------------
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
- - ------------------------------------------------ --------------------------- -------------------------- ----------------------------
Pacific Horizon Short-Term Government Fund
Class A $21,732,313 2,152,873 $10.09
- - ------------------------------------------------ --------------------------- -------------------------- ----------------------------
Nations Short-Intermediate Government Fund
Investor A $49,653,000 11,807,460 $4.21
- - ------------------------------------------------ --------------------------- -------------------------- ----------------------------
PRO FORMA Combined Fund
Class A/Investor A $71,385,313 16,969,530 $4.21
- - ------------------------------------------------ --------------------------- -------------------------- ----------------------------
</TABLE>
FEDERAL INCOME TAX CONSIDERATIONS. Each Nations Fund and each Pacific
Horizon Fund 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 Pacific Horizon 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 Pacific
Horizon Fund and the corresponding Nations Fund is subject to the condition that
Pacific Horizon and Nations receive an opinion from Morrison & Foerster LLP
substantially to the effect that, for federal income tax purposes: (i) the
transfer of all of the assets and liabilities of a Pacific Horizon 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 Pacific Horizon
Fund, will constitute a "reorganization" within the meaning of Section 368(a) of
the Code, and the Pacific Horizon Fund and the Nations Fund will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code in
respect of the Reorganization; (ii) no gain or loss will be recognized by the
Pacific Horizon Fund upon the transfer of its 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 assets and
assumption of liabilities of the Pacific Horizon Fund solely in exchange for the
Nations Fund Shares; (iv) the basis of the Pacific Horizon 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 Pacific Horizon Fund immediately
prior to the Reorganization; (v) the holding period of the Pacific Horizon
Fund's assets in the hands of the Nations Fund will include the period for which
such assets have been held by the Pacific Horizon Fund; (vi) no gain or loss
will be recognized by the Pacific Horizon Fund on the distribution to its
shareholders of the Nations Fund Shares; (vii) no gain or loss will be
recognized by the shareholders of the Pacific Horizon Fund upon their receipt of
the Nations Fund Shares in exchange for such shareholders' shares of the Pacific
Horizon Fund; (viii) the basis of the Nations Fund Shares received by the
shareholders of the Pacific Horizon Fund will be the same as the basis of the
Pacific Horizon Fund Shares surrendered by such shareholders pursuant to the
Reorganization; (ix) the holding period for the Nations Fund Shares received by
the Pacific Horizon Fund shareholders will include the period during which such
shareholders held the Pacific Horizon Fund Shares surrendered in exchange
therefor, provided that such Pacific Horizon Fund shares are held as a capital
asset in the hands of the Pacific Horizon 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 Pacific Horizon
Fund as of the Closing Date, subject to the conditions and limitations specified
in the Code. Shareholders of the Pacific Horizon Funds should note, however,
that the sale of securities by the Pacific Horizon 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 Pacific Horizon have not sought, and will not seek, a
private ruling from the Internal Revenue Service ("IRS") with respect to the
federal income tax consequences of the Reorganization. The opinion of Morrison &
Foerster LLP with respect to the federal income 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 or local income tax consequences.
OTHER MATTERS. NBAI has recommended to the Nations Board that two
Directors from the Pacific Horizon Board be added to the Nations Board. The
Nations Board is expected to consider such recommendation shortly.
12
<PAGE>
In addition, under a retirement plan approved by the Pacific Horizon
Board, several Pacific Horizon Directors who have been in office for a specified
period of time are entitled to retirement benefits following death, resignation
or termination. The payment terms and the formula for calculating the amount of
the retirement benefits are set forth in Pacific Horizon's statement of
additional information. Because the Reorganization contemplates the dissolution
of Pacific Horizon, it is being considered a termination of all the Pacific
Horizon Directors. Such Directors will, therefore, receive retirement benefits
following the Reorganization. NBAI will contribute to Pacific Horizon the amount
of any shortfall to the extent that payments of benefits exceed the amount that
was accrued.
COMPARISON OF PACIFIC HORIZON AND NATIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives,
policies and restrictions of the Pacific Horizon Funds are, in general, similar
to those of their corresponding Nations Fund. They are summarized in Appendix
III. There are, however, certain differences. A brief summary of the more
significant differences follows. In addition, it is expected that in mid-1999
Nations Funds shareholders will be asked to approve certain changes to the
investment policies and restrictions of certain Nations Funds. These changes, if
approved, would not alter the primary investment strategy of any such Nations
Funds.
PACIFIC HORIZON FLEXIBLE INCOME FUND/NATIONS DIVERSIFIED INCOME FUND.
While the Pacific Horizon Fund may invest up to 35% of its assets in
mortgage-backed securities, the corresponding Nations Fund may not invest more
than 25% of its assets in such securities. In addition, while the Pacific
Horizon Fund may invest up to 20% of its assets in foreign securities, the
corresponding Nations Fund may invest up to 25% of its assets in such
securities.
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND/NATIONS MUNICIPAL BOND
FUND. While under normal market conditions the Pacific Horizon Fund will invest
at least 65% of its assets in municipal obligations, the corresponding Nations
Fund invests at least 80% of its assets in such obligations. In addition, the
Pacific Horizon Fund may invest up to 35% of its assets in below-investment
grade debt, or "junk bonds," while the corresponding Nations Fund may not invest
in such securities. Further, while the Pacific Horizon National Municipal Bond
Fund's internal policy is not to invest in securities the interest on which is
subject to the federal alternative minimum tax, the Nations Municipal Income
Fund may invest up to 20% of its assets in securities the interest on which is
subject to the federal alternative minimum tax.
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND/NATIONS SHORT-INTERMEDIATE
GOVERNMENT FUND. While the Pacific Horizon Fund may invest up to 35% of its
assets in mortgage-backed securities, the corresponding Nations Fund will not
invest more than 25% of its assets in such securities. In addition, while the
Pacific Horizon Fund invests up to 35% of its assets in corporate bonds, the
corresponding Nations Fund typically remains fully invested in U.S. Government
obligations. Under normal circumstances, it is expected that the average
weighted maturity of the Pacific Horizon Fund's investments will range from one
to two years, while it is expected that the Nations Fund portfolio's average
weighted maturity will be between three and five years and its duration will not
exceed five years.
The investment objectives, strategies and policies of the Pacific
Horizon Funds and Nations Funds are more fully discussed in Appendix III.
Additional information about the investment policies and restrictions of the
Nations Funds and the Pacific Horizon Funds is included in their respective
prospectuses and statements of additional information, which have been
incorporated herein by reference.
MANAGEMENT'S DISCUSSION OF NATIONS FUND PERFORMANCE. A discussion by
Fund management of the Nations Funds' performance for their most recent fiscal
years can be found at Appendix V.
INVESTMENT ADVISORY SERVICES. Currently NBAI serves as investment
adviser to the Nations Funds and TradeStreet serves as investment sub-adviser to
the Nations Funds. Both NBAI and TradeStreet are wholly owned subsidiaries of
NationsBank, which in turn is an indirect wholly owned banking subsidiary of
BankAmerica Corporation. The Fixed Income Management Team of TradeStreet is
responsible for the day-to-day management of the Nations Diversified Income Fund
and Nations Short-Intermediate Government Fund. The Municipal Fixed Income
Management Team of TradeStreet is responsible for the day-to-day management of
Nations Municipal Income Fund.
13
<PAGE>
The following table shows the contractual investment advisory and,
where applicable, sub-advisory fee ratios, both before and after waivers. The
table also shows the respective investment advisory and sub-advisory fee rates
paid to the investment adviser and sub-adviser after taking into account
voluntary fee waivers, for each Pacific Horizon Fund (as of September 30, 1998)
and corresponding Nations Fund (as of September 30, 1998). The Nations Funds'
investment advisory fees as of September 30, 1998, however, have been adjusted
to reflect a Board-approved reduction in the advisory fee rates under the
investment advisory contracts. The investment advisory fees shown are expected
to become effective in May 1999, at or prior to the closing of the
Reorganization.
TABLE IV
INVESTMENT ADVISORY AND SUB-ADVISORY FEE INFORMATION
<TABLE>
<S> <C>
- - ---------------------------------------------------- -----------------------------------------------------------------------------
PACIFIC HORIZON FUND ADVISORY FEES CORRESPONDING NATIONS FUND ADVISORY & SUB-ADVISORY FEES
BEFORE/AFTER WAIVERS BEFORE/ AFTER WAIVERS
- - ---------------------------------------------------- -----------------------------------------------------------------------------
Pacific Horizon Flexible Income Fund Nations Diversified Income Fund
Advisory Fee 0.45%/0.00% Advisory Fee 0.50%/0.40%
Sub-Advisory Fee 0.15%/0.15%
(Paid by Adviser out of its advisory fee)
- - ---------------------------------------------------- -----------------------------------------------------------------------------
Pacific Horizon National Municipal Bond Fund Nations Municipal Income Fund
Advisory Fee 0.35%/0.00% Advisory Fee 0.50%/0.28%
Sub-Advisory Fee 0.07%/0.07%
(Paid by Adviser out of its advisory fee)
- - ---------------------------------------------------- -----------------------------------------------------------------------------
Pacific Horizon Short-Term Government Fund Nations Short-Intermediate Government Fund
Advisory Fee 0.25%/0.00% Advisory Fee 0.30%/0.30%
Sub-Advisory Fee 0.15%/0.15%
(Paid by Adviser out of its advisory fee)
- - ---------------------------------------------------- -----------------------------------------------------------------------------
</TABLE>
OTHER SERVICE PROVIDERS FOR PACIFIC HORIZON AND NATIONS. Pacific
Horizon and Nations have different service providers. Upon completion of the
Reorganization, Nations will continue to engage its existing service providers.
In all cases, the types of services provided to the Funds under these service
arrangements are substantially similar.
Pacific Horizon Funds Nations Funds
Distributor Provident Distributors, Inc. Stephens
Administrator Bank of America Stephens and NBAI
Sub-Administrator PFPC, Inc. BNY
Transfer Agent PFPC, Inc. First Data Investor
Services Group, Inc.
Sub-Transfer Agent N/A NationsBank
Custodian BNY (National Municipal BNY
Bond Fund Only)
PFPC Trust Company (All Others)
Independent PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP
Accountants
14
<PAGE>
Stephens currently serves as the Nations Funds' distributor. Pursuant
to Section 9(a) of the 1940 Act, Stephens could be disqualified from serving as
such. The SEC has granted a temporary exemption from the provisions of
Section 9(a). Stephens has applied for a permanent exemption and anticipates
receiving such an exemption shortly.
SALES LOAD, DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
FOR THE PACIFIC HORIZON FUNDS
A SHARES. Pacific Horizon has adopted a Shareholder Services Plan for
A Shares, under which the A Shares of each Pacific Horizon Fund reimburse
Pacific Horizon's distributor--Provident Distributors, Inc. ("Provident") - for
shareholder servicing fees that Provident pays to various service organizations
whose customers own A Shares. Payments made under the Shareholder Services Plan
for A Shares, also cover shareholder services provided by Provident and for
support services provided to the beneficial owners of Pacific Horizon Fund
shares. Under the Plan, payments by a Pacific Horizon Fund may not exceed 0.25%
(annualized) of the average daily net assets of such Fund's A Shares. Excluded
from this calculation, however, are all shares acquired via a transfer of assets
from trust and agency accounts at Bank of America. Class A Shares charge a
front-end sales load. The maximum front-end sales load charged for each Pacific
Horizon Fund's A Shares is set forth in Appendix II. Sales load reduction and
waiver categories, which differ from those applicable to Investor A Shares of
the corresponding Nations Funds, are described in Appendix III. Certain
purchases of A Shares of $1,000,000 or more are subject to a contingent deferred
sales charge (a "CDSC") of 1% on redemptions made within 18 months of purchases
made before November 16, 1998 or 1% on redemptions made within 1 year of
purchases made on or after November 16, 1998, declining to .50% in the second
year and eliminated thereafter; Investor A shares of the corresponding Nations
Fund received in exchange for such shares will be subject to the same CDSC of 1%
on redemptions made within 1 year of purchase, declining to .50% in the second
year and eliminated thereafter. For all cases, former Class A shareholders will
be credited for the period of time from the original date of purchase of their
shares for purposes of determining the amount of their CDSC, if any.
K SHARES. Pacific Horizon also has adopted a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act, under which K Shares of a Pacific
Horizon Fund reimburse Provident for services rendered and costs incurred in
connection with distribution of K Shares. Distribution expenses include expenses
incurred in connection with advertising and marketing the Funds' K Shares;
payments to service organizations for assistance in connection with the
distribution of K Shares; and expenses incurred in connection with preparing,
printing and distributing prospectuses for the Funds (except those used for
regulatory purposes or distributed to existing shareholders). Under the
Distribution Plan, payments by a Pacific Horizon Fund for distribution expenses
may not exceed 0.75% (annualized), of the average daily net assets of such
Fund's K Shares.
Pacific Horizon has adopted an Administrative and Shareholder
Services Plan for K Shares, under which K Shares of a Pacific Horizon Fund
reimburse Provident for administrative and shareholder servicing fees that
Provident pays to various services organizations whose customers own K Shares.
Administrative servicing expenses include expenses incurred in connection with
administrative services provided by Provident and payments to service
organizations for the provision of administrative services to beneficial owners
of K shares, such as establishing and maintaining accounts and records relating
to their clients who invest in K Shares, providing information to the Funds
necessary for accounting or sub-accounting and providing statements periodically
to clients showing their position in K Shares. Under the Administrative and
Shareholder Services Plan, payments for shareholder servicing expenses may not
exceed 0.25% (annualized) of the average daily net assets of a Fund's K Shares,
and payments for administrative servicing expenses may not exceed 0.75%
(annualized) of the average daily net assets of the Fund's K Shares.
The total of all fees under the Distribution Plan and the
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
1.00% (annualized) of the average daily net assets of a Fund's K Shares. Class K
Shares are offered at net asset value per share with no front-end sales load or
contingent deferred sales charge.
SALES LOAD, DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS FOR
THE NATIONS FUNDS.
15
<PAGE>
INVESTOR A SHARES. Nations has adopted a 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 its distributor, Stephens, 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 0.25% (annualized)
of the average daily net asset value of the Investor A Shares. Investor A Shares
charge a front-end sales load. The maximum front-end sales load charged for each
Nations Fund's Investor A Shares is set forth in Appendix II. Sales load
reduction and waiver categories, which differ from those applicable to Class A
Shares of the corresponding Pacific Horizon Funds, are described in Appendix III
and the accompanying Prospectus(es). Purchases of $1 million or more of Investor
A Shares that are purchased at net asset value are subject to a maximum deferred
sales charge of 1% of the lower of the original purchase price or redemption
proceeds, if redeemed within 1 year of purchase declining to .50% in the second
year and eliminated thereafter. Investor A Shares that were purchased by
investors investing $1 million or more between July 31, 1997 and November 15,
1998 are subject to a 1% redemption fee if the Investor A Shares are held less
than 18 months. Investor A Shares of the Nations Fund received in exchange for
Class A Shares will be subject to the CDSC. For all cases, former Class A
shareholders will be credited for the period of time from the original date of
purchase of their shares for the purposes of determining the amount of their
CDSC, if any.
INVESTOR C SHARES. Nations has adopted a Distribution Plan with
respect to Investor C Shares of the Nations Funds. Pursuant to the Distribution
Plan, the Funds may compensate or reimburse Stephens for any activities or
expenses primarily intended to result in the sale of the Funds' Investor C
Shares. Payments under the Distribution Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Trustees of Nations,
provided that the annual rate may not exceed 0.75% of the average daily net
assets of the Funds' Investor C Shares. The fees payable under the Distribution
Plan are used to, among other things, compensate Selling Agents for providing
sales support assistance relating to Investor C Shares. The Trustees of Nations
also have approved a shareholder servicing plan ("Servicing Plan") for the Funds
which permits the Fund to compensate Servicing Agents for services provided to
their customers that own Investor C Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Funds' Investor C Shares.
Investor C Shares purchased after January 19, 1999 are subject to a
CDSC of 1% if redeemed within one year of purchase. No CDSC will apply to
Investor C Shares issued in the Reorganization.
ADMINISTRATION AGREEMENTS. The Pacific Horizon Funds have entered
into an administration agreement with Bank of America. Stephens serves as
co-administrator to Nations Funds. Effective December 1, 1998, NBAI began
serving as co-administrator to Nations Funds with Stephens, and BNY began
serving as sub-administrator. Under the new administration arrangements, which
will become effective for the Nations Funds on a Fund by Fund basis during the
fourth quarter of 1998 and the first quarter of 1999, Stephens and NBAI provide
various administrative, accounting and corporate secretarial services and BNY
assists NBAI in performing certain administrative and accounting services.
SHAREHOLDER TRANSACTIONS AND SERVICES. The Pacific Horizon Funds and
the corresponding Nations Funds offer generally similar shareholder services and
transactions. There are, however, some differences. For example, the minimum
initial investment for A and K Shares of the Pacific Horizon Funds is generally
$500 while the minimum initial investment for the Investor A Shares and Investor
C Shares of the Nations Funds, is generally $1,000. Also, each Pacific Horizon
Fund generally requires a $500 minimum account balance, while Nations requires a
$1,000 minimum account balance. Another difference is that Pacific Horizon
provides check-writing privileges on all A and K Shares, while Nations does not
provide check-writing privileges on Investor A and Investor C Shares of the
Nations Funds (although Nations does provide check-writing privileges on certain
shares of its money market funds). Additionally, Nations does not offer
Teletrade--a service currently offered Pacific Horizon Fund shareholders that
allows shareholders to authorize electronic transfers of money to purchase
shares in or redeem shares from an established Fund account.
For a detailed comparison of shareholder transactions and services see Appendix
IV.
The Pacific Horizon Funds and the corresponding Nations Funds also
offer generally similar exchange privileges, with some differences. One
difference is that not all Pacific Horizon Fund shares that may currently be
exchanged for shares of Pacific Horizon California Tax-Exempt Money Market Fund
will, following the Reorganization, be exchangeable for shares of Nations
California Tax-Exempt Reserves. Another difference is that shares of Pacific
Horizon money market funds acquired in an exchange from shares of Pacific
Horizon non-money market funds that were subject to a sales load at the time of
original purchase, will no longer be freely exchangeable into a Nations Funds
non-money market fund following the Reorganization. Accordingly, certain
shareholders seeking to sell such money market fund shares and purchase shares
of Nations non-money market funds may be subject to an additional sales load. In
addition, shares of Time Horizon Funds will no longer be available for exchange
following the Reorganization.
16
<PAGE>
FEES AND EXPENSES. Certain Pacific Horizon Fund service providers
currently waive fees and/or reimburse expenses. For example, Bank of America
currently waives all of the fees that it is entitled to receive for providing
investment advisory services to the Pacific Horizon Funds. This subsidization
results in Bank of America and other service providers furnishing services to
the Funds at a loss.
The subsidization has benefited Pacific Horizon Fund shareholders in
that they have enjoyed total operating expenses below the median ratios of other
comparable mutual funds. Bank of America has informed Pacific Horizon that Bank
of America would have reduced this subsidization as the Funds reached larger
asset levels, such as the asset levels that will likely be attained by the
Nations Funds after the Reorganization. NBAI has informed Pacific Horizon that
for this reason, NBAI will not waive fees or reimburse expenses to the same
extent as Bank of America has for the Pacific Horizon Funds.
Due to reductions in waivers and/or reimbursements, all shareholders
of these Pacific Horizon Funds are expected to experience higher total fund
operating expenses after the Reorganization. See "Table II--Total Expense
Information" and "Appendix II--Expense Summaries of the Pacific Horizon Funds
and Corresponding Nations Funds." It is important, however, to consider that all
total operating expense ratios for the Nations Funds are within the range of
total operating expense ratios of comparable funds. Moreover, NBAI has
undertaken to waive fees and/or reimburse expenses as needed to ensure that, for
at least one year after the Reorganization, the Nations Funds' total operating
expense ratios will not exceed the PRO FORMA after waiver ratios shown in Table
II above, absent a determination by the Nations Fund's Board that extraordinary
circumstances or a material reduction in Fund assets has occurred that has made
it appropriate to permit an increase in expense levels. There can be no
assurance that such expense ratios will continue after this commitment expires.
For detailed PRO FORMA expense information, see Appendix II.
SHARE STRUCTURE. Both Pacific Horizon and Nations are registered as
open-end management investment companies under the 1940 Act. Currently, Pacific
Horizon offers seventeen funds. The Nations Funds Family, which includes several
registered investment companies, currently offers sixty-one funds and will offer
over seventy funds immediately after the Reorganization.
Pacific Horizon was organized as a Maryland corporation on October
27, 1982. It is subject to the provisions of its Charter and By-Laws. Nations
was organized as a Massachusetts business trust on May 6, 1985 and is subject to
the provisions of its Declaration of Trust, as amended and supplemented, and
By-Laws. Pacific Horizon's Charter authorizes the Board of Directors to issue
full and fractional shares of capital stock ($0.001 par value per share) and to
classify and reclassify any authorized and unissued shares into one or more
classes of shares. Shares of Nations Funds are sold without par value, and each
share represents an equal proportionate interest in a portfolio of Nations with
other shares of the same class. Nations' Declaration of Trust authorizes the
Board of Trustees to classify shares into one or more series or classes. Shares
of both the Pacific Horizon Funds and Nations Funds are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Pacific Horizon Fund shareholders generally have cumulative voting
rights to the extent that may be required by applicable law. Additionally,
shareholders will vote in the aggregate and not by class or series, except as
required by law (or when permitted by the Pacific Horizon Board of Directors).
In accordance with Nations' Agreement and 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.
Additional information concerning the attributes of the shares issued
by the Pacific Horizon 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 Pacific Horizon Funds and Nations
Funds can be found in Appendix IV.
COMPARISON OF CORPORATE/TRUST STRUCTURE. As noted, Pacific Horizon is
organized as a Maryland corporation and Nations is organized as a Massachusetts
business trust. In general, the charter documents governing Pacific Horizon are
similar to those documents governing Nations. Although the rights of a
shareholder of a Maryland corporation vary in certain respects from the rights
of an interestholder of a Massachusetts business trust, the attributes of a
share of common stock are comparable to those of a share of beneficial interest,
I.E., shares of both are entitled to one vote per share held and fractional
votes for fractional shares held, and will vote in the aggregate and not by
portfolio or class except as otherwise required by law or when class voting is
permitted by its Board.
17
<PAGE>
It should be noted that under Maryland law, Pacific Horizon Fund
shareholders have no personal liability for Pacific Horizon's acts or
obligations. By contrast, under Massachusetts law, interestholders of a
Massachusetts business trust like Nations could, under certain circumstances, be
held personally liable for the obligations of the trust. However, Nations has
provisions in its Declarations of Trust that endeavor to protect shareholders
from such liability. Thus, the risk of an interestholder incurring a financial
loss on account of interestholder liability is limited to circumstances in which
the trust itself is unable to meet its obligations. In addition, it is expected
that Nations Funds shareholders will be asked to approve a change in the
corporate structure of Nations, including possibly from a Massachusetts business
trust to a Delaware business trust and the reorganization of several registered
investment companies in the Nations Funds Family with Nations. This change, if
required approvals are obtained, would allow those registered investment
companies to operate as a single registered investment company, thereby
potentially permitting the Nations Funds Family to operate with increased
efficiency.
VOTING MATTERS
GENERAL INFORMATION. This Proxy/Prospectus is being furnished in
connection with the solicitation of proxies for the Meeting by the Board of
Directors of Pacific Horizon. It is expected that the solicitation of proxies
will be primarily by mail. OFFICERS AND SERVICE CONTRACTORS OF PACIFIC HORIZON
AND NATIONS MAY ALSO SOLICIT PROXIES BY TELEPHONE OR OTHERWISE. In this
connection, Pacific Horizon 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; (2) by telefacsimile, by marking, signing,
dating and faxing the enclosed Proxy Ballot to ADP Proxy Services at (704)
388-2641; or (3) by touchtone voting at (800) 690-6903; or 4) by on-line voting
at www.proxyvote.com. Any shareholder giving a proxy may revoke it at any time
before it is exercised by submitting to Pacific Horizon a written notice of
revocation or 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 or its affiliates.
Only shareholders of record at the close of business on January 14,
1999 will be entitled to vote at the Meeting. On that date, the following
Pacific Horizon Shares were outstanding and entitled to be voted.
NAME OF PACIFIC HORIZON FUND/CLASS SHARES ENTITLED TO VOTE
FLEXIBLE INCOME FUND
A Shares.........................................2,296,828.97
K Shares.........................................31,497.02
NATIONAL MUNICIPAL BOND FUND
A Shares.........................................1,984,006.49
SHORT-TERM GOVERNMENT FUND
A Shares.........................................2,127,469.48
Each whole and fractional share of a Pacific Horizon 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 Reorganization Agreement is
being submitted for approval at the Meeting by Pacific Horizon's shareholders
pursuant to Pacific Horizon's Charter and By-Laws, and was unanimously approved
by the Pacific Horizon Board of Directors at a meeting held on January 14, 1999.
The Reorganization Agreement must be approved by a majority of the outstanding
shares of each Pacific Horizon Fund and the reorganization of Pacific Horizon
must be approved by a majority of the outstanding shares of all the funds of
Pacific Horizon, including those funds that are not part of this
Proxy/Prospectus. A vote for the Reorganization Agreement includes a vote for
the reorganization of Pacific Horizon; correspondingly, a vote against the
Reorganization Agreement is a vote against the reorganization of Pacific
Horizon. Separate proxy solicitation materials are being mailed to the
shareholders of all other series of Pacific Horizon seeking the approval of
similar agreements and plans of reorganization and also Pacific Horizon's
reorganization.
18
<PAGE>
The Reorganization Agreement provides that in the event the
Reorganization Agreement is approved with respect to less than all of the
Pacific Horizon Funds, the failure of a Pacific Horizon 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 Pacific
Horizon Funds. It is possible that a majority of a Pacific Horizon Fund's shares
may approve the Reorganization Agreement while a sufficient majority of all
shares of Pacific Horizon funds voting in the aggregate do not vote to approve
the reorganization of Pacific Horizon. In such a case, the Board of Directors
will contemplate what further action is appropriate.
With respect to the approval of the Reorganization Agreement, the
term "majority of the outstanding shares" of Pacific Horizon or a Pacific
Horizon Fund means more than 50% of the outstanding shares of Pacific Horizon or
the particular Pacific Horizon Fund. The vote of the shareholders of the Nations
Funds is not being solicited, since their approval or consent is not necessary
for the Reorganization.
PRINCIPAL SHAREHOLDERS. As of January 14, 1999, the officers and
Directors of Pacific Horizon as a group owned or controlled less than 1% of any
Pacific Horizon Funds. As of January 14, 1999, the officers and Trustees of
Nations as a group owned or controlled less than 1% of any Nations Fund. Table
V(A) shows the name, address and share ownership of each person known to Pacific
Horizon to have ownership with respect to 5% or more of a class of a Pacific
Horizon Fund as of January 14, 1999. Table V(B) shows the name, address and
share ownership of each person known to Nations to have ownership with respect
to 5% or more of a class of a Nations Fund as of January 14, 1999.
TABLE V(A)
<TABLE>
<S> <C> <C> <C> <C> <C> >
CLASS; AMOUNT PERCENTAGE
PACIFIC HORIZON NAME AND OF SHARES OWNED; PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF FUND POST-CLOSING
Pacific Horizon National BA Investment Services, Inc. A; 108,897.06; record 5.49% 5.49% 0.18%
Municipal Bond Fund FBO 514859931
185 Berry Street
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services, Inc. A; 117,665.98; record 5.93% 5.93% 0.20%
FBO 403478581
185 Berry Street
3rd Floor 2640
San Francisco, CA 94104
BA Investment Services, Inc. A; 131,823.45; record 6.64% 6.64% 0.22%
FBO 510623051
185 Berry Street
3rd Floor 12640
San Francisco, CA 94107
19
<PAGE>
Pacific Horizon PACO A; 214,162.99; record 10.07% 10.07% 0.13%
Short-Term Government Attn Mutual Funds
Fund PO Box 513577
Los Angeles, CA 90051
Bank of America MT&SA A; 1,634,145.86; 76.81% 76.81% 0.98%
The Private Bank record
Attn Common Trust Funds
Unit 38329
PO Box 3577 Terminal Annex
Los Angeles, CA 90051
BA Investment Services Inc. A; 125,250.27; record 5.89% 5.89% 0.08%
FBO 426422071
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
Pacific Horizon Flexible PACO A; 241,819.67; record 10.53% 10.39% 0.58%
Income Fund Attn Mutual Funds
PO Box 513577
Los Angeles, CA 90051
Corelink Financial Inc. K; 31,318.52; record 99.43% 1.35% 0.07%
PO Box 4054
Concord, CA 94524
Corelink Financial Inc. A; 144,441.34; record 6.29% 6.20% 0.34%
PO Box 4054
Concord, CA 94524
Bank of America MT&SA A; 168,660.45; record 7.34% 7.24% 0.40%
The Private Bank
Attn Common Trust Funds
Unit 38329
PO Box 3577 Terminal Annex
Los Angeles, CA 90051
20
<PAGE>
TABLE V(B)
CLASS; AMOUNT PERCENTAGE
NATIONS NAME AND OF SHARES OWNED; PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF FUND POST-CLOSING
Nations Diversified NFSC FEBO #W15-632406 A; 81,447.45; record 7.16% 0.21% 0.19%
Income Fund AVX/KYOCERA FNDTN
Attn: Bill Thiele
P.O. Box 867
Myrtle Beach, SC 29578
NFSC FEBO #W15-638277 A; 77,420.33; record 6.81% 0.20% 0.18%
NFSC/FMTC IRA SEPP
FBO James T. Pearce
P.O. Box 1986
Greenville, SC 29602
NFSC FEBO #W17-662682 C;15,014.93; record 11.53% 0.039% 0.04%
NFSC/FMTC IRA ROLLLOVER
FBO Linda G. Walker
7 Sally Street
Spartanburg, SC 29301
George Tipton and C; 9,945.36; record 7.64% 0.025% 0.023%
Toni Tipton JTWROS
1103 Shipmaster
Hilton Head Island, SC
29928-0000
NFSC FEBO #W15-001520 C; 9,587.62; record 7.36% 0.025% 0.022%
Clarence G. Boehm
136 E Edgewater Drive
Charleston, SC 29407
Stuart K. Colonna TTEE C; 9,392.73; record 7.21% 0.024% 0.022%
Bayshore Concrete Products
Corp.
Retirement Savings Plan
1 Bayshore Road
P.O. Box 230
Cape Charles, VA 23310
NFSC FEBO #W14-629260 C;7,055.54; record 5.42% 0.018% 0.017%
W. O. James
Julianne G. James
425 Sherwood Road
Fayetteville, GA 30215
Mr. Judoprajitno TTEE FBO C;6,726.97; record 5.16% 0.017% 0.016%
Embassy of the Republic of
Indonesia Retirement Plan
2020 Massachusetts Ave., NW
Washington, DC 20036-1012
Nations Municipal Income Capital Network Services A; 351,068.69; record 14.19% 0.60% 0.59%
Fund Attn: Ellyson Barnes
One BushStreet
Suite 1150
San Francisco, CA 94104
Denise Maxwell C; 49,043.01; record 28.23% 0.08% 0.08%
45 Saddlebrook
Houston, TX 77024
NFSC FEBO #W65-633313 C; 18,786.87; record 10.82% 0.03% 0.03%
College Park Partners Ltd.
A Partnership
117 Spring Chase Circle
Atlamonte Springs, FL 32714
Emmet David Gelhot C; 10,364.67; record 5.97% 0.02% 0.02%
5630 Oleatha Avenue
Saint Louis, MO 63139-1504
21
<PAGE>
W. Keith Maxwell C; 9,086.74; record 5.23% 0.02% 0.02%
45 Saddlebrook
Houston, TX 77024
Nations NFSC FEBO #W14-610208 A; 880,206.99; record 7.63% 0.55% 0.53%
Short-Intermediate Burgess Pigment Co.
Government Fund P.O. Box 349 Deck Blvd.
Sandersville, GA 31082
James Street Property Investors A; 647,049.25; record 5.61% 0.40% 0.39%
600 Atlantic Ave, Suite 2000
Boston, MA 02210
</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 Pacific Horizon have been advised by Bank of America that
the shares of each Pacific Horizon Fund over which Bank of America and its
affiliates have voting power may be voted by Bank of America itself in its
capacity as fiduciary and that it has engaged an independent third party to
evaluate the Reorganization proposal and make a recommendation as to how to vote
the shares.
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 Reorganization Agreement are not received by Pacific Horizon or by
one or more of the Pacific Horizon Funds, one or more adjournment(s) may be
proposed to permit further solicitation of proxies. Any adjourned session or
sessions may be held after the date set for the original Meeting without notice
except announcement at the meeting, but, under Maryland law, no more than 120
days after the record date. Any such adjournment(s) will require the affirmative
vote of a majority of those shares affected by the adjournment(s) that are
represented 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), 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 Pacific Horizon Funds (but not the other Pacific Horizon
Funds) on some or all matters before any such adjournment(s) if a quorum is
present and sufficient votes have been received for approval with respect to
such Funds.
A quorum is constituted with respect to Pacific Horizon or a Pacific
Horizon Fund by the presence in person or by proxy of the holders of more than
50% of the outstanding shares of Pacific Horizon or the Pacific Horizon 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 of the Reorganization Agreement. 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 be treated the same as abstentions.
ANNUAL MEETINGS AND SHAREHOLDER MEETINGS. Neither Nations nor Pacific
Horizon presently intends to hold annual meetings of shareholders for the
election of trustees/directors 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 Pacific Horizon or Nations have the right to
call a meeting of shareholders.
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ADDITIONAL INFORMATION ABOUT NATIONS
Additional information about the Nations Funds is included in their
prospectuses and statements of additional information dated August 1, 1998, 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 PACIFIC HORIZON
Additional information about the Pacific Horizon Funds is included in
their prospectuses and statements of additional information, dated July 1, 1998
as supplemented through the date hereof, 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 Pacific Horizon
at the address and telephone number set forth on the first page of this
Proxy/Prospectus. Reports and other information filed by Pacific Horizon 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 Pacific
Horizon 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 Pacific
Horizon was provided by Pacific Horizon.
FINANCIAL STATEMENTS
The unaudited financial statements and financial highlights for
shares of the Nations Funds for the semi-annual period ended September 30, 1998
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 unaudited financial statements and financial
highlights for shares of the Pacific Horizon Funds for the semi-annual period
ended August 31, 1998 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, or are included herein.
The annual financial statements and financial highlights of the
Nations Funds for the year ended March 31, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, to the extent indicated in
their reports thereon and have been incorporated by reference in the Statement
of Additional Information to this Proxy/Prospectus, in reliance upon such
reports given upon the authority of such firm as an expert in accounting and
auditing.
The annual financial statements and financial highlights of the
Pacific Horizon Funds for the year ended February 28, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, to the extent indicated in
their reports thereon and have been incorporated by reference in the Statement
of Additional Information to this Proxy/Prospectus, in reliance upon such
reports given upon the authority of such firm as an expert in accounting and
auditing.
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OTHER BUSINESS
Pacific Horizon's Board of Directors 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
restrictions 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 Pacific Horizon 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 OR VOTE ON-LINE OR BY
TELEPHONE.
PACIFIC HORIZON WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS FEBRUARY
28, 1998 ANNUAL REPORTS, OR AUGUST 31, 1998 SEMI-ANNUAL REPORTS, TO ANY
SHAREHOLDER UPON REQUEST ADDRESSED TO: PACIFIC HORIZON FUNDS AT P.O. BOX 8968,
WILMINGTON, DE 19899 OR BY TELEPHONE AT 1-800-346-2087.
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APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of this 8th day of February, 1999, by and between Nations Fund Trust
("Nations Funds"), a Massachusetts business trust, for itself and on behalf of
Nations Diversified Income Fund, Nations Municipal Income Fund and Nations
Short-Intermediate Government Fund (each an "Acquiring Fund" and collectively
the "Acquiring Funds"), each a portfolio of Nations Funds, and Pacific Horizon
Funds, Inc. ("Pacific Horizon Funds"), a Maryland corporation, for itself and on
behalf of the Pacific Horizon Flexible Income Fund, Pacific Horizon National
Municipal Bond Fund and Pacific Horizon Short-Term Government Fund (each an
"Acquired Fund" and collectively the "Acquired Funds"), each a portfolio of
Pacific Horizon 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. The parties intend that each
Reorganization (as defined herein) qualify as a "reorganization," within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that each of the Acquiring Funds and the Acquired Funds qualify as
a "party to a reorganization," within the meaning of Section 368(b) of the Code,
with respect to such Reorganization.
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 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
respective share classes 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
(whether absolute or contingent, known or unknown, accrued or
unaccrued) and receivables
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(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, 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 Pacific Horizon Funds to indemnify Pacific
Horizon Funds' current and former Directors and officers, acting in
their capacities as such, to the fullest extent permitted by law and
the Pacific Horizon Funds' Charter, as in effect as of the date of
this Agreement and any obligations of the Pacific Horizon Funds to pay
any retirement benefits to current and former Directors pursuant to
Pacific Horizon Fund's retirement plan ("Liabilities"). Without
limiting the foregoing, each Acquiring Fund agrees that all rights to
indemnification and retirement benefits and all limitations of
liability existing in favor of the Pacific Horizon Funds' current and
former Directors and officers, acting in their capacities as such,
under Pacific Horizon Funds' Charter as in effect as of the date of
this Agreement shall survive the Reorganization as obligations of the
respective Acquiring Fund and shall continue in full force and effect,
without any amendment thereto, and shall constitute rights which may
be asserted against Nations Funds, its successors or assigns. The
Liabilities assumed by Nations Funds, its successors or assigns, 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. Prior to the Closing(s), Nations Funds and Pacific Horizon Funds shall
file appropriate Articles of Transfer pursuant to the laws of the
State of Maryland, effective as of the Closing(s).
1.5. 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
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instruction, signed by an appropriate officer of Pacific Horizon
Funds, to transfer the Acquiring Fund Shares then credited to the
Acquired Fund's account on the books of the Acquiring Fund and 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 common stock 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.
1.6. 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.
1.7. 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 1.5, Pacific Horizon 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 Pacific Horizon Funds shall remain the exclusive
responsibility of Pacific Horizon 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
4.10. Subject to the provisions of Section 1.8 and comparable
provisions of similar Agreements and Plans of Reorganizations being
entered into between Pacific Horizon Funds and Nations Institutional
Reserves and Nations Funds, Inc., at an appropriate time as determined
by Pacific Horizon Funds, upon the advice of counsel, Pacific Horizon
Funds will be dissolved under the laws of the State of Maryland.
1.8. 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
Funds and Pacific Horizon Funds, respectively, which are involved in a
Reorganization as of a Closing Date.
2. VALUATION
2.1. 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 by Pacific Horizon Funds and shall be subject to
adjustment by the amount, if any, agreed to by Nations Funds and the
respective Acquired Funds. In determining the value of the securities
transferred by the Acquired Funds to the Acquiring Funds, 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
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<PAGE>
relating to establishing such quotations shall be determined by
Pacific Horizon Funds, provided that such determination shall be
subject to the approval of Nations Funds. Pacific Horizon Funds and
Nations Funds 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 Pacific Horizon Funds and those determined
in accordance with the pricing policies and procedures of the
Acquiring Funds prior to the Applicable Valuation Date.
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. Prior to the Closing(s), Nations Funds and Pacific Horizon Funds shall
execute and file Articles of Transfer, effective as of the Closing(s)
with respect to the transactions contemplated hereby with the
Department of Assessments and Taxation of the State of Maryland (the
"Department of Assessments"). The Closing for the Acquiring Funds and
their corresponding Acquired Fund(s), shall occur on May 14, 1999,
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'
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 Funds and
Pacific Horizon 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, Pacific Horizon Funds shall
provide Nations Funds 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
Pacific Horizon Funds, acting on behalf of the Acquired Fund, a
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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.
3.5. Within twenty (20) 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 Pacific Horizon Funds.
4. COVENANTS WITH RESPECT TO THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS
4.1. Pacific Horizon Funds has called or will call a meeting 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 Pacific Horizon Funds to
terminate each Acquired Fund's qualification, classification and
registration if requisite approvals are obtained with respect to each
Acquired Fund. Nations Funds and Pacific Horizon 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 Funds has furnished or will furnish
Pacific Horizon 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. Pacific Horizon 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. Pacific Horizon 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 Funds, on its own behalf and
on behalf of each Acquiring Fund, and Pacific Horizon 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. Pacific Horizon 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 Pacific Horizon 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, Pacific Horizon Funds, on behalf of each
Acquired Fund, shall furnish its corresponding Acquiring Fund, in such
form as is reasonably satisfactory to Nations Funds, on behalf of each
Acquiring Fund, a statement certified by an officer of Pacific Horizon
Funds of such Acquired Fund's federal
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income tax attributes and the tax basis 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 Funds has prepared and filed, or will prepare and file, with
the Securities and Exchange Commission ("SEC") and the appropriate
state securities commissions a post-effective amendment (the "N-1A
Post-Effective Amendment") to its registration statement on Form N-1A
(File Nos. 002-97817; 811-4305), as promptly as practicable so that
all Acquiring Funds and their shares are registered under the
Securities Act of 1933, as amended (the "1933 Act"), the Investment
Company Act of 1940, as amended (the "1940 Act") as necessary to
consummate the transactions contemplated hereby. Nations Funds will
prepare and file with appropriate state securities commissions any
notices or other filings required to consummate the transactions
contemplated hereby. In addition, Nations Funds, on behalf of each
Acquiring Fund, has prepared and filed, or will prepare and file with
the SEC a registration statement on Form N-14 under the 1933 Act,
relating to the Acquiring Fund Shares, which, without limitation,
shall include a proxy statement of Pacific Horizon Funds and the
prospectuses of the Acquiring Funds of Nations Funds relating to the
transactions contemplated by this Agreement (the "Registration
Statement"). Pacific Horizon 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 N-1A
Post-Effective Amendment and 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 N-1A Post-Effective
Amendment and the Registration Statement.
4.7. As soon after the Closing Date as is reasonably practicable, Pacific
Horizon 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.
4.8. With respect to each Acquiring Fund, Nations Funds 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, as may be modified from time to time,
including qualifying as a "regulated investment company" under the
Code, for at least one (1) year following the Closing Date.
4.9. With respect to each Acquired Fund, Pacific Horizon Funds 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, as may be modified from time to time,
including qualifying as a "regulated investment company" under the
Code, up to the Closing Date.
4.10. 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, Pacific Horizon 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. As soon as practicable after the Closing Date and further
subject to Section 1.8 hereof and comparable provisions of similar
Agreements and Plans of Reorganization between Pacific Horizon Funds
and Nations Institutional Reserves and Nations Funds, Inc., Pacific
Horizon Funds shall file an application pursuant to Section 8(f) of
the 1940 Act for an order declaring that it has ceased to be an
investment company; shall file Articles of Dissolution for recordation
with the Department of Assessments, and shall take, in accordance with
Maryland General Corporation Law, all other steps necessary and proper
to effect its complete dissolution.
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4.11. Nations Fund, on behalf of each Acquiring Fund, shall use its best
efforts to satisfy the conditions of the statutory exemption set forth
in Section 15(f) of the 1940 Act, as an assumption of the stated
expectation of the Pacific Horizon Funds as set forth in the proxy
statement of Pacific Horizon Funds dated May 15, 1998.
5. REPRESENTATIONS AND WARRANTIES
5.1. Nations Funds, on behalf of itself and each Acquiring Fund, represents
and warrants to the Pacific Horizon Funds as follows:
5.1.a. Nations 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 directs the Trustees to
manage the affairs of Nations Funds and grants them all powers
necessary or desirable to carry out such responsibility,
including administering Nations Funds business as currently
conducted by Nations Funds and as described in the current
prospectuses of Nations Funds; Nations 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;
5.1.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 Funds for
itself and on behalf of each Acquiring Fund does not and will not
(i) violate Nations Funds' Agreement and Declaration of Trust or
By-Laws, or (ii) result in a breach or violation of, or
constitute a default under any material agreement or material
instrument, to which Nations Funds is a party or by which its
properties or assets are bound;
5.1.d. Except as previously disclosed in writing to the Pacific
Horizon Funds, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to Nations Funds' knowledge, threatened
against Nations Funds or its business, the Acquiring Funds or any
of their properties or assets, which, if adversely determined,
would materially and adversely affect Nations Funds or an
Acquiring Fund's financial condition or the conduct of their
business, and Nations Funds 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 Funds and the Acquiring Fund does not have outstanding
any option, warrants or other
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<PAGE>
rights to subscribe for or purchase any of its shares nor is
there outstanding any security convertible into 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 Funds and the Trustees, and this Agreement constitutes a
valid and binding obligation of Nations Funds 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 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 the applicable
notice or filing requirements, or exemptions therefrom, of 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
Funds 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 Funds, for itself and on
behalf of each Acquiring Fund, or the performance of the
Agreement by Nations Funds, 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
the filing of Articles of Transfer pursuant to Maryland law 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 Nations
Diversified Income Fund, Nations Municipal Income Fund and
Nations Short-Intermediate Government Fund as of and for the year
ended March 31, 1998, audited by PricewaterhouseCoopers LLP
(copies of which have been or will be furnished to the
corresponding Acquired Fund), and the unaudited Statement of Net
Assets, Statement of Operations and Statement of Changes in Net
Assets of Nations Diversified Income Fund, Nations Municipal
Income Fund and Nations Short-Intermediate Government Fund as of
and for the six-month period ended September 30, 1998 (copies of
which have been or will be furnished to the corresponding
Acquired Fund), present fairly, in all material respects, the
financial position of Nations Diversified Income Fund, Nations
Municipal Income Fund and Nations Short-Intermediate Government
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 Nations
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<PAGE>
Diversified Income Fund, Nations Municipal Income Fund and
Nations Short-Intermediate Government Fund known to Nations Funds
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 Funds
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 Funds on behalf of the Acquiring
Funds have been or will be paid so far as due, and to the best of
Nations Funds' knowledge, no such return is currently under audit
and no assessment has been asserted with respect to any such
return;
5.1.m. 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. Pacific Horizon Funds, on behalf of itself and each Acquired Fund,
represents and warrants to Nations Funds as follows:
5.2.a. Pacific Horizon Funds was duly incorporated under the laws of
the State of Maryland for the purpose of acting as a management
investment company under the 1940 Act and is validly existing
under the laws of the State of Maryland, and its Charter and the
laws of the State of Maryland provide that the affairs of Pacific
Horizon Funds shall be managed under the direction of the
Directors and grant them all powers necessary or desirable to
carry out such responsibility, including administering Pacific
Horizon Funds business as currently conducted by Pacific Horizon
Funds and as described in the current prospectuses of Pacific
Horizon Funds; Pacific Horizon 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 of common stock 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. Each Acquired Fund is not in violation of, and the execution,
delivery and performance of this Agreement by Pacific Horizon
Funds for itself and on behalf of each Acquired Fund does not and
will not (i) violate Pacific Horizon Funds' Charter or By-Laws,
or (ii) result in a breach or violation of, or constitute a
default under any material agreement or material instrument, to
which Pacific Horizon Funds is a party or by which its properties
I-9
<PAGE>
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 Funds, no
litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to
Pacific Horizon Funds' knowledge, threatened against Pacific
Horizon Funds or its business, the Acquired Funds or any of their
properties or assets which, if adversely determined, would
materially and adversely affect Pacific Horizon Funds or an
Acquired Fund's financial condition or the conduct of their
business, and Pacific Horizon 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 February 28, 1998,
audited by PricewaterhouseCoopers LLP (copies of which have been
or will be furnished to the corresponding Acquiring Fund) and the
unaudited Statement of Assets and Liabilities, Statement of
Operations and Statement of Changes in Net Assets of each
Acquired Funds as of and for the six-month period ended August
31, 1998 (copies of which have been or will be furnished to the
corresponding Acquiring Fund) present fairly, in all material
respects, the financial position of each Acquired Fund as of such
date and the results of its operations and the changes in its Net
Assets 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 Pacific
Horizon 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 Pacific
Horizon 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 Pacific Horizon Funds on
behalf of the Acquired Funds, have been or will be paid so far as
due, and to the best of Pacific Horizon 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-
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<PAGE>
assessable by Pacific Horizon 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;
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 and the filing of Articles of
Transfer pursuant to the laws of the State of Maryland, 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 state 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
Pacific Horizon Funds and the Directors, and this Agreement
constitutes a valid and binding obligation of Pacific Horizon
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 Pacific Horizon Funds
shareholders, and on the Closing Date, the Registration Statement
insofar as it relates to materials provided by Pacific Horizon
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
Pacific Horizon 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;
5.2.m. No governmental consents, approvals, authorizations or filings
are required under the 1933 Act, the 1934 Act, the 1940 Act or
Maryland law for the execution of this Agreement by Pacific
Horizon Funds, for itself and on behalf of each Acquired Fund, or
the performance of the Agreement by Pacific Horizon 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 the filing of Articles of
Transfer pursuant to Maryland law, 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;
and
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<PAGE>
5.2.n. At the Closing Date, the Acquired Funds will have good and
marketable title to their assets and full right, power and
authority to assign, deliver and otherwise transfer such assets.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUNDS
The obligations of Pacific Horizon Funds to consummate the
Reorganization with respect to each Acquired Fund shall be subject to the
performance by Nations Funds, 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 Funds 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 Funds, on behalf of each Acquiring Fund, shall have delivered
to Pacific Horizon Funds at the Closing(s) a certificate executed on
behalf of each corresponding Acquiring Fund by Nations Funds'
President, Secretary, Assistant Secretary, or other authorized
officer, in a form and substance reasonably satisfactory to Pacific
Horizon Funds and dated as of the Closing Date, to the effect that the
representations and warranties of Nations Funds 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 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 each Acquired Fund, substantially to the effect that:
6.3.a. Nations 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;
6.3.b. each Acquiring Fund is a portfolio of Nations Funds, which is a
company 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 directs the Trustees to manage the affairs
of Nations Funds and grant them all powers necessary or desirable
to carry out such responsibility, including administering Nations
Funds' business as described in the current prospectuses of
Nations Funds;
6.3.c. this Agreement has been duly authorized, executed and delivered
on behalf of Nations Funds 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 Funds enforceable against Nations Funds 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;
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<PAGE>
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 N-1A Post-Effective Amendment and the Registration
Statement have 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 Funds of the
Reorganization with respect to each Acquiring Fund, except for
such consents, approvals, authorizations and filings (including
the filing of Articles of Transfer pursuant to Maryland law), as
have been made or received, except for such consents, approvals,
authorizations and filings as may be required subsequent to the
Closing Date; and except for such consents, approvals,
authorizations and filings as may be required under state
securities or blue sky laws;
6.3.g. to such counsel's knowledge, the execution and delivery of the
Agreement and the performance of its terms by Nations Funds, and
each Acquiring Fund, do not violate or result in a violation of
the Nations Funds Agreement and Declaration of Trust or By-Laws,
or any judgment, order or decree known to such counsel, of any
court or arbiter, to which Nations 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 Nations Funds 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 Funds 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 Funds 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 Funds or an Acquiring Fund or any of their properties or
assets and neither Nations Funds 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").
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<PAGE>
6.5. With respect to each Acquiring Fund, the Board of Trustees of Nations
Funds, 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.
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 Funds, its successor or assigns shall provide, or cause to be
provided, liability coverage at least comparable to the liability
coverage currently applicable to both former and current Directors and
officers of Pacific Horizon Funds, covering the actions of such
Directors and officers of Pacific Horizon Funds for the period they
served as such.
6.7. NBAI shall have delivered to Pacific Horizon Funds, no later than
April 15, 1999, a certificate, in form and substance reasonably
satisfactory to Pacific Horizon Funds, to the effect that NBAI
believes that, as of such date, The Bank of New York ("BONY") is
capable of satisfactorily providing accounting services for the
Acquired Funds and Acquiring Funds, on a combined basis, following the
Reorganization ("Accounting Services"). Such certificate shall also
set forth the basis for NBAI's determination that BONY is capable of
satisfactorily providing the Accounting Services.
6.8. Stephens Inc., the principal underwriter for the Nations Funds, no
later than the Closing Date, shall have received an exemptive order
under Section 9(c) of the 1940 Act, authorizing such company to serve
as the principal underwriter for the Nations Funds, or otherwise shall
be authorized to serve in such capacity.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUNDS
The obligations of Nations Funds to consummate the Reorganization with respect
to each Acquiring Fund shall be subject to the performance by Pacific Horizon
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 Pacific Horizon 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. Pacific Horizon 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 Pacific
Horizon 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 Pacific Horizon 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 Pacific Horizon
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:
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<PAGE>
7.3.a. Pacific Horizon 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 Pacific Horizon Funds
which is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Maryland, and the
Charter and the laws of the State of Maryland provide that the
affairs of Pacific Horizon Funds shall be managed under the
direction of the Directors and grant them all powers necessary or
desirable to carry out such responsibility, including
administering Pacific Horizon Funds' business as described in the
current prospectuses of Pacific Horizon Funds;
7.3.c. this Agreement has been duly authorized, executed and delivered
by Pacific Horizon 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 Pacific Horizon Funds,
enforceable against Pacific Horizon 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
governmental authority or to such counsel's knowledge, order of
any court of the United States or any state is required for the
consummation of the Reorganization by Pacific Horizon Funds with
respect to each Acquired Fund, except for such consents,
approvals, authorizations and filings (including the filing of
Articles of Transfer pursuant to Maryland law), as have been made
or received, except for such consents, approvals, authorizations
and filings as may be required subsequent to the Closing Date;
and except for such consents, approvals, authorizations and
filings as may be required under state securities or blue sky
laws;
7.3.e. to such counsel's knowledge, the execution and delivery of the
Agreement and the performance of its terms by Pacific Horizon
Funds, and each Acquired Fund, do not violate or result in a
violation of the Pacific Horizon Funds' Charter or By-Laws, or
any judgment, order or decree known to such counsel, of any court
or arbiter, to which Pacific Horizon 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 Pacific Horizon 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 Pacific Horizon Funds or the
Acquired 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 Pacific Horizon
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
Pacific Horizon Funds or an Acquired Fund or any of their
properties or assets and neither Pacific Horizon Funds nor an
Acquired Fund is a party to or subject to the provisions of any
order, decree or
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<PAGE>
judgment of any court or governmental body that materially and
adversely affects, or would materially and adversely affect, its
business.
7.4. Nations Funds, on behalf of each Acquiring Fund, shall have received
from PricewaterhouseCoopers LLP a letter addressed to Nations Funds,
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 Funds, to the effect that:
7.4.a. they are independent accountants with respect to Pacific
Horizon 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
Funds, on behalf of the Acquiring Funds and Pacific Horizon
Funds, on behalf of the Acquired Funds, and described in such
letter (but not an examination in accordance with generally
accepted auditing standards), the data with respect to the
acquiring funds used in the calculation of any figure expressed
numerically or in dollars or percentages of dollars that appear
in the Registration Statement under: (a) "Table II -- Total
Expense Information" in the Combined Proxy Statement/Prospectus;
(b) "Table III -- Capitalization (as of September 30, 1998) in
the Combined Proxy Statement/Prospectus; and (c) "Appendix II --
Expense Summaries of Pacific Horizon Funds and the Corresponding
Nations Funds" in the Combined Proxy Statement/Prospectus agree
with the underlying accounting records of the Acquired Funds or
with written estimates provided by officers of Pacific Horizon
Funds having responsibility for financial and reporting matters,
and were found to be mathematically correct.
7.5. Pacific Horizon 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 year ended February 28, 1999, audited
by PricewaterhouseCoopers LLP.
7.6. The Board of Directors of Pacific Horizon Funds, including a majority
of "non-interested" Directors, has determined that the Reorganization
is in the best interests of Pacific Horizon Funds and that the
interests of the existing shareholders of Pacific Horizon Funds 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 a majority of the votes of the shares of common stock
outstanding and entitled to vote of Pacific Horizon Funds and of each
Acquired Fund, consistent with the provisions of the laws of the State
of Maryland, Pacific Horizon Funds' Charter and the 1940 Act, and
certified copies of the resolutions evidencing such approval shall
have been delivered to each corresponding Acquiring Fund.
I-16
<PAGE>
Approval of this Agreement by a majority of the votes of the shares of
common stock outstanding and entitled to vote in an Acquired Fund
shall constitute approval of all of the transactions contemplated
herein, including the reorganization of all investment portfolios of
Pacific Horizon Funds with the Nations Family of Funds and the
dissolution of Pacific Horizon Funds, subject to the approval under
Maryland law and the Charter of Pacific Horizon Funds by a majority of
the votes of the shares of common stock outstanding and entitled to
vote of Pacific Horizon 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 Nations Funds, on
behalf of the Acquiring Funds or by Pacific Horizon 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 N-1A Post-Effective Amendment and 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 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 net 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 Funds, on behalf of each Acquiring Fund, and Pacific Horizon
Funds, on behalf of each Acquired Fund, shall have received from
PricewaterhouseCoopers LLP a letter dated as of the Closing Date, in
form and substance satisfactory to Nations Funds and to Pacific
Horizon Funds, to the effect that on the basis of limited procedures
agreed upon by Nations Funds, on behalf of the Acquiring Funds and
Pacific Horizon Funds, on behalf of the Acquired Funds (but not an
examination in accordance with generally accepted auditing standards),
the data with respect to the acquiring funds used in the calculation
of any figure expressed numerically or in dollars or percentages that
appear in the Registration Statement under: (a) "Table II -- Total
Expense Information" in the Combined Proxy Statement/Prospectus; (b)
"Table III -- Capitalization (as of September 30, 1998) in the
Combined Proxy Statement/Prospectus; and (c) "Appendix II -- Expense
Summaries of Pacific Horizon Funds and the Corresponding Nations
Funds" in the Combined Proxy Statement/Prospectus, agree with the
underlying accounting records of the Acquiring Funds or with written
estimates provided by officers of Nations Funds having responsibility
for financial and reporting matters, and were found to be
mathematically correct.
8.7. Nations Funds and Pacific Horizon Funds shall have received an opinion
of Morrison & Foerster LLP addressed to both Nations Funds and Pacific
Horizon 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:
I-17
<PAGE>
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 with respect to such Reorganization;
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;
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.
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 Funds and Pacific Horizon
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.
8.8. Nations Funds and Pacific Horizon Funds shall have received a
memorandum addressed to Nations Funds and the Pacific Horizon 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 Funds pursuant to this
I-18
<PAGE>
Agreement under applicable state securities laws or the exemption from
such filing and payment requirements under such laws.
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. Pacific Horizon Funds' agreements with each of its service
contractors shall 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.
9. FINDER'S FEES AND EXPENSES
9.1. Nations Funds, for itself and on behalf of the Acquiring Funds and
Pacific Horizon 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. NationsBanc Advisors, Inc. shall bear, or shall cause one of its
affiliates to bear, the customary expenses associated with the
transactions contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. Except for certain side letter agreements between NationsBanc
Advisors, Inc. and Pacific Horizon Funds, 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 Funds and Pacific
Horizon Funds;
11.1.b. by either Nations Funds or Pacific Horizon 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,
1999, or such other date as may be agreed to by the parties; or
11.1.c. by either of Nations Funds or the Pacific Horizon 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 to perform in any
material respect its agreements contained herein required to be
performed prior to the Closing Date, (ii) the other
I-19
<PAGE>
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 Funds and Pacific Horizon Funds, as the
case may be, and there shall be no liability for damages on the part
of Nations Funds or Pacific Horizon Funds or the Trustees or officers
of Nations Funds or Directors or officers of Pacific Horizon Funds, on
account of termination pursuant to paragraphs 11.1(a) or (b), except
for possible liability on the part of Nations Funds or Pacific Horizon
Funds 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 NationsBanc
Advisors, Inc. of its 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 Funds,
acting on behalf of each Acquiring Fund and the authorized officers of Pacific
Horizon Funds, acting on behalf 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 Investors, without the Acquired Fund obtaining the Pacific Horizon 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 Pacific Horizon 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 or Directors 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:
I-20
<PAGE>
For Nations Funds, 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 Pacific Horizon Funds, on behalf of itself and each Acquired Fund:
c/o W. Bruce McConnel, III
Secretary
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 State of Maryland, without giving effect to the
conflicts of laws principles otherwise applicable therein.
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 Funds
hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of Nations Funds personally,
but shall bind only the assets and the property of the respective
Acquiring Fund of Nations Funds, as provided in its Agreement and
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
I-21
<PAGE>
respective Acquiring Fund of Nations Funds as provided in its
Agreement and 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 "Pacific Horizon Funds" and "Directors of Pacific Horizon
Funds" refer respectively to the corporation created and the
Directors, as directors but not individually or personally, acting
from time to time under Pacific Horizon Funds' Charter, which is
hereby referred to and a copy of which is on file at the Department of
Assessments and at the principal office of the corporation. The
obligations of "Pacific Horizon Funds" entered into in the name or on
behalf thereof by any of the Directors, representatives or agents are
made not individually, but in such capacities, and are not binding
upon any of the Directors, shareholders, or representatives of the
corporation personally, but bind only the corporate property, and all
persons dealing with any class of shares of the corporation must look
solely to the corporate property belonging to such class for the
enforcement of any claims against the corporation.
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.
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.
NATIONS FUND TRUST, for itself and on behalf
ATTEST: 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
PACIFIC HORIZON FUNDS, INC., for itself and
ATTEST: on behalf of each Acquired Fund
/s/ W. Bruce McConnel, III By: /s/ Dr. Cornelius J. Pings
- - ---------------------------- -------------------------------
W. Bruce McConnel, III Dr. Cornelius J. Pings
Secretary President and Chairman of the Board
of Directors
NATIONSBANC ADVISORS, INC., hereby
joins in this Agreement with
respect to, and agrees to be bound
by Section 9.2 and 11.2 hereof
By: /s/ Robert H. Gordon
-------------------------------
Robert H. Gordon
President
I-23
<PAGE>
SCHEDULE A
Acquired Fund Acquiring Fund
- - ----------------------------------------- -------------------------------------
Flexible Income Fund Nations Diversified Income Fund
A Shares (Class W Common Stock) Investor A Shares
K Shares (Class W-Special Investor C Shares
Series 5 Common Stock)
- - ----------------------------------------- -------------------------------------
National Municipal Bond Fund Nations Municipal Income Fund
A Shares (Class Q Common Stock) Investor A Shares
- - ----------------------------------------- -------------------------------------
Short-Term Government Fund Nations Short-Intermediate Government
A Shares (Class U Common Stock) Fund
Investor A Shares
- - ----------------------------------------- -------------------------------------
I-24
<PAGE>
APPENDIX II
Expense Summaries of the Pacific Horizon Funds
and Corresponding Nations Funds
-----------------------------------------------
The following tables (a) compare the fees and expenses as of September
30, 1998, for the respective Pacific Horizon 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 Nations Funds' management fees as of September 30, 1998, have been adjusted
to reflect a Board-approved reduction in the contractual fee rates under the
management contracts. The contractual management fees shown are expected to
become effective in May 1999, at or prior to the closing of the Reorganization.
The purpose of these tables is to assist shareholders in understanding the
various costs and expenses that investors in these portfolios will bear as
shareholders. The tables do not reflect any charges that may be imposed by
institutions directly on their customer accounts in connection with investments
in the portfolios. 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. NBAI has agreed that it will commit to waive
fees and/or reimburse expenses as needed to ensure that, for one year from the
Reorganization, the Nations Funds total expense ratios will not exceed the pro
forma after waiver expense ratios shown in Table II, absent a determination by
the Nations Board that extraordinary circumstances or a material reduction in
Fund assets has occurred that has made it appropriate to permit an increase in
expense ratios. There can be no assurance that such expense ratios will continue
after this commitment expires.
II-1
<PAGE>
PACIFIC HORIZON FLEXIBLE INCOME FUND-A SHARES
NATIONS DIVERSIFIED INCOME FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
Pacific
Horizon Nations
Flexible Income Diversified Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ 4.75% 4.75% 4.75%
Maximum Sales Load Imposed on
Reinvested Dividends............................ None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds)1....... 1.00% 1.00% 1.00%
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)2.................... 0.00% 0.40% 0.40%
12b-1/Shareholder Servicing Fees (after waivers)3... 0.20% 0.25% 0.25%
Other Expenses (after waivers)4..................... 0.30% 0.32% 0.32%
---- ---- ----
Total Fund Operating Expenses (after waivers):5.......... 0.50% 0.97% 0.97%
==== ==== =====
</TABLE>
- - ----------------------------------------
1 Certain Class A Shares and Investor A Shares that are purchased at net
asset value are subject to a Deferred Sales Load if redeemed within a
specified time after purchase.
2 Management Fees (absent waivers) would be 0.45% for the Pacific Horizon
Flexible Income Fund and 0.50% for the Nations Diversified Income Fund
and the Combined Fund.
3 12b-1/Shareholder Servicing Fees (absent waivers) would be 0.25% for the
Pacific Horizon Flexible Income Fund.
4 Other Expenses (absent waivers) would be 0.68% for the Pacific Horizon
Flexible Income Fund.
5 Total Fund Operating Expenses (absent waivers) would be 1.38% for the
Pacific Horizon Flexible Income Fund and 1.07% for the Nations
Diversified 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>
Pacific
Horizon Nations
Flexible Income Diversified Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
1 year ................................... $52 $57 $57
3 years .................................. 63 77 77
5 years .................................. 74 99 99
10 years ................................. 107 161 161
</TABLE>
- - --------------------
* These examples 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.
These examples assume 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.
II-2
<PAGE>
PACIFIC HORIZON FLEXIBLE INCOME FUND-CLASS K SHARES
NATIONS DIVERSIFIED INCOME FUND-INVESTOR C SHARES
<TABLE>
<CAPTION>
Pacific
Horizon Nations
Flexible Income Diversified Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ None None None
Maximum Sales Load Imposed on
Reinvested Dividends............................ None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds)........ None 1.00% 1.00%
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)1.................... 0.00% 0.40% 0.40%
12b-1/Shareholder Servicing Fees (after waivers)2... 0.70% 1.00% 1.00%
Other Expenses (after waivers)3..................... 0.30% 0.32% 0.32%
---- ---- ----
Total Fund Operating Expenses (after waivers):4.......... 1.00% 1.72% 1.72%
==== ==== =====
</TABLE>
- - ----------------------------------------
1 Management Fees (absent waivers) would be 0.45% for the Pacific
Horizon Flexible Income Fund and 0.50% for the Nations Diversified
Income Fund and the Combined Fund.
2 12b-1/Shareholder Servicing Fees (absent waivers) would be 1.00% for
the Pacific Horizon Flexible Income Fund.
3 Other Expenses (absent waivers) would be 0.68% for the Pacific Horizon
Flexible Income Fund.
4 Total Fund Operating Expenses (absent waivers) would be 2.13% for the
Pacific Horizon Flexible Income Fund and 1.82% for the Nations
Diversified 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>
Pacific
Horizon Nations
Flexible Income Diversified Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
1 year ............................................ $10 $27 $27
3 years ........................................... 32 54 54
5 years ........................................... 55 93 93
10 years .......................................... 123 204 204
</TABLE>
Example:* You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) no redemption at the end of each time period:
<TABLE>
<CAPTION>
Pacific
Horizon Nations
Flexible Income Diversified Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
1 year ............................................ $10 $17 $17
3 years ........................................... 32 54 54
5 years ........................................... 55 93 93
10 years .......................................... 123 204 204
</TABLE>
- - ----------------------------------------
* These examples 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.
These examples assume 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.
II-3
<PAGE>
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND-
CLASS A SHARES
NATIONS MUNICIPAL INCOME FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
Pacific
Horizon
National Nations
Municipal Bond Municipal Combined Fund
Fund Income Fund Pro Forma
---- ----------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ 4.75% 4.75% 4.75%
Maximum Sales Load Imposed on
Reinvested Dividends............................ None None None
Maximum Deferred Sales Load (as a percentage of
redemption proceeds)1........................... 1.00% 1.00% 1.00%
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)2.................... 0.00% 0.28% 0.28%
12b-1 Fees/Shareholder Servicing (after waivers)3... 0.00% 0.20% 0.20%
Other Expenses (after waivers)4..................... 0.50% 0.32% 0.32%
---- ---- ----
Total Fund Operating Expenses (after waivers):5.......... 0.50% 0.80% 0.80%
==== ==== ====
</TABLE>
- - ----------------------------------------
1 Certain A Shares and Investor A Shares that are purchased at net asset
value are subject to a Deferred Sales Load if redeemed within a
specified time after purchase.
2 Management Fees (absent waivers) would be 0.35% for the Pacific Horizon
National Municipal Bond Fund and 0.50% for Nations Municipal Income
Fund and the Combined Fund.
3 12b-1/Shareholder Servicing Fees (absent waivers) would be 0.25% for
the Pacific Horizon National Municipal Bond Fund, Nations Municipal
Income Fund and the Combined Fund.
4 Other Expenses (absent waivers) would be 0.67% for the Pacific Horizon
National Municipal Bond Fund.
5 Total Fund Operating Expenses (absent waivers) would be 1.27% for the
Pacific Horizon National Municipal Bond Fund and 1.07% for Nations
Municipal 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>
Pacific
Horizon Nations
National Municipal Municipal Combined Fund
Bond Fund Income Fund Pro Forma
--------- ----------- ---------
<S> <C> <C> <C>
1 year ............................. $52 $55 $55
3 years ............................ 63 72 72
5 years ............................ 74 90 90
10 years ........................... 107 142 142
</TABLE>
- - --------------------
* These examples 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.
These examples assume 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.
II-4
<PAGE>
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND-
CLASS A SHARES
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
Pacific
Horizon Nations
Short-Term Short-Intermediate Combined Fund
Government Fund Government Fund Pro Forma
--------------- --------------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ 3.25% 3.25% 3.25%
Maximum Sales Load Imposed on
Reinvested Dividends............................ None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds)1....... 1.00% 1.00% 1.00%
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)2.................... 0.00% 0.30% 0.30%
12b-1/Shareholder Servicing Fees (after waivers)3... 0.00% 0.20% 0.20%
Other Expenses (after waivers)4..................... 0.25% 0.30% 0.30%
---- ---- ----
Total Fund Operating Expenses (after waivers):5.......... 0.25% 0.80% 0.80%
==== ==== =====
</TABLE>
- - ----------------------------------------
1 Certain A Shares and Investor A Shares that are purchased at net asset
value are subject to a Deferred Sales Load if redeemed within a
specified time after purchase.
2 Management Fees (absent waivers) would be 0.25% for the Pacific Horizon
Short-Term Government Fund.
3 12b-1/Shareholder Servicing Fees (absent waivers) would be 0.25% for
the Pacific Horizon Short-Term Government Fund and for Nations Short-
Intermediate Government Fund.
4 Other Expenses (absent waivers) would be 0.52% for the Pacific Horizon
Short-Term Government Fund.
5 Total Fund Operating Expenses (absent waivers) would be 1.02% for the
Pacific Horizon Short-Term Government Fund and 0.85% for Nations Short-
Intermediate Government 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>
Pacific Nations
Horizon Short-
Short-Term Intermediate
Government Government Combined Fund
Fund Fund Pro Forma
---- ---- ---------
<S> <C> <C> <C>
1 year ............................................ $35 $40 $40
3 years ........................................... 40 57 57
5 years ........................................... 46 76 76
10 years .......................................... 63 128 128
</TABLE>
- - --------------------
* These examples 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.
These examples assume 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.
II-5
<PAGE>
APPENDIX III
Investment Objectives, Limitations and Certain Significant Investment Policies
of the Pacific Horizon Funds and Corresponding Nations Funds
-----------------------------------------------
This Appendix highlights the investment objectives and certain
significant similarities and differences among the investment limitations and
investment policies of the three Pacific Horizon Funds and their Nations Funds'
counterparts into which they will be reorganized. The following is qualified in
its entirety by the more detailed information included in the prospectuses and
statements of additional information for the Pacific Horizon Funds and the
corresponding Nations Funds which are incorporated by reference in this
Proxy/Prospectus.
I. PACIFIC HORIZON FLEXIBLE INCOME FUND/ NATIONS DIVERSIFIED INCOME FUND
Investment Objectives:
1. Pacific Horizon Flexible Income Fund: to seek to provide investors
with a high current income consistent with reasonable investment risk.
2. Nations Diversified Income Fund: to seek total return with an
emphasis on current income by investing in a diversified portfolio of fixed
income securities.
Comment: The Pacific Horizon Fund will pursue its objective by
investing primarily in a diversified portfolio of investment grade corporate
debt securities, although it may invest a portion of its assets in other types
of debt securities and money market instruments. Under normal circumstances the
Pacific Horizon Fund will invest at least 65% of total assets in investment
grade corporate debt obligations, such as bonds, debentures, notes and
convertible securities and U.S. Government Obligations, although it may also
invest up to 35% of total assets in lower quality, higher yielding securities,
and up to 35% of total assets in mortgage backed securities. The Fund also may
invest up to 20% of its assets in the debt obligations of foreign issuers,
including Yankee Bonds and Eurobonds.
Under normal market conditions, the Nations Fund will invest at least
65% of its total assets in investment grade debt obligations and, like the
Pacific Horizon Fund may invest up to 35% of total assets in mortgage backed
securities. Unlike the Pacific Horizon Fund, the Nations Fund has an expected
average dollar-weighted maturity, which is greater than five years. Similar to
the Pacific Horizon Fund, the Nations Fund also may invest up to 35% of the
total value of its assets in lower quality fixed income securities. The Nations
Fund, however, intends to limit any investment in mortgage-backed securities to
25%, as opposed to the 35% limit for the Pacific Horizon Fund. The Nations Fund,
like the Pacific Horizon Fund may invest its assets in foreign securities,
although the Nations Fund may invest up to 25% of its assets in such securities
while the Pacific Horizon Fund may invest up to 20% of its net assets in such
securities.
II. PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND/ NATIONS MUNICIPAL INCOME FUND
Investment Objectives:
1. Pacific Horizon National Municipal Bond Fund: to seek to provide
investors with as high a level of current interest income free of regular
Federal income tax as is consistent with prudent investment management and
preservation of capital.
2. Nations Municipal Income Fund: to seek high current income exempt
from Federal income tax with the potential for principal fluctuation associated
with investments in long-term municipal securities. To the
III-1
<PAGE>
extent consistent with the Fund's investment approach, the Fund is managed to
seek capital appreciation and minimize capital losses due to interest rate
movements.
Comment: Under normal market conditions, the Pacific Horizon Fund will
invest at least 65% of its net assets in investment grade obligations issued by
or on behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, the interest on which in
the opinion of bond counsel to the issuer is exempt from regular federal income
tax ("Municipal Obligations"). The Pacific Horizon Fund also may invest up to
35% of total assets in below investment grade debt, and may hold uninvested cash
reserves during temporary defensive periods or if suitable tax-exempt
obligations are unavailable. Investments may also be made in taxable obligations
if suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
defensive purposes.
The Nations Fund similarly invests in Municipal Obligations, although
it will invest at least 80% of its assets in investment grade Municipal
Obligations. Like the Pacific Horizon Fund, the Nations Fund also may invest in
short-term taxable (i.e. repurchase agreements and short-term debt securities)
and non-taxable obligations in such proportions as deemed appropriate during
temporary defensive periods. However, unlike the Pacific Horizon Fund, the
Nations Fund may not invest in below-investment grade securities. In addition,
while the Pacific Horizon Fund's average dollar weighted maturity will vary as
it is dependent upon the differing maturities of its investments, the Nations
Fund's average dollar weighted maturity is expected to be greater than seven
years and the Fund's duration is expected to be greater than six years.
In addition, while the Pacific Horizon National Municipal Bond Fund's
internal policy is not to invest in securities the interest on which is subject
to the federal alternative minimum tax, the Nations Municipal Income Fund may
invest up to 20% of its assets in securities the interest on which is subject to
the federal alternative minimum tax.
III. PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND/ NATIONS SHORT-INTERMEDIATE
GOVERNMENT FUND
Investment Objectives:
1. Pacific Horizon Short-Term Government Fund: to seek to provide
investors with a high level current income consistent with relative stability of
principal.
2. Nations Short-Intermediate Government Fund: to seek high current
income consistent with modest fluctuation of principal.
Comment: The Pacific Horizon Fund will pursue its investment objective
by investing at least 65% of total assets in U.S. Government Obligations. Under
normal circumstances it is expected that the average weighted maturity of the
Pacific Horizon Fund's investments will not exceed two years. Under normal
conditions the Pacific Horizon Fund's duration is expected to be in a range of
one to two years as reflected by a one-year U.S. treasury bill and a two-year
Treasury note respectively. However, there is no limit on the Fund's duration.
The Fund also may invest up to 35% of total asset in investment grade
non-government fixed income securities, mortgage backed securities, municipal
securities and cash equivalents, and up to 20% in foreign securities.
Like the Pacific Horizon Fund, the Nations Fund also typically invests in U.S.
Government Obligations, and also may invest in investment-grade non-government
fixed income securities, like corporate convertible and non-convertible debt
obligations, including bonds, notes, debentures, mortgage-backed securities,
real estate investment trusts and other asset-backed securities. However, unlike
the Pacific Horizon Fund, the corresponding Nations Fund typically will remain
fully invested in U.S. Government obligations and not be invested in corporate
bonds in any material percentage. Under normal weighted conditions it is
expected that the average dollar weighted maturity of the Nations Fund's
portfolio will be between three and five years and the duration will not exceed
five years; this is greater than the Pacific Horizon Fund's expected average
weighted maturity of two years and duration of between one and two years, and
may result in greater fluctuations of net asset value of the Nations Fund than
in the Pacific Horizon Fund.
III-2
<PAGE>
APPENDIX IV
Shareholder Transactions and Services of the Nations Funds
and Corresponding Pacific Horizon Funds
-----------------------------------------------
This Appendix compares the shareholder transactions and services of the
Pacific Horizon Funds and the corresponding Nations Funds. The following is
qualified in its entirety by the more detailed information included in the
prospectuses for the Pacific Horizon 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
Pacific Horizon 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. Pacific Horizon Funds - A Shares
Corresponding Nations Funds - Investor A Shares
A. Sales Charges and Exemptions
There is a maximum sales charge of 4.75%, 4.75% and 3.25% on A Shares
of the Pacific Horizon Flexible Income Fund, Pacific Horizon National Municipal
Bond Fund and Pacific Horizon Short-Term Government Fund, respectively. The
sales charge with respect to A Shares of the Pacific Horizon Funds may decrease
as the amount a shareholder invests increases. Also there is no sales charge on
purchases of A shares of $1 million or more. However, unless a Pacific Horizon
Fund shareholder participates in the Bank of America Daily Advantage(R) or
Advantage Plus(TM) programs, a contingent deferred sales charge will be imposed
as follows: 1% on redemptions made within 1 year of purchases made on or after
November 16, 1998, declining to 0.50% in the second year, and eliminated
thereafter, or 1% on redemptions made within 18 months of purchases made before
November 16, 1998. An investor may be entitled to reduced sales charges on A
Shares through rights of accumulation, letters of intent, quantity discounts, or
through certain affiliations with BankAmerica Corporation.
There is a maximum sales charge of 4.75%, 4.75% and 3.25% on Investor A
Shares of Nations Diversified Income Fund, Nations Municipal Income Fund and
Nations Short-Intermediate Government Fund, respectively. Investor A Shares of
each of the Nations Funds that are purchased at net asset value have in addition
a 1.00% and 0.50% maximum deferred sales charge which is imposed only if shares
are redeemed within the first and second years of purchase, respectively. An
investor may be entitled to reduced sales charges on Investor A Shares through
rights of accumulation, letters of intent, quantity discounts, or through
certain affiliations with BankAmerica Corporation.
IV-1
<PAGE>
B. Purchase Policies
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Minimum initial investment $500 for a regular account; $100 for $1,000 for a regular account; $500
investors purchasing through BofA or for IRA investors; $250 for
its affiliates*; $500 for IRA, Roth non-working spousal IRAs; $250 for
IRA or SEP IRA investors; $250 for wrap fee and other investment
non-working spousal IRAs; $2500 for adviser accounts; $100 for investors
SEP-IRAs with more than one participating in the Systematic
participant. Investment Plan; no minimum
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 $50 for regular accounts and $0 for $100; $50 for subsequent investments
investors purchasing through BofA or made through the Systematic
its affiliates; for IRA, Roth IRA or Investment Plan.
SEP IRA investors; for non-working
spousal IRAs; or for SEP-IRAs.
Purchase methods Through Bank of America; Service Through Selling Agents, Servicing
Organizations; in person; by wire; Agents, a Nations Fund Personal
by telephone; or Teletrade. Investment Planner account; by mail;
by wire; by telephone# and a
Systematic Investment Plan.
</TABLE>
C. Redemption Procedures
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Through an authorized selling or Yes Yes
servicing agent
By mail Yes Yes
</TABLE>
* The minimum investment is $100 for purchases made through BofA or its
affiliates' trust and agency accounts or a Service Organization whose
clients have made aggregate minimum purchases of $1 million. The minimum
investment is $200 for BankAmerica cardholders with an appropriate award
certificate.
** The assets of such plans must reach an asset value of $1,000 ($500 for
SEPs, SAR-SEPs, SIMPLE IRAs 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.
# Telephone transactions for the Nations Funds, consisting of purchases,
exchanges and redemptions, are limited to $50,000.
IV-2
<PAGE>
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
By telephone Yes Yes#
By wire Yes Yes
Check writing feature Yes+ No
By automatic withdrawal plan Yes (net asset value of account must Yes (net asset value of account must
be $5,000) be $10,000)@
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations Funds may redeem Investor A Shares and Pacific Horizon may redeem 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 and Pacific Horizon also may redeem shares of the Nations
Funds and Pacific Horizon Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Systematic/automatic investment plan Yes ($50 or more) Yes (in any amount from $50 to
$100,000).
</TABLE>
E. Share Exchanges
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
By mail Yes Yes
By telephone Yes Yes
Minimum The A Shares exchanged must have a The Investor A Shares exchanged must
current value of at least $500. have a current value of at least
$1,000
Automatic exchange feature No Yes. A shareholder may
automatically 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 (except Nations index funds). Exchanges are
subject to the minimum investment requirements imposed.
# Telephone transactions for the Nations Funds, consisting of purchases,
exchanges and redemptions, are limited to $50,000.
+ Transaction minimum: $500.
@ Shares of Nations Funds redeemed under the automatic withdrawal plan will
not be subject to a contingent deferred sales charge, provided that the
shares so redeemed do not exceed, on an annual basis, 12% of the net asset
value of the respective shares in the account.
IV-3
<PAGE>
A Shares of a Pacific Horizon Fund may be exchanged for A Shares of any
other Pacific Horizon Fund or Time Horizon Fund, a separate investment company
advised by Bank of America, or for Pacific Horizon Shares of Pacific Horizon
money market funds. Exchanges are subject to the minimum investment requirements
imposed.
II. Pacific Horizon Fund - K Shares
Corresponding Nations Fund - Investor C Shares
A. Sales Charges and Exemptions
Pacific Horizon's K Shares and Nations Funds' Investor C Shares are
offered at net asset value with no front-end sales charges, although a 1.00%
deferred sales charge will apply to all redemptions of Nations Funds' Investor C
Shares made within one year of purchase.
B. Purchase Policies
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Minimum initial investment $500 for a regular account; $100 for $1,000 for a regular account; $500
investors purchasing through BofA or for IRA investors; $250 for
its affiliates*; $500 for IRA, Roth non-working spousal IRAs; $100 for
IRA or SEP IRA investors; $250 for investors participating in the
non-working spousal IRAs; $2500 for Systematic Investment Plan; no
SEP-IRAs with more than one minimum investment for 401(k) plans,
participant. simplified employee pension plans
("SEPs"), Savings Incentives Method
Plans for Employees ("SIMPLE IRAs")
and salary reduction-IRAs
("SAR-IRAs").**
Minimum subsequent investments $50 for regular accounts and $0 for $100; $50 for subsequent investments
investors purchasing through BofA or made through the Systematic
its affiliates; for IRA, Roth IRA or Investment Plan.
SEP IRA investors; for non-working
spousal IRAs; or for SEP-IRAs.
Purchase methods Through Bank of America; Service Through Selling Agents, Servicing
Organizations; by mail; by wire; by Agents, a Nations Fund Personal
telephone; or Teletrade. Investment Planner account; by mail;
by wire; by telephone# and a
Systematic Investment Plan.
</TABLE>
* The minimum investment is $100 for purchases made through BofA or its
affiliates' trust and agency accounts or a Service Organization whose
clients have made aggregate minimum purchases of $1 million. The minimum
investment is $200 for BankAmerica cardholders with an appropriate award
certificate.
** 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.
# Telephone transactions for the Nations Funds, consisting of purchases,
exchanges and redemptions, are limited to $50,000.
IV-4
<PAGE>
C. Redemption Procedures
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Through an authorized selling or Yes Yes
servicing agent
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 Yes (net asset value of account must
be $5,000) be $10,000)@
</TABLE>
Due to the high cost of maintaining fund accounts with small balances,
Nations Funds may redeem Investor C Shares and Pacific Horizon may redeem K
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 and Pacific Horizon also may redeem shares of the Nations
Funds and Pacific Horizon Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
D. Additional Shareholder Services
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Systematic/automatic investment plan Yes ($50 or more) Yes (in any amount from $50 to
$100,000).
</TABLE>
E. Share Exchanges
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
By mail Yes Yes
By telephone Yes Yes
Minimum The K Shares exchanged must have a The Investor C Shares exchanged must
current value of at least $500. have a current value of at least
$1,000
</TABLE>
# Telephone transactions for the Nations Funds, consisting of purchases,
exchanges and redemptions, are limited to $50,000.
+ Transaction minimum: $500.
@ Shares of Nations Funds redeemed under the automatic withdrawal plan will
not be subject to a contingent deferred sales charge, provided that the
shares so redeemed do not exceed, on an annual basis, 12% of the net asset
value of the respective shares in the account.
IV-5
<PAGE>
<TABLE>
<CAPTION>
Pacific Horizon Funds Nations Funds
--------------------- -------------
<S> <C> <C>
Automatic exchange feature No Yes. A shareholder may
automatically exchange at least $25
on a monthly or quarterly basis.
</TABLE>
Investor C Shares of a Nations Fund may be exchanged for Investor C
Shares of any other Nations Fund non-money market fund (other than an index
fund) or Daily Shares of certain money market funds. Exchanges are subject to
the minimum investment requirements imposed.
K Shares of a Pacific Horizon Fund may be exchanged for K Shares of any
other Pacific Horizon Fund or Time Horizon Fund. Exchanges are subject to the
minimum investment requirements imposed.
III. Dividends. Dividends for each of the Pacific Horizon Funds and
Nations Funds are declared daily and paid monthly.
IV-6
<PAGE>
APPENDIX V
MANAGEMENT'S DISCUSSION OF NATIONS FUND PERFORMANCE
-----------------------------------------------
Nations
Diversified Income
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. AHNRUD SHARES HIS VIEWS
ON NATIONS DIVERSIFIED INCOME FUND'S PERFORMANCE FOR THE
12-MONTH PERIOD ENDED MARCH 31, 1998 AND HIS CURRENT
OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
Mark S. Ahnrud, CFA, is Senior Our investment philosophy is biased toward total return,
Portfolio Manager of Nations recognizing that the combination of current income and price
Diversified Income Fund and a movement is ultimately more important than current income
Director of Fixed Income alone. We use a combination of investment
Management for TradeStreet strategies -- duration management (management of interest
Investment Associates, Inc., rate risk), sector rotation, security selection and yield
the investment sub-adviser to curve positioning -- to add value to the Fund over time. By
the Fund. using multiple strategies, we avoid making "big bets" and
INVESTMENT OBJECTIVE look for each strategy to add the potential for incremental
The Fund seeks total return income without any single strategy dominating returns. The
with an emphasis on current Fund invests in government securities and corporate bonds,
income by investing in a including high-yield corporate bonds. High-yield corporate
diversified portfolio of fixed bonds and government securities are not highly correlated to
income securities. one another; they react differently to changes in interest
PERFORMANCE REVIEW rates and the economy. This divergence in performance is the
For the 12-month period ended key to this part of the Fund's strategy, as the Fund
March 31, 1998, Nations balances credit risk and interest rate risk by allocating
Diversified Income Fund Primary assets to the different sectors as market conditions
A Shares provided a total warrant.
return of 11.07%.** WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
REPORTING PERIOD?
Early in the period, we were concerned about the strength of
the domestic economy and believed that the U.S. Federal
Reserve Board (the Fed) would be forced to raise interest
rates to slow growth. The 30-year U.S. Treasury bond began
the period yielding just over 7%, and the Fund was
positioned defensively (investing in bonds with relatively
short maturities in preparation for higher interest rates),
as we believed that yields would rise later in the year.
This economic strength was the result of a 30-year low in
unemployment rates, rising incomes, high levels of consumer
confidence and a rapidly rising equity market. But the
environment changed in the fiscal third quarter, as
continued low inflation and a rapidly diminishing federal
budget deficit combined with the anti-growth,
disinflationary shock waves emanating from Asia to push bond
yields down. As fear of the Fed raising interest rates
waned, the "flight to quality" trade drove prices higher.
The period ended with the 30-year U.S. Treasury yielding
just under 6%.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
V-1
<PAGE>
Nations
Diversified Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
At the beginning of the period, we maintained a defensive
posture in the portfolio because we were concerned that
strong economic growth and the tight labor market would lead
the Fed to raise interest rates due to concerns about rising
inflation.
The Fund was underweighted in the corporate bond sector for
much of the period, as we believed that this sector was
overvalued relative to U.S. Treasury securities. We didn't
believe that the incremental yield advantage from owning
corporate bonds justified the credit risk assumed in owning
this sector. This environment of low incremental yield
pick-up for owning corporate bonds over U.S. Treasuries
caused the Fund to maintain a relatively low weighting in
the high-yield corporate sector as well.
The Fund's exposure to the mortgage-backed sector was high
during the early part of the period, but as interest rates
began to decline during the fiscal third quarter, we reduced
the Fund's exposure based on increasing prepayment fears and
our outlook that interest rates would continue to decline.
With rates back near their 1993 lows, we expected a
significant upturn in refinancing activity in early 1998. We
had been willing to take on prepayment risk in the
trading-range environment we saw early in the period, but we
believed that as the yield on the 10-year U.S. Treasury bond
declined below 6.1%, the risks of continuing to hold on to
this sector were too great.
OUR DECISION TO UNDERWEIGHT THE WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S STRONG
FUND'S CORPORATE BOND EXPOSURE PERFORMANCE?***
PROVED SUCCESSFUL. Our decision to underweight the Fund's corporate bond
exposure proved successful. As the Asian crisis played out
during the fiscal third quarter, the resultant "flight to
quality" caused corporate bonds to lag the performance of
U.S. Treasury bonds. This caused the worst period of
relative corporate bond performance in the last 10 years.
We were then able to use this as an opportunity to increase
the Fund's exposure to the corporate bond sector, as we
didn't believe that the end of the credit cycle was in
sight. We raised both the Fund's investment-grade and
high-yield bond holdings, increasing the portfolio's income.
We emphasized the health care, cable/media and financial
services sectors in the portfolio, which performed well
during the period. Specifically, companies like Viacom Inc.,
News Corp. Ltd., HEALTHSOUTH Corp. and Morgan Stanley Group
experienced solid performance.
***Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
</TABLE>
V-2
<PAGE>
Nations
Diversif ied Income
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
Our defensive duration posture was the greatest hindrance to
performance during the period. While we extended duration
and had a much better second half of the year as interest
rates declined, it was not enough to recover the ground lost
during the fiscal second quarter.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
Later in 1998, either the fundamentally sound U.S. economy
will shrug off Asia's troubles, leading to a Fed tightening
of interest rates, or Asia will have a meaningful impact on
U.S. growth, further reducing inflation and raising the
probability that the Fed will ease interest rates. We are
positioned for the latter scenario, although our bullish
bias is tempered by the market's current overbought
condition, extreme bullish sentiment and the need for
further confirmation of a slowdown in the domestic economy.
HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
We continue to favor the corporate bond sector over the
mortgage sector in this interest-rate environment. We are
more comfortable with the Fund owning corporate bonds, as we
are not forecasting a recession and believe that overall
corporate credit quality will continue to improve. We expect
to continue to increase the Fund's exposure to this sector
in the months ahead. The mortgage sector continues to look
unattractive to us, as the low interest-rate environment
will continue to result in significant prepayment activity.
</TABLE>
V-3
<PAGE>
Nations
Diversified Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
1.0% Foreign Bonds and Notes
2.3% Other Assets and Liabilities (Net)
2.7% Municipal Bonds
13.2% Mortgage-Backed Securities
35.1% U.S. Treasury Bonds
45.7% Corporate Bonds and Notes
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS (AS A % OF NET ASSETS AS
OF 3/31/98)
-----------------------------------------
1 U.S. Treasury Bonds 35.1%
-----------------------------------------
2 Federal National Mortgage
Association (FNMA)
Certificates 8.6%
-----------------------------------------
3 Government National Mortgage
Association (GNMA)
Certificates 4.6%
-----------------------------------------
4 GTE Corporation 7.900%
02/01/27 1.8%
-----------------------------------------
5 Nebraska Investment Finance
Authority, Taxable-Series B,
6.550% 09/01/07 1.7%
-----------------------------------------
6 Westpoint Stevens Inc., Sr.
Notes, 8.750% 12/15/01 1.6%
-----------------------------------------
7 PDV America Inc., Gtd. Sr.
Notes, 7.875% 08/01/03 1.6%
-----------------------------------------
8 Morgan Stanley Finance PLC.
Gtd., Sub. Deb.,
8.030% 02/28/17 1.5%
-----------------------------------------
9 Time Warner Entertainment
8.375% 07/15/33 1.5%
-----------------------------------------
10 Rogers Cablesystems Limited,
Deb., 10.000% 12/01/07 1.5%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT AS OF
MARCH 31, 1998, ARE SUBJECT TO CHANGE
AND MAY NOT BE REPRESENTATIVE OF CURRENT HOLDINGS.
V-4
<PAGE>
Nations
Diversif ied Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Lehman Government Corporate Bond
(Fiscal Year Covered) Diversified Income $15,737 Index $14,886
Assumes the reinvestment of all distributions.
<S> <C> <C>
Oct. 30 1992 10000 10000
1992 10225 10163
10894 10636
11318 10955
11735 11317
1993 11828 11284
11512 10931
11344 10795
11442 10848
1994 11530 10888
12136 11431
13045 12172
13281 12405
1995 13940 12983
13497 12680
13543 12739
13812 12964
1996 14284 13360
14168 13245
14681 13727
15066 14208
1997 15511 14664
Mar. 31 1998 15737 14886
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period Lehman Government Corporate Bond
(Fiscal Year Covered) Diversified Income $13,450 Index $13,897
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10178 10227
10533 10565
1993 10597 10534
10295 10205
10125 10078
10194 10128
1994 10253 10165
10773 10671
11558 11364
11745 11581
1995 12305 12121
11891 11837
11910 11893
12123 12103
1996 12513 12473
12389 12365
12813 12815
13122 13264
1997 13481 13690
Mar. 31 1998 13450 13897
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(10/30/92 through 3/31/98) 8.73%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Diversified Income
Fund from the date each class of shares
was first offered. Figures for the
Lehman Government Corporate Bond Index,
an unmanaged index comprised of U.S.
Government, U.S. Treasury and agency
securities, corporate and yankee bonds,
include reinvestment of dividends. It
is unavailable for investment. The
performance shown reflects the
performance of Primary A and Investor B
Shares. The performance of Primary B,
Investor A and Investor C Shares may
vary based on the differences in sales
loads and fees paid by the shareholders
investing in each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC* (6/7/93
through
3/31/98) 6.68% 6.35%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C>
Inception Date 10/30/92 6/28/96 11/25/92 6/7/93 11/9/92
NAV CDSC*
- - --------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 11.07% 10.29% 10.80% 10.18% 5.18% 10.27%
- - --------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 9.05% NA 8.77% 8.21% 7.35% 8.35%
5 Years 7.63% NA 7.41% NA NA 6.92%
Since Inception 8.73% 8.26% 8.46% 6.68% 6.35% 8.10%
</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 THEIR 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.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales changes.
V-5
<PAGE>
Nations
Municipal Income
Fund Municipal Fixed Income
Management Team Commentary*
EFFECTIVE MARCH 1998, THE MUNICIPAL FIXED INCOME
MANAGEMENT TEAM OF TRADESTREET INVESTMENT ASSOCIATES,
INC. ASSUMED THE DAILY PORTFOLIO MANAGEMENT
RESPONSIBILITIES OF THE FUND. IN THE FOLLOWING
INTERVIEW, THE TEAM SHARES ITS VIEWS ON NATIONS
MUNICIPAL INCOME FUND'S PERFORMANCE FOR THE 12-MONTH
PERIOD ENDED MARCH 31, 1998 AND THEIR CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER BRIEFLY DESCRIBE YOUR OVERALL INVESTMENT PHILOSOPHY AND THE
The Fund is managed by the INVESTMENT APPROACH OF THE FUND.
Municipal Fixed Income The Fund balances its investments between high quality,
Management Team of TradeStreet investment-grade issues through which it seeks to reduce
Investment Associates, Inc., credit and liquidity risk, and lower quality,
investment sub-adviser to the investment-grade issues, for their additional yield
Fund. During the reporting potential. By maintaining a well-diversified portfolio, we
period, Michele M. Poirier was aim to limit the Fund's exposure to any single credit or
the Fund's portfolio manager. market sector. In addition, we use a combination of
INVESTMENT OBJECTIVE investment strategies, including duration management
The Fund seeks high current (managing the Fund's sensitivity to interest rates), market
income exempt from federal sector selection and individual credit reviews. We also seek
income tax consistent with the to limit the distribution of capital gains when appropriate.
potential for principal As a long-term portfolio, the Fund maintains an average
fluctuation associated with dollar-weighted maturity of greater than ten years and a
investments in long-term duration between seven and one-half and nine and one-half
municipal securities. The Fund years.
invests in investment-grade,
long-term municipal securities. HOW DID THE FUND PERFORM DURING THE PERIOD?
PERFORMANCE REVIEW With a total return of 11.12%, the Fund (Primary A Shares)
For the 12-month period ended outperformed its peer group, the Lipper General Municipal
March 31, 1998, Nations Debt Funds Universe,*** which returned 10.61% for the
Municipal Income Fund Primary A 12-month period ended March 31, 1998. The Fund benefited
Shares provided a total return from an overweighting in the lower end of the investment-
of 11.12%.** grade credit spectrum (bonds rated "A" and "Baa/BBB"), which
gave the Fund an income advantage. These positions also
enjoyed higher total returns as the gap between yields of
lower- and higher-rated credits narrowed during the period.
(Prices of lower-quality securities rise as their yields
fall to levels that are closer to those of higher-quality
securities.)
*The outlook for this Fund may differ from that presented
for other Nations Funds mutual funds.
**The performance shown includes the effect of fee waivers
by the investment adviser and the administrator, which have
the effect of increasing total return.
***Lipper Analytical Services, Inc., an independent mutual
fund performance monitor. Funds included in the Lipper
General Municipal Debt Funds Universe invest at least 65% of
their assets in municipal debt issues in the top four credit
ratings.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
V-6
<PAGE>
Nations
Municipal Income
Fund Municipal Fixed Income
Management Team Commentary continued...
<TABLE>
<S> <C>
THE FUND OUTPERFORMED ITS PEER WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN THE
GROUP FOR THE 12-MONTH PERIOD COMING YEAR?
ENDED MARCH 31, 1998. Looking ahead, municipal bond market participants will have
to keep one eye focused on Washington, D.C., where proposed
federal legislation addressing electric utility deregulation
and the reimbursement of not-for-profit health care
providers is being considered. We note that an uncertain
political climate for many municipal bond market sectors
such as these has become commonplace in recent
years -- presenting both a challenge and an opportunity for
astute investors seeking to capitalize on undervalued
securities.
</TABLE>
V-7
<PAGE>
Nations
Municipal Income
Fund
PORTFOLIO BREAKDOWN (AS A % OF TOTAL INVESTMENTS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C> <C>
3.24% Water TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
3.58% Education ----------------------------------------------
1 Polk County, Florida, Industrial 2.6%
3.66% Power/Utilities Revenue Development Authority, Solid Waste
Disposal Facilities Revenue, (Tampa
7.55% Hospital Electric Company Project), 5.850%
12/01/30
11.25% Other ----------------------------------------------
2 North Central Texas, Health 2.0%
35.22% Insured Facilities Development Corporation,
Hospital Revenue, (Presbyterian
15.45% General Obligation Healthcare), Series A, 5.000%
05/15/17
20.05% Pollution Control ----------------------------------------------
Revenue/Industrial 3 Murray City, Utah, Hospital Revenue 1.6%
Development Revenue Refunding, (IHC Health Services
Inc.), (MBIA Insured), 5.000%
PORTFOLIO HOLDINGS WERE CURRENT AS 05/15/22
OF MARCH 31, 1998, ARE SUBJECT TO ----------------------------------------------
CHANGE AND MAY NOT BE REPRESENTATIVE 4 Massachusetts State Port Authority, 1.6%
OF CURRENT HOLDINGS. Revenue Bonds, Special Facilities,
(Bosfuel Project), (MBIA Insured),
5.750% 07/01/39
----------------------------------------------
5 Courtland, Alabama, Industrial 1.5%
Development Board, Solid Waste
Disposal Revenue, 5.750% 11/01/27
----------------------------------------------
6 Pierce County, Washington, Economic 1.5%
Development Corporation, Solid
Waste Revenue, (Occidental
Petroleum), 5.800% 09/01/29
----------------------------------------------
7 Anchorage, Alaska, Electric 1.5%
Utilities Revenue Refunding, Senior
Lien, (MBIA Insured), Series B,
5.500% 02/01/26
----------------------------------------------
8 North Carolina State, Highway- 1.2%
Series A, 4.500% 05/01/07
----------------------------------------------
9 Washington State, GO, Refunding, 1.2%
Series A, 6.750% 02/01/15
----------------------------------------------
10 Adams County, Mississippi, 1.1%
Pollution Control, Revenue,
Refunded, (International Paper
Company), Series A, 5.500% 12/01/05
----------------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
V-8
<PAGE>
Nations
Municipal Income
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98) [Line Graph]
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period Lehman Municipal Bond
(Fiscal Year Covered) Municipal Income $17,482 Index $17,369
<S> <C> <C>
Feb. 1 1991 10000 10000
10081 10090
10229 10306
10657 10707
1991 11084 11065
11050 11099
11500 11519
11766 11826
1992 12006 12041
12484 12488
12996 12897
13503 13333
1993 13629 13520
12729 12778
12841 12918
12855 13007
1994 12615 12821
13625 13727
13975 14058
14395 14462
1995 15075 15059
14839 14878
14986 14992
15391 15335
1996 15785 15726
15733 15688
16292 16229
16809 16718
1997 17292 17172
Mar. 31 1998 17482 17369
</TABLE>
Investor B Shares (as of 3/31/98)* [Line Graph]
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period Municipal Income Lehman Municipal Bond
(Fiscal Year Covered) $12,965 Index $13,693
<S> <C> <C>
June 7 1993 10000 10000
10146 10300
10522 10511
1993 10600 10658
9881 10073
9949 10184
9941 10254
1994 9737 10108
10498 10822
10747 11083
11050 11401
1995 11551 11872
11348 11729
11440 11819
11727 12090
1996 12005 12398
11943 12368
12344 12794
12712 13180
1997 13049 13537
Mar. 31 1998 12965 13693
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
SINCE INCEPTION
(2/1/91 through 3/31/98) 8.11%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Municipal Income Fund
from the date each class of shares was
first offered. The Lehman Municipal
Bond Index is a broad-based, unmanaged,
total return index composed of 8,000
investment-grade, long-term maturity
bonds. It is unavailable for
investment. The performance shown
reflects the performance of Primary A
and Investor B Shares. The performance
of Investor A and Investor C Shares may
vary based on the differences in sales
loads and fees paid by the shareholders
investing in each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
SINCE
INCEPTION NAV CDSC*
(6/7/93 through
3/31/98) 5.88% 5.54%
[CHART LEGEND]
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
PRIMARY A INVESTOR A INVESTOR B INVESTOR C
<S> <C> <C> <C> <C> <C>
Inception Date 2/1/91 2/1/91 6/7/93 6/17/92
NAV CDSC*
- - -------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 11.12% 10.89% 10.23% 5.23% 10.37%
- - -------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 8.66% 8.45% 7.84% 6.97% 7.99%
5 Years 6.97% 6.74% NA NA 6.23%
Since Inception 8.11% 7.95% 5.88% 5.54% 6.92%
</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 THEIR 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.
The performance shown includes the effect of fee waivers by the investment
adviser and the administrator, which have the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
V-9
<PAGE>
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. SWAIM SHARES HIS VIEWS
ON NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND'S
PERFORMANCE FOR THE 12-MONTH PERIOD ENDED MARCH 31, 1998
AND HIS CURRENT OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S INVESTMENT STYLE AND PHILOSOPHY.
John S. Swaim is The Fund offers shareholders a low-volatility,
Senior Portfolio Manager high-credit-quality approach to investing in the bond market
of Nations Short-Intermediate by focusing primarily on the relative attractiveness of U.S.
Government Fund and Senior Treasury securities and mortgage-backed securities.
Product Manager, Fixed Income
Management for TradeStreet WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
Investment Associates, Inc., REPORTING PERIOD?
the investment sub-adviser During the period, economic growth was well above the most
to the Fund. optimistic expectations of long-term sustainable levels,
INVESTMENT OBJECTIVE productivity rates were high and unemployment rates were at
The Fund seeks high current 30-year lows. In addition, inflation continued to fall and
income consistent with modest budget deficits declined, providing a favorable backdrop for
fluctuation financial assets.
of principal. It invests
primarily in securities issued In this economic environment, the U.S. Federal Reserve Board
or guaranteed (the Fed) opted to keep the Federal Funds rate steady at
by the U.S. Government, 5.5%. The benchmark 30-year U.S. Treasury bond started the
its agencies or period at just over 7%, traded in a fairly tight range until
instrumentalities. August 1997 and then declined in reaction to the Asian
PERFORMANCE REVIEW financial crisis, ending the period at just under 6%. (Bond
For the 12-month period ended yields typically move in the opposite direction of bond
March 31, 1998, Nations Short- prices, so that when yields go down, prices generally go
Intermediate Government Fund up.)
Primary A Shares provided a
total return of 9.11%.** Early in the reporting period, the economy experienced
impressive overall growth, a balanced budget and no
inflationary pressures. However, in August 1997, the market
retreated somewhat as the unemployment rate continued to
decline, consumer confidence remained high and the U.S.
dollar declined from its then year-to-date highs. But with
favorable inflation reports, the market accurately
anticipated that the Fed would not act to raise interest
rates. Accordingly, bond yields declined slightly in
September 1997.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
**The performance shown includes the effects of fee waivers
by the investment adviser, which has the effect of
increasing total return.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
V-10
<PAGE>
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In the final quarter of 1997, Asian stock markets plunged to
levels not seen in several years, creating fears of a
financial crisis that affected the world's markets. As
investor confidence deteriorated, the U.S. bond market
benefited from a massive "flight to quality," with investors
selling off foreign securities and buying U.S. bonds. Within
the bond market, investors fled from corporate,
mortgage-backed and asset-backed securities into U.S.
Treasuries. As a result, any fund with primary holdings in
U.S. Treasuries was well positioned.
In early 1998, Fed Chairman Alan Greenspan discussed the
possibility of disinflationary shocks resulting from the
problems in Asia. This caused the bond market yield curve to
steepen dramatically, reducing short-term bond yields
relative to long-term bond yields, which also declined. In
February 1998, as the strength of the U.S. economy became a
concern, the market experienced a sell-off and investors
again entertained the possibility
that the Fed might raise interest rates to get ahead of
inflation and
influence growth.
IN JANUARY 1998, SHORT-TERM BOND PERFORMANCE FELL WHEN THE
YIELD CURVE STEEPENED. HOW WAS THE FUND AFFECTED BY THIS?
Prior to January 1998, the bond yield curve had been
flattening, indicating that investors who took on a
relatively low level of risk by investing in short-term
bonds earned income closer to that of more volatile 30-year
U.S. Treasury securities. The Fund benefited from this
flattening as it focused on very short-term and long-term
maturity securities. However, in January 1998, the yield
curve steepened sharply, negatively affecting the Fund's
performance as securities with intermediate maturities
outperformed.
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?***
The Fund invested over half of its assets in U.S. Treasury
securities. While these are viewed by many as a handicap to
performance because of their relative lack of income, the
Fund takes advantage of the high liquidity they provide. The
U.S. Treasury market is the most liquid fixed income market
in the world, and the Fund used this part of its portfolio
for duration and yield-curve management, which contributed
to performance at the lowest possible transaction cost.
*** Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
V-11
<PAGE>
Nations
Short-Intermediate Government
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
Because the Fund can conduct transactions for U.S. Treasury
securities at less cost than for any other, it can take
advantage of valuation opportunities that arise across the
yield curve. Positioning along the yield curve is a key for
value-added performance and enhances the stability provided
by the Fund to its investors. The liquidity of this market
also permits more frequent duration adjustments within a
narrow band. The Fund historically has added value with
these low-cost strategies.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
As interest rates declined during the last six months due to
the Asian financial crisis, homeowners took advantage of
lower interest rates by prepaying or refinancing their
mortgages. As a result, mortgage-backed securities lost
value, causing a portion of the Fund to decline in value. In
reaction, we reduced the Fund's holdings in the mortgage
market. Because mortgage-backed securities had offered solid
income potential, it was important to invest in alternative
income-producing securities during this time. Accordingly,
we increased the Fund's weighting in callable securities,
which provided the Fund with an income component along with
liquidity.
WHAT ECONOMIC DEVELOPMENTS DO YOU ANTICIPATE DURING THE REST
OF 1998?
We anticipate the financial crisis in Asia to have an impact
on the U.S. economy, affecting our markets in the third or
fourth quarter of 1998. When this occurs, we expect the
economy to slow and disinflation to play a role. This could
ease pressure on the labor market and could prompt the Fed
to reduce interest rates. However, we do not expect the
impact to be so severe as to cause a recession.
We strive to provide investors If, however, the Asian situation does not have a significant
with a relatively stable net impact and economic growth remains strong, then the Fed will
asset value with attractive likely raise interest rates. We expect this to slow the
levels economy, eventually causing rates to decline.
of income.
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
The Fund will remain conservative and invest primarily in
U.S. Treasuries, maintaining a portfolio with a short
duration during the next few months. We strive to provide
investors with a relatively stable net asset value with
attractive levels of income.
</TABLE>
V-12
<PAGE>
Nations
Short-Intermediate Government
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
0.2% Government Guaranteed Bonds
4.3% Short-Term Investments
22.0% Mortgage-Backed
Securities
73.5% U.S. Government
and Agency
Obligations and
Other Assets
and Liabilities (Net)
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 U.S. Treasury Notes 55.5%
-----------------------------------------
2 Federal National Mortgage
Association (FNMA)
Certificates 10.2%
-----------------------------------------
3 Federal National Mortgage
Association (FNMA) Notes 9.7%
-----------------------------------------
4 Federal Home Loan Mortgage
Corp. (FHLMC) Certificates 7.1%
-----------------------------------------
5 Government National Mortgage
Association (GNMA)
Certificates 4.6%
-----------------------------------------
6 U.S. Treasury Bond
6.125% 11/15/27 4.4%
-----------------------------------------
7 Federal Home Loan Mortgage
Corporation 6.625% 03/12/08 4.4%
-----------------------------------------
8 Federal Home Loan Bank
Discount Note
5.475% 04/24/98 4.1%
-----------------------------------------
9 Second Attransco Tanker
Corporation, Series A
8.500% 06/15/02 0.2%
-----------------------------------------
10 Federal Housing Authority
(FHA) Certificates and Notes
6.000% 07/15/04 0.2%
-----------------------------------------
THE TOP TEN HOLDINGS ARE PRESENTED TO
ILLUSTRATE EXAMPLES OF THE INDUSTRIES AND
SECURITIES IN WHICH THE FUND MAY INVEST.
</TABLE>
PORTFOLIO HOLDINGS WERE CURRENT
AS OF MARCH 31, 1998, ARE SUBJECT
TO CHANGE AND MAY NOT BE REPRESENTATIVE
OF CURRENT HOLDINGS.
V-13
<PAGE>
Nations
Short-Intermediate Government
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Lehman Brothers Intermediate Government Bond
(Fiscal Year Covered) Intermediate Government $15,369 Index $16,072
Assumes the reinvestment of all distributions.
<S> <C> <C>
Aug. 1 1991 10000 10000
10427 10363
1991 10925 10862
10762 10748
11242 11164
11639 11653
1992 11556 11614
11997 12049
12185 12285
12461 12545
1993 12483 12564
12266 12332
12147 12263
12208 12356
1994 12183 12345
12648 12859
13124 13460
13314 13669
1995 13699 14126
13580 14029
13599 14124
13834 14366
1996 14135 14699
14086 14694
14498 15104
14841 15491
1997 15160 15834
Mar. 31 1998 15369 16072
</TABLE>
Investor B Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period Short- Lehman Brothers Intermediate Government Bond
(Fiscal Year Covered) Intermediate Government $12,162 Index $13,272
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10092 10145
10304 10359
1993 10307 10375
10113 10184
9999 10127
10035 10204
1994 9999 10194
10366 10618
10740 11115
10878 11287
1995 11175 11665
11061 11585
11060 11663
11234 11863
1996 11461 12138
11404 12134
11720 12473
11979 12792
1997 12211 13075
Mar. 31 1998 12162 13272
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(8/1/91 through 3/31/98) 6.66%
The charts to the left show the growth
in value of a hypothetical $10,000
investment in Primary A and Investor B
Shares of Nations Short-Intermediate
Government Fund from the date each
class of shares was first offered.
Figures for the Lehman Brothers
Intermediate Government Bond Index, an
unmanaged index comprised of U.S.
government agency and U.S. Treasury
securities, include reinvestment of
dividends. It is unavailable for
investment. The performance shown
reflects the performance of Primary A
and Investor B Shares. The performance
of Primary B, Investor A and Investor C
Shares may vary based on the
differences in sales loads and fees
paid by the shareholders investing in
each class.
AVERAGE ANNUAL TOTAL RETURN
Investor B Shares
Since Inception NAV CDSC*
(6/7/93 through 3/31/98) 4.49% 4.15%
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
Primary A Primary B Investor A Investor B Investor C
<S> <C> <C> <C> <C> <C> <C>
Inception Date 8/1/91 6/28/96 8/5/91 6/7/93 6/17/92
NAV CDSC*
- - ---------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 9.11% 8.74% 8.89% 8.35% 4.35% 8.45%
- - ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 6.71% NA 6.50% 6.03% 5.13% 6.14%
5 Years 5.08% NA 4.87% NA NA 4.48%
Since Inception 6.66% 6.85% 6.50% 4.49% 4.15% 5.03%
</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 THEIR 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.
The performance shown includes the effects of fee waivers by the investment
adviser, which has the effect of increasing total return.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
V-14
<PAGE>
Nations Fund Trust
File Nos. 333-69635
Exhibit Number Description
- - -------------- -----------
Ex-99.17 Form of Proxy Ballot
EXH. 99.17
PACIFIC HORIZON FUNDS, INC.
FLEXIBLE INCOME FUND
PROXY CARD
SPECIAL MEETING OF SHAREHOLDERS-APRIL 12, 1999
The undersigned hereby appoints Stephen M. Wyane, Jay F. Nesblatt, Gary
M. Gardners and J. Robert Dugan (the "Proxies") and each of them, attorneys and
proxies of the undersigned, each with power of substitution and resubstitution,
to attend, vote and act for the undersigned at the Special Meeting of
Shareholders of Pacific Horizon Funds, Inc. ("Pacific Horizon") to be held at
400 Bellevue Parkway, Wilmington, Delaware, at 10:00 A.M. (EASTERN TIME), on
Monday, April 12, 1999, and at any adjournment or adjournments thereof. The
proxies will cast votes according to the number of shares of the
PACIFIC HORIZON FLEXIBLE INCOME FUND
(the "Fund") which the undersigned may be entitled to vote with respect to the
proposals set forth below, in accordance with the specification indicated, if
any, and with all the powers which the undersigned would possess if personally
present. The undersigned hereby revokes any prior proxy to vote at such meeting,
and hereby ratifies and confirms all that said attorneys and Proxies, or either
of them, may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED FEBRUARY 1,
1999.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PACIFIC HORIZON, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL. YOU MAY VOTE BY
(1) FAXING THE PROXY BALLOT TO A.D.P. PROXY SERVICES AT (704) 388-2641; OR (2)
TOUCHTONE VOTING AT (800) 690-6903; OR (3) ON-LINE VOTING AT WWW.PROXYVOTE.COM;
OR (4) BY MAILING IT IN THE ENCLOSED POSTAGE PAID ENVELOPE. PLEASE MAKE SURE YOU
MARK, SIGN AND DATE YOUR PROXY CARD.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL. PROXIES RETURNED WITHOUT ANY SPECIFICATION WILL
BE VOTED IN FAVOR OF THE PROPOSAL.
Please sign below exactly as your name(s) appear(s) hereon. Corporate proxies
should be signed in full corporate name by an authorized officer. Each joint
owner should sign personally. Fiduciaries should give full titles as such.
<PAGE>
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PACIFIC HORIZON FLEXIBLE INCOME FUND
VOTE ON PROPOSAL
1. To approve an Agreement and Plan of Reorganization, attached to
the Combined Proxy Statement/Prospectus for the Meeting, which
provides for and contemplates (a) the transfer of all of the
assets and liabilities of the Fund to a corresponding fund of
Nations Fund Trust in exchange for shares of a designated class of
such Nations Fund of equal value; (b) the distribution of the
shares of designated classes of the corresponding Nations fund to
shareholders of each Pacific Horizon Fund; (c) the transfer of all
of the assets and liabilities of Pacific Horizon; and (d) the
dissolution under state law and the deregistration under the
Investment Company Act of 1940, as amended, of Pacific Horizon.
|_|FOR |_|AGAINST |_|ABSTAIN
THIS PROPOSAL HAS BEEN PROPOSED BY PACIFIC HORIZON.
In their discretion, the Proxies, and either of them, are authorized to
vote upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain
requisite quorums and/or approvals.
----------------------- ---------
Signature Date
----------------------- --------
Signature (Joint Owners) Date
<PAGE>
PACIFIC HORIZON FUNDS, INC.
NATIONAL MUNICIPAL BOND FUND
PROXY CARD
SPECIAL MEETING OF SHAREHOLDERS-APRIL 12, 1999
The undersigned hereby appoints Stephen M. Wyane, Jay F. Nesblatt, Gary
M. Gardners and J. Robert Dugan (the "Proxies") and each of them, attorneys and
proxies of the undersigned, each with power of substitution and resubstitution,
to attend, vote and act for the undersigned at the Special Meeting of
Shareholders of Pacific Horizon Funds, Inc. ("Pacific Horizon") to be held at
400 Bellevue Parkway, Wilmington, Delaware, at 10:00 A.M. (EASTERN TIME), on
Monday, April 12, 1999, and at any adjournment or adjournments thereof. The
proxies will cast votes according to the number of shares of the
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
(the "Fund") which the undersigned may be entitled to vote with respect to the
proposals set forth below, in accordance with the specification indicated, if
any, and with all the powers which the undersigned would possess if personally
present. The undersigned hereby revokes any prior proxy to vote at such meeting,
and hereby ratifies and confirms all that said attorneys and Proxies, or either
of them, may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED FEBRUARY 1,
1999.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PACIFIC HORIZON, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL. YOU MAY VOTE BY
(1) FAXING THE PROXY BALLOT TO A.D.P. PROXY SERVICES AT (704) 388-2641; OR (2)
TOUCHTONE VOTING AT (800) 690-6903; OR (3) ON-LINE VOTING AT WWW.PROXYVOTE.COM;
OR (4) BY MAILING IT IN THE ENCLOSED POSTAGE PAID ENVELOPE. PLEASE MAKE SURE YOU
MARK, SIGN AND DATE YOUR PROXY CARD.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL. PROXIES RETURNED WITHOUT ANY SPECIFICATION WILL
BE VOTED IN FAVOR OF THE PROPOSAL.
Please sign below exactly as your name(s) appear(s) hereon. Corporate proxies
should be signed in full corporate name by an authorized officer. Each joint
owner should sign personally. Fiduciaries should give full titles as such.
<PAGE>
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
VOTE ON PROPOSAL
1. To approve an Agreement and Plan of Reorganization, attached to
the Combined Proxy Statement/Prospectus for the Meeting, which
provides for and contemplates (a) the transfer of all of the
assets and liabilities of the Fund to a corresponding fund of
Nations Fund Trust in exchange for shares of a designated class of
such Nations Fund of equal value; (b) the distribution of the
shares of designated classes of the corresponding Nations fund to
shareholders of each Pacific Horizon Fund; (c) the transfer of all
of the assets and liabilities of Pacific Horizon; and (d) the
dissolution under state law and the deregistration under the
Investment Company Act of 1940, as amended, of Pacific Horizon.
|_|FOR |_|AGAINST |_|ABSTAIN
THIS PROPOSAL HAS BEEN PROPOSED BY PACIFIC HORIZON.
In their discretion, the Proxies, and either of them, are authorized to
vote upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain
requisite quorums and/or approvals.
----------------------- ----
Signature Date
----------------------- ----
Signature (Joint Owners) Date
<PAGE>
PACIFIC HORIZON FUNDS, INC.
SHORT-TERM GOVERNMENT FUND
PROXY CARD
SPECIAL MEETING OF SHAREHOLDERS-APRIL 12, 1999
The undersigned hereby appoints Stephen M. Wyane, Jay F. Nesblatt, Gary
M. Gardners and J. Robert Dugan (the "Proxies") and each of them, attorneys and
proxies of the undersigned, each with power of substitution and resubstitution,
to attend, vote and act for the undersigned at the Special Meeting of
Shareholders of Pacific Horizon Funds, Inc. ("Pacific Horizon") to be held at
400 Bellevue Parkway, Wilmington, Delaware, at 10:00 A.M. (EASTERN TIME), on
Monday, April 12, 1999, and at any adjournment or adjournments thereof. The
proxies will cast votes according to the number of shares of the
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
(the "Fund") which the undersigned may be entitled to vote with respect to the
proposals set forth below, in accordance with the specification indicated, if
any, and with all the powers which the undersigned would possess if personally
present. The undersigned hereby revokes any prior proxy to vote at such meeting,
and hereby ratifies and confirms all that said attorneys and Proxies, or either
of them, may lawfully do by virtue thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE COMBINED PROXY STATEMENT/PROSPECTUS, DATED FEBRUARY 1,
1999.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PACIFIC HORIZON, WHICH
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL. YOU MAY VOTE BY
(1) FAXING THE PROXY BALLOT TO A.D.P. PROXY SERVICES AT (704) 388-2641; OR (2)
TOUCHTONE VOTING AT (800) 690-6903; OR (3) ON-LINE VOTING AT WWW.PROXYVOTE.COM;
OR (4) BY MAILING IT IN THE ENCLOSED POSTAGE PAID ENVELOPE. PLEASE MAKE SURE YOU
MARK, SIGN AND DATE YOUR PROXY CARD.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE
TAKEN ON THE FOLLOWING PROPOSAL. PROXIES RETURNED WITHOUT ANY SPECIFICATION WILL
BE VOTED IN FAVOR OF THE PROPOSAL.
Please sign below exactly as your name(s) appear(s) hereon. Corporate proxies
should be signed in full corporate name by an authorized officer. Each joint
owner should sign personally. Fiduciaries should give full titles as such.
<PAGE>
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PACIFIC HORIZON SHORT-TERM GOVERNMENT FUND
VOTE ON PROPOSAL
1. To approve an Agreement and Plan of Reorganization, attached to
the Combined Proxy Statement/Prospectus for the Meeting, which
provides for and contemplates (a) the transfer of all of the
assets and liabilities of the Fund to a corresponding fund of
Nations Fund Trust in exchange for shares of a designated class of
such Nations Fund of equal value; (b) the distribution of the
shares of designated classes of the corresponding Nations fund to
shareholders of each Pacific Horizon Fund; (c) the transfer of all
of the assets and liabilities of Pacific Horizon; and (d) the
dissolution under state law and the deregistration under the
Investment Company Act of 1940, as amended, of Pacific Horizon.
|_|FOR |_|AGAINST |_|ABSTAIN
THIS PROPOSAL HAS BEEN PROPOSED BY PACIFIC HORIZON.
In their discretion, the Proxies, and either of them, are authorized to
vote upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain
requisite quorums and/or approvals.
---------------------------- ----
Signature Date
---------------------------- ----
Signature (Joint Owners) Date
