PACIFIC HORIZON FUNDS, INC.
Aggressive Growth Fund
International Equity Fund
U.S. Government Securities 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, Inc. ("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 actual or 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;
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.
<PAGE>
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 call 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
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.
<TABLE>
<CAPTION>
<S> <C>
VOTE ON-LINE VOTE BY TOLL-FREE PHONE CALL
1. Read the enclosed PROXY STATEMENT and have 1. Read the enclosed PROXY STATEMENT and have
your PROXY BALLOT(S)* at hand. 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 4. Cast your vote using the easy-to-follow
instructions. instructions.
</TABLE>
* DO NOT MAIL THE PROXY BALLOT(S) IF VOTING BY INTERNET OR TELEPHONE.
2
<PAGE>
NATIONS FUND, INC.
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
Funds, Inc. 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 Funds, Inc., Nations Fund Trust
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 the Pacific Horizon 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:
PACIFIC HORIZON FUNDS CORRESPONDING NATIONS FUNDS PORTFOLIO
Aggressive Growth Fund Nations Small Company Growth Fund
International Equity Fund Nations International Equity Fund
U.S. Government Securities Fund Nations Government Securities Fund
<PAGE>
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.
Aggressive Growth Fund
International Equity Fund
U.S. Government Securities 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, Inc. 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, INC.
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 Aggressive Growth Fund, Pacific
Horizon International Equity Fund and Pacific Horizon U.S. Government Securities
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, Inc. ("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, Inc. (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
- - -------------------------------- --------------------------------------
AGGRESSIVE GROWTH FUND NATIONS SMALL COMPANY GROWTH FUND
A Shares Investor A Shares
B Shares Investor B Shares
K Shares Investor C Shares
INTERNATIONAL EQUITY FUND NATIONS INTERNATIONAL EQUITY FUND
A Shares Investor A Shares
B Shares Investor B Shares
K Shares Investor C Shares
U.S. GOVERNMENT SECURITIES FUND NATIONS GOVERNMENT SECURITIES FUND
A Shares Investor A Shares
K Shares Investor C 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 Fund Trust 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...............................................6
Overview of the Funds.................................................6
Federal Income Tax Consequences.......................................7
Pacific Horizon and Nations Board Consideration.......................7
Principal Risk Factors................................................8
Voting Information....................................................9
THE REORGANIZATION.............................................................9
Reasons for the Reorganization........................................9
Description of the Reorganization Agreement...........................9
Pacific Horizon Board Consideration..................................11
Capitalization.......................................................12
Table III.......................................................12
Federal Income Tax Considerations....................................13
Other Matters........................................................14
COMPARISON OF PACIFIC HORIZON AND NATIONS.....................................14
Investment Objectives and Policies...................................14
Management's Discussion of Nations Fund Performance..................15
Investment Advisory Services.........................................15
Table IV........................................................16
Other Service Providers for Pacific Horizon and Nations.............16
Sales Load, Distribution and Shareholder Servicing Arrangements
for the Pacific Horizon Funds..................................17
Sales Load, Distribution and Shareholder Servicing Arrangements
for the Nations Funds...........................................18
Administration Agreements............................................19
Shareholder Transactions and Services................................19
Fees and Expenses....................................................19
Share Structure......................................................20
VOTING MATTERS................................................................20
General Information..................................................20
Shareholder and Board Approvals......................................21
Principal Shareholders...............................................21
Table V(A)......................................................22
Table V(B)......................................................23
Quorum...............................................................25
Annual Meetings and Shareholder Meetings.............................26
ADDITIONAL INFORMATION ABOUT NATIONS..........................................26
ADDITIONAL INFORMATION ABOUT PACIFIC HORIZON..................................26
FINANCIAL STATEMENTS..........................................................26
OTHER BUSINESS................................................................27
SHAREHOLDER INQUIRIES.........................................................27
3
<PAGE>
APPENDICES I FORM OF AGREEMENT AND PLAN 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
VI INTERNATIONAL EQUITY FUND--NEW INVESTMENT
SUB-ADVISORY ARRANGEMENTS
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, except for Investor A and Investor B Shares of the Nations Small
Company Growth Fund. Detailed PRO FORMA expense information for each proposed
reorganization is included in Appendix II.
TABLE II
TOTAL EXPENSE INFORMATION
-------------------------
<TABLE>
<CAPTION>
<S> <C>
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
Aggressive Growth Fund Nations Small Company Growth Fund Nations Small Company Growth Fund
A Shares 1.59%/1.59% Investor A Shares 1.48%/1.48% Investor A Shares 1.48%/1.48%
B Shares 2.34%/2.34% Investor B Shares 2.23%/2.23% Investor B Shares 2.23%/2.23%
K Shares 2.34%/2.09% Investor C Shares 2.23%/2.23% Investor C Shares 2.23%/2.23%
International Equity Fund Nations International Equity Fund Nations International Equity Fund
A Shares 2.09%/1.25% Investor A Shares 1.40%/1.40% Investor A Shares 1.40%/1.40%
B Shares 2.84%/2.00% Investor B Shares 2.15%/2.15% Investor B Shares 2.15%/2.15%
K Shares 2.84%/1.75% Investor C Shares 2.15%/2.15% Investor C Shares 2.15%/2.15%
U.S. Government Securities Fund Nations Government Securities Fund Nations Government Securities Fund
A Shares 1.37%/0.85% Investor A Shares 1.10%/1.10% Investor A Shares 1.10%/1.10%
K Shares 2.12%/1.35% Investor C Shares 1.85%/1.85% Investor C Shares 1.85%/1.85%
</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.
Comparison of Investment Objectives
-----------------------------------
<TABLE>
<CAPTION>
<S> <C>
PACIFIC HORIZON FUND CORRESPONDING NATIONS FUND
- - -------------------- --------------------------
PACIFIC HORIZON AGGRESSIVE GROWTH FUND : seeks to NATIONS SMALL COMPANY GROWTH FUND: seeks
provide maximum capital appreciation. long-term capital growth by investing primarily in
equity securities.
PACIFIC HORIZON INTERNATIONAL EQUITY FUND : seeks NATIONS INTERNATIONAL EQUITY FUND: seeks
long term capital growth by investing primarily in long-term capital growth by investing in equity
foreign equity securities. securities of non-United States companies in
Europe, Australia, the
Far East and other
regions, including
developing countries.
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND: NATIONS GOVERNMENT SECURITIES FUND: seeks high
seeks a high level of current income consistent with current income consistent with moderate
preservation of capital. fluctuation of 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 average dollar-weighted
maturity of the Pacific Horizon U.S. Government Fund's portfolio securities
typically ranges from two to four years, while the average dollar-weighted
maturity of the Nations Government Securities Fund's portfolio securities is
between five and thirty years. Additionally, while both the Pacific Horizon
Aggressive Growth Fund and Nations Small Company Growth Fund invest primarily in
equity securities of small capitalization companies, the Pacific Horizon
Aggressive Growth Fund is not limited to such investments by percentage limit of
total assets or by a limitation relating to the capitalization of the companies
in which it invests. In contrast, the Nations Small Company Growth Fund will
invest at least 65% of its total assets in companies with a market
capitalization of $1 billion or less. 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.
Bank of America currently serves as the investment adviser to the Pacific
Horizon Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") currently
serves as investment sub-adviser to the Nations Government Securities Fund and
the Nations Small Company Growth Fund. While Gartmore Global Partners
("Gartmore") currently serves as the investment sub-adviser to Nations
International Equity Fund, it is expected that the Fund will be served by three
investment sub-advisers prior to the Reorganization--Gartmore, Putnam Investment
Management, Inc. ("Putnam") and INVESCO Global Asset Management (N.A.), Inc.
("INVESCO"). SEE Appendix VI International Equity Fund-New Investment
Sub-Advisory Arrangements. Wellington Management Company, LLP ("Wellington")
serves as investment sub-adviser to the Pacific Horizon International Equity
Fund. For more information, see "Comparison of Pacific Horizon and
Nations--Investment Advisory Services" and Appendix III.
6
<PAGE>
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) for a majority, but not all, of Nations Fund share
classes are higher. 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 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. For a more detailed summary of fees and expenses,
see Appendix II.
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 - "Share
Structure" and Appendix IV to this Proxy/Prospectus. PLEASE NOTE THAT NO
CONTINGENT DEFERRED SALES LOADS WILL BE IMPOSED ON ANY OF 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 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. For additional information, see "The
Reorganization--Pacific Horizon Board Consideration."
7
<PAGE>
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 Funds
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.
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.
PACIFIC HORIZON AGGRESSIVE GROWTH FUND AND ITS CORRESPONDING NATIONS
SMALL COMPANY GROWTH FUND. An investment in the Funds involves risks typically
associated with investing in a portfolio of equity securities, which are
generally stock market risks. Stock values fluctuate in response to the
activities of individual companies and in response to general market and
economic conditions and, accordingly, the value of the stocks that a Fund holds
may decline over short or extended periods. The U.S. stock markets tend to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline. As of the date of this Proxy/Prospectus, domestic stock
markets were trading at or close to record high levels and there can be no
guarantee that such levels will continue. Moreover, the securities of smaller
companies in which the Funds invest may be subject to more abrupt or erratic
market movements than larger, more established companies, both because the
securities typically are traded in lower volume and because the issuers
typically are subject to a greater degree to changes in earnings. Additionally,
while both the Pacific Horizon Aggressive Growth Fund and Nations Small Company
Growth Fund invest primarily in equity securities of small capitalization
companies, the Pacific Horizon Aggressive Growth Fund is not limited to such
investments by percentage limit of total assets or by a limitation relating to
the capitalization of the companies in which it invests. In contrast, the
Nations Small Company Growth Fund will invest at least 65% of its total assets
in companies with a market capitalization of $1 billion or less.
PACIFIC HORIZON INTERNATIONAL EQUITY FUND AND ITS CORRESPONDING NATIONS
INTERNATIONAL EQUITY FUND. An investment in the Funds involves risks typically
associated with investing in a portfolio of foreign equity securities, which are
generally stock market risks and foreign investment risk. Stock values fluctuate
in response to the activities of individual companies and in response to general
market and economic conditions and, accordingly, the value of the stocks that a
Fund holds may decline over short or extended periods. Many stock markets tend
to be cyclical, with periods when stock prices generally rise and periods when
prices generally decline.
In addition to stock market risks, the Funds are subject to foreign
investment risk. These include, but are not limited to restrictions on foreign
investment and repatriation of capital; fluctuations in currency exchange rates,
which can significantly affect a Fund's share price; costs of converting foreign
currency into U.S. dollars and U.S. dollars into foreign currencies; greater
price volatility and less liquidity; settlement practices, including delays,
which may differ from those customary in U.S. markets; exposure to political and
economic risks, including the risk of nationalization, expropriation of assets
and war; possible impositions of foreign taxes and exchange control and currency
restrictions; lack of uniform accounting, auditing and financial reporting
standards; less governmental supervision of securities markets, brokers and
issuers of securities; less financial information available to investors; and
difficulty in enforcing legal rights outside the United States.
Certain of the above risks associated with investments by a Fund in
foreign securities are heightened with respect to investment in developing
countries and emerging markets countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may lack the social, political and economic stability
characteristic of more developed countries. Investing in emerging markets
securities also involves risks beyond the usual risks inherent in international
investing. Some emerging countries may have fixed or managed currencies that are
not free-floating against the U.S. dollar. Further, certain currencies may not
be traded internationally and some countries with emerging securities markets
have sustained long periods of substantially high inflation or rapid
fluctuations in inflation rates which can have negative effects on a country's
economy or securities markets.
8
<PAGE>
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND AND ITS CORRESPONDING
NATIONS GOVERNMENT SECURITIES Fund. An investment in the Funds involves risks
typically associated with fixed-income securities, which includes 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. Credit risk is the risk that the issuer of a
fixed-income instrument will be unable to pay principal or interest when due.
Also, both funds will invest in mortgage-backed securities, the value of which
may decline when interest rates rise. In addition, a mortgage-backed security's
maturity may be shortened by unscheduled prepayments on underlying mortgages
and, therefore, it is not possible to accurately predict the security's return
to the Funds.
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 would
be entitled to receive as a result of the Reorganization for Primary A Shares of
the same Fund of equal value at or shortly after Closing.
9
<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 Trust 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 the shareholders of 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.
10
<PAGE>
PACIFIC HORIZON BOARD CONSIDERATION. At meetings held on July 26 and
27, 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 Directors also were
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 (except Investor A and Investor B
Shares of the Nations Small Company Growth 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.
11
<PAGE>
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.
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 Aggressive Growth Fund
with Nations Small Company Growth Fund.
<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
Pacific Horizon Aggressive Growth Fund $161,891,898 9,724,276 $16.65
(A Shares) (A Shares) (A Shares)
$227,442 13,673 $16.63
(B Shares) (B Shares) (B Shares)
$3,052,866 185,539 $16.45
(K Shares) (K Shares) (K Shares)
Nations Small Company Growth Fund $14,507,000 1,389,496 $10.44
(Investor A) (Investor A) (Investor A)
$4,343,000 421,682 $10.30
(Investor B) (Investor B) (Investor B)
$1,909,000 183,252 $10.42
(Investor C) (Investor C) (Investor C)
PRO FORMA Combined Fund $176,398,898 16,896,383 $10.44
(A Shares/ (A Shares/ (A Shares/
Investor A) Investor A) Investor A)
$4,570,442 443,764 $10.30
(B Shares/ (B Shares/ (B Shares/
Investor B) Investor B) Investor B)
$4,961,866 476,233 $10.42
(K Shares/ (K Shares/ (K Shares/
Investor C) Investor C) Investor C)
</TABLE>
12
<PAGE>
2. The table below reflects current and PRO FORMA capitalization
information for the combination of the Pacific Horizon International Equity Fund
with Nations International Equity Fund.
<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
Pacific Horizon International Equity $36,332,776 3,914,562 $9.28
Fund (A Shares) (A Shares) (A Shares)
$144,691 15,632 $9.26
(B Shares) (B Shares) (B Shares)
$693,669 75,649 $9.17
(K Shares) (K Shares) (K Shares)
Nations International Equity Fund $9,836,000 772,963 $12.73
(Investor A) (Investor A) (Investor A)
$27,251,000 2,165,645 $12.58
(Investor B) (Investor B) (Investor B)
$768,000 61,956 $12.40
(Investor C) (Investor C) (Investor C)
PRO FORMA Combined Fund $46,168,776 3,627,070 $12.73
(A Shares/ (A Shares/ (A Shares/
Investor A) Investor A) Investor A)
$27,395,691 2,177,147 $12.58
(B Shares/ (B Shares/ (B Shares/
Investor B) Investor B) Investor B)
$1,461,669 117,897 $12.40
(K Shares/ (K Shares/ (K Shares/
Investor C) Investor C) Investor C)
</TABLE>
3. The table below reflects current and PRO FORMA capitalization
information for the combination of the Pacific Horizon U.S. Government
Securities Fund with Nations Government Securities Fund.
<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE
TOTAL NET ASSETS SHARES OUTSTANDING PER SHARE
Pacific Horizon U.S. Government $66,988,100 6,989,633 $9.58
Securities Fund (A Shares) (A Shares) (A Shares)
$1,289,612 134,497 $9.59
(K Shares) (K Shares) (K Shares)
Nations Government Securities Fund $22,349,000 2,167,616 $10.31
(Investor A) (Investor A) (Investor A)
$250,000 24,209 $10.31
(Investor C) (Investor C) (Investor C)
PRO FORMA Combined Fund $89,337,100 8,665,007 $10.31
(A Shares/ (A Shares/ (A Shares/
Investor A) Investor A) Investor A)
$1,539,612 149,293 $10.31
(K Shares/ (K Shares/ (K Shares/
Investor C) Investor C) Investor C)
</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.
13
<PAGE>
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 Funds' 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.
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 Nations Funds shareholders
will be asked in mid-1999 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 AGGRESSIVE GROWTH FUND/NATIONS SMALL COMPANY GROWTH
FUND. The objectives, policies and restrictions for these Funds are
substantially similar. Both Funds invest in equity securities, typically of
smaller-capitalization companies and both Funds may invest in debt securities,
although the Nations Small Company Growth Fund will typically not invest more
than 10% of its assets in debt securities. The Pacific Horizon Aggressive Growth
Fund does not limit its investments in debt securities during temporary
defensive periods. Additionally, while both the Pacific Horizon Aggressive
Growth Fund and Nations Small Company Growth Fund invest primarily in equity
securities of small capitalization companies, the Pacific Horizon Aggressive
Growth Fund is not limited to such investments by percentage limit of total
assets or by a limitation relating to the capitalization of the companies in
which it invests. In contrast, the Nations Small Company Growth Fund will invest
at least 65% of its total assets in companies with a market capitalization of $1
billion or less.
14
<PAGE>
PACIFIC HORIZON INTERNATIONAL EQUITY FUND/NATIONS INTERNATIONAL EQUITY
FUND. While the Pacific Horizon Fund will, under normal circumstances, invest at
least 80% of its assets in foreign equity securities and may invest up to 20% of
its total assets in convertible bonds and debt securities, the Nations Fund may
invest only 65% of its assets in foreign equity securities, and may invest up to
35% of its assets in debt securities. As noted in more detail below (see
"Comparison of Pacific Horizon and Nations - Investment Advisory Services"), it
is anticipated that the Nations International Equity Fund would be served by
three investment sub-advisers prior to the Reorganization. However, no material
change in the Fund's investment objective, policies or restrictions is expected.
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND/NATIONS GOVERNMENT
SECURITIES FUND. Under normal conditions, the Nations Fund expects to maintain
an average dollar-weighted portfolio maturity of between 5 and 30 years and a
duration in the range of 3.5 years. The typical maturity of the portfolio
securities in the Pacific Horizon Fund is between 2 and 4 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 Small Company Growth Fund and Nations Government Securities Fund.
Nations International Equity Fund is currently sub-advised by Gartmore. Both
NBAI and TradeStreet are wholly owned subsidiaries of NationsBank, which in turn
is an indirect wholly owned banking subsidiary of BankAmerica Corporation.
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of NationsBank and Gartmore U.S.
Limited, an indirect wholly owned subsidiary of Gartmore Investment Management
plc, a UK company. The Strategic Growth Management Team of TradeStreet is
responsible for the day-to-day management of Nations Small Company Growth Fund.
Scott A. Billeadeau, who is responsible for managing the Pacific Horizon
Aggressive Growth Fund, is a member of The Strategic Growth Management Team of
TradeStreet, which is managing Nations Small Company Growth Fund. The Fixed
Income Management Team of TradeStreet is responsible for the day-to-day
management of Nations Government Securities Fund. Philip Ehrmann and Seok Teoh
of Gartmore are co-portfolio managers of Nations International Equity Fund.
Gartmore Global Partners currently serves as the investment sub-advisor
to Nations International Equity Fund. At a Nations Board meeting held on
December 2, 1998, new investment sub-advisory arrangements were proposed and
approved for Nations International Equity Fund whereby the Fund would be
sub-advised by three investment sub-advisors. Pursuant to the new arrangements,
Gartmore Global Partners, INVESCO Global Asset Management (N.A.), Inc. and
Putnam Investment Management, Inc. would each be responsible for managing
approximately one-third of the Fund's assets and each investment sub-adviser
would receive fees based upon the actual amount of assets managed by such
investment sub-adviser. The fees to each investment sub-adviser would be paid by
NBAI and the new arrangements would not result in an increase in Nations
International Equity Fund's advisory fee level. It is anticipated that these new
investment sub-advisory arrangements will be submitted to the shareholders of
Nations International Equity Fund for their approval. If the shareholders
approve the new arrangements, they are expected to become effective prior to the
Closing. If the shareholders do not approve the new arrangements, the current
arrangement would remain in effect. Information about Gartmore Global Partners
and the current investment sub-advisory arrangement is included in the
prospectus for the International Equity Fund. Additional information about
INVESCO Global Asset Management (N.A.), Inc, and Putnam Investment Management,
Inc. and the new investment sub-advisory arrangements is included in Appendix
VI.
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.
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<PAGE>
TABLE IV
INVESTMENT ADVISORY AND SUB-ADVISORY FEE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
PACIFIC HORIZON FUND ADVISORY & SUB-ADVISORY CORRESPONDING NATIONS FUND ADVISORY & SUB-ADVISORY
FEES BEFORE/ AFTER WAIVERS FEES BEFORE/ AFTER WAIVERS
Aggressive Growth Fund Small Company Growth Fund
Advisory Fee 0.60%/0.60% Advisory Fee 0.90%/0.90%
Sub-Advisory Fee 0.25%/0.25%
(Paid by Adviser out of its Advisory fee)
International Equity Fund International Equity Fund
Advisory Fee 0.75%/0.00% Advisory Fee 0.80%/0.80%
Sub-Advisory Fee 0.40% of first Sub-Advisory Fee 0.70%/0.70%
(paid by Adviser out $50 million; plus (Paid by Adviser out of its Advisory fee)
its advisory fee) 0.30% of the next $100
million; plus 0.25% of
next $350 million; plus 0.20%
of assets in excess of
$500 million/0.12%
U.S. Government Securities Fund Government Securities Fund
Advisory Fee 0.35%/0.11% Advisory Fee 0.50%/0.50%
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.
<TABLE>
<CAPTION>
<S> <C>
Pacific Horizon Funds Nations Funds
Distributor Provident Distributors, Inc. Stephens
("Provident")
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 PFPC Trust Company (International BNY
Equity Fund Only)
BNY (All Others)
Independent Accountants PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP
</TABLE>
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.
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<PAGE>
SALES LOADS, 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 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 ("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.
B SHARES. Pacific Horizon has adopted a Distribution and Services Plan
for B Shares, under which the B Shares of each Pacific Horizon Fund reimburse
Bank of America for distribution related expenses and for shareholder servicing
expenses. Distribution expenses include expenses incurred in connection with
advertising and marketing the Funds' B Shares; payments to service organizations
for assistance in connection with the distribution of B 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. Shareholder servicing expenses include expenses incurred
in connection with shareholder services provided by Bank of America and
Provident and payments to such organizations for the provision of support
services with respect to beneficial owner of B Shares. Under the Distribution
and Services 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 B Shares. Under the Distribution and Services Plan for B Shares, payments
for shareholder servicing expenses may not exceed 0.25% (annualized) of the
average daily net assets of a Fund's B Shares. The total of all 12b-1,
administrative and shareholder servicing fees may not exceed, in the aggregate,
1.00% (annualized) of the average daily net assets of a Fund's B Shares. Class B
Shares are offered at net asset value per share without the imposition of a
front-end sales load. There is a maximum CDSC of 5% on redemptions of B Shares
made within 1 year of purchase declining to 1% in the sixth year and eliminated
thereafter; Investor B Shares of the corresponding Nations Fund received in
exchange for such shares will be subject to the same CDSC. For all cases, former
Class B 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.
K SHARES. Pacific Horizon 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 also 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 for K Shares, 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.
17
<PAGE>
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 LOADS, DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS FOR
THE NATIONS FUNDS.
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 B SHARES. Nations has adopted a Distribution Plan and a
Shareholder Servicing Plan with respect to Investor B 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 B 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 Directors, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor B 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 B Shares. The
Directors of Nations also have approved a Shareholder Servicing Plan for the
Nations Funds which permits the Fund to compensate Servicing Agents for services
provided to their customers that own Investor B Shares. Payments under the
Shareholder 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 B
Shares. Investor B Shares are offered at net asset value per share without the
imposition of a front-end sales load. There is a maximum CDSC of 5% on
redemptions of Investor B Shares made within 1 year of purchase declining to 1%
in the sixth year and eliminated thereafter; Investor B Shares of the Nations
Fund received in exchange for Class B Shares will be subject to the CDSC. For
all cases, former Class B 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 Directors 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 Directors 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. However, 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.
18
<PAGE>
ADMINISTRATION AGREEMENTS. The Pacific Horizon Funds have entered into
a co-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, B and K Shares of the Pacific Horizon Funds is
generally $500 while the minimum initial investment for the Investor A, Investor
B 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 balance. Another difference is that Pacific
Horizon provides check-writing privileges on all A, B and K Shares of the U.S.
Government Securities Fund, while Nations does not provide check-writing
privileges on Investor A, Investor B 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.
FEES AND EXPENSES. Shareholders of A Shares and B Shares of the Pacific
Horizon Aggressive Growth Fund will experience lower total operating expenses
after the Reorganization. Shareholders of K shares of the Pacific Horizon
Aggressive Growth Fund,; A Shares, B Shares and K Shares of the Pacific Horizon
International Equity Fund; and A Shares and K Shares of the Pacific Horizon U.S.
Government Securities Fund will experience higher total operating expenses after
the Reorganization because 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 International Equity Fund
and a substantial portion of the fees it is entitled to receive for services
provided to the Pacific Horizon U.S. Government Securities Fund. This
subsidization results in Bank of America and other service providers furnishing
services to certain classes of the Pacific Horizon Funds at a loss.
The subsidization has benefited those Pacific Horizon International
Equity and U.S. Government Securities 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.
19
<PAGE>
Due to reductions in waivers and/or reimbursements, Pacific Horizon
Fund shareholders other than those holding A or B Shares of the Aggressive
Growth Fund 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" for more information. 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 Funds' 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. Like Pacific
Horizon, Nations also is a Maryland corporation and was organized on December 3,
1983 (although it had no operations until December 15, 1986) and is subject to
the provisions of its Charter and By-Laws. Both Pacific Horizon's and Nations'
Charters authorize their respective 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 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).
Nations shareholders do not have cumulative voting rights, and therefore the
holders of more than 50% of the outstanding shares of all funds voting together
for the election of Directors may elect all of the members of the Board of
Directors of Nations. Nations shareholders also vote in the aggregate and not by
class or series, except as required by law (or permitted by the Pacific Horizon
Board of Directors.)
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.
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 Maryland Corporation 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.
20
<PAGE>
NAME OF PACIFIC HORIZON FUND AND CLASS SHARES ENTITLED TO VOTE
AGGRESSIVE GROWTH FUND
A Shares.......................................... 9,365,169.2
B Shares.......................................... 2
K Shares.......................................... 19,202.10
228,136.86
INTERNATIONAL EQUITY FUND
A Shares.......................................... 3,729,245.3
B Shares.......................................... 1
K Shares.......................................... 20,962.64
84,480.03
U.S. GOVERNMENT SECURITIES FUND
A Shares........................................ 6,717,942.9
K Shares........................................ 1
160,372.96
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.
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 Directors 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 beneficial or record 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
beneficial or record ownership with respect to 5% or more of a class of a
Nations Fund as of January 14, 1999.
21
<PAGE>
TABLE V(A)
<TABLE>
<CAPTION>
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
- - ---- ------- ----------------- -------- ------- ------------
<S> <C> <C> <C> <C>
Pacific Horizon PACO A; 814,196.60; 8.68% 8.47% 1.76%
Aggressive Fund Attn Mutual Funds record
PO Box 513577
Los Angeles, CA 90051
BA Investment Services Inc. B; 1,271.70; 6.73% 0.01% 0.00%
FBO 310087091 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,250.51; 6.62% 0.01% 0.00%
FBO 720514691 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,363.45; 7.22% 0.01% 0.00%
FBO 583012841 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,086.28; 5.75% 0.01% 0.00%
FBO 211117111 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
Corelink Financial Inc. K; 225,386.06; 99.74% 2.34% 0.49%
PO Box 4054 record
Concord, CA 94524
Pacific Horizon PACO A; 711,146.34; 19.05% 19.55% 1.17%
International Equity Attn Mutual Funds record
Fund PO Box 513577
Los Angeles, CA 90051
Bank of America MT&SA A; 576,446.98; 15.44% 15.03% 0.95%
The Private Bank record
Attn Common Trust Funds
Unit 38329
PO Box 3577 Terminal Annex
Los Angeles, CA 90051
PACO A; 1,597,638.27; 42.80% 41.66% 2.63%
Attn Mutual Funds record
PO Box 513577
Los Angeles, CA 90051
BA Investment Services Inc. B; 1,118.12; 5.54% 0.03% 0.00%
FBO 370074811 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
22
<PAGE>
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
- - ---- ------- ----------------- -------- ------- ------------
BA Investment Services Inc. B; 1,872.67; 9.28% 0.05% 0.00%
FBO 582875821 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 2,851.82; 14.13% 0.07% 0.00%
FBO 583012841 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,308.68; 6.48% 0.03% 0.00%
FBO 433617991 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,031.96; 5.11% 0.03% 0.00%
FBO 310102181 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,255.21; 6.22% 0.03% 0.00%
FBO 435207821 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
BA Investment Services Inc. B; 1,219.94; 6.05% 0.03% 0.00%
FBO 721409571 record
185 Berry St.
3rd Floor 12640
San Francisco, CA 94107
Corelink Financial Inc. K; 82,986.72; 98.78% 2.16% 0.14%
PO Box 4054 record
Concord, CA 94524
Pacific Horizon US Corelink Financial Inc. K; 157,272.79; 100% 2.29% 0.67%
Government PO Box 4054 record
Securities Fund Concord, CA 94524
</TABLE>
TABLE V(B
<TABLE>
<CAPTION>
CLASS; AMOUNT PERCENTAGE
NATIONS NAME AND OF SHARES OWNED; PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF FUND POST-CLOSING
- - ---- ------- ----------------- -------- ------- ------------
<S> <C> <C> <C> <C>
Nations Small Wendel & Co. A; 178,861.62; 14.15% 0.56% 0.39%
Company Growth Fund c/o Bny Mtl Fund Reorg Dpt. record
P.O. Box 1066
New York, NY 10268-1066
23
<PAGE>
CLASS; AMOUNT PERCENTAGE
NATIONS NAME AND OF SHARES OWNED; PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF FUND POST-CLOSING
- - ---- ------- ----------------- -------- ------- ------------
NFSC FEBO #W50-724580 C; 15,113.58; 8.43% 0.04% 0.03%
Members of Springdale record
Policemens
Pension & Relief Fund
c/o Ollen Stepp
201 Spring Street
Springdale, AR 72764
NFSC FEBO #W53-641308 C; 9,293.41; 5.19% 0.02% 0.02%
Dale H. Wiewel record
200 Liberty Street
1 World Financial Center
New York, NY 10281
Nations Government Dodson Brothers A; 146,459.49; 6.95% 0.85% 0.62%
Securities Fund Exterminating Co. Inc. record
Attn: H. P. Dawson
P. O. Box 10249
Lynchburg, VA 24506
NFSC FEBO #W23-749125 C; 7,622.96; 35.34% 0.04% 0.03%
NFSC/FMTC IRA record
FBO David E. Ellis
Box 57
Goodrich, TX 77335
BNY CUST IRA FBO C;3,111.82; record 14.43% 0.01% 0.01%
Mary Jane Russo
8 Maybrook Court
Glen Arm, MD 21057
NFSC FEBO #W14-646067 C; 1,271.01; 5.89% 0.007% 0.01%
NFSC/FMTC IRA record
FBO Bonnie F. Jordan
109 Brittain Road
Darlington, SC 29532
Harold A. Dawson Sr. & C; 1,213.60; 5.63% 0.007% 0.01%
Harold A. Dawson Jr. TTEES record
Harold A. Dawson Co. Inc.
Profit Sharing Plan
600 Peachtree Street NE
Suite 3700
Atlanta, GA 30308
Nations Tatsushi T. Kubo, Max W. C; 6,993.33; 11.28% 0.01% 0.01%
International Equity Dahlgren, record
Fund & John Dahlgren TTEES FBO
EPIC Products International
Corporation 401(K) Plan
2801 East Randol Mill Road
Arlington, TX 76011
24
<PAGE>
CLASS; AMOUNT PERCENTAGE
NATIONS NAME AND OF SHARES OWNED; PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS TYPE OF OWNERSHIP OF CLASS OF FUND POST-CLOSING
- - ---- ------- ----------------- -------- ------- ------------
C. A. Porterfield & C; 6,856.84; 11.06% 0.01% 0.01%
Rosalee Moxley record
& Frank Minton TTEES FBO
Starmount Company Employees
Tax Deferred Savings Plan
P.O. Box 10349
Greensboro, NC 27404-0359
H. Grayson Mitchell Jr. and C; 6,556.19 10.57% 0.01% 0.01%
John Rawls TTEE FBO
Grayson Mitchell Inc. 401K
Plan
P.O. Box 128
Emporia, VA 23847
C. A. Porterfield & C; 6,268.90 10.11% 0.01% 0.01%
Rosalee Moxley &
Frank Minton TTEES
Starmount Company
Capital Accumulation Plan
P.O. Box 10349
Greensboro, NC 27404-0349
E. Larry Fonts TTEE FBO C; 5,356.23; 8.64% 0.01% 0.01%
Central Dallas Association record
Profit Sharing Plan
1201 Elm Street, Suite 5310
Dallas, TX 75270
NFSC FEBO #W17-662682 C; 3,783.66; 6.10% 0.01% 0.01%
NFSC/FMTC IRA ROLLOVER record
FBO Linda G. Walker
7 Sally Street
Spartanburg, SC 29301
James B. Ford and C; 3,756.06; 6.06% 0.01% 0.01%
Joanne W. Ford JTTEN record
25 Century Blvd., Suite 605
Nashville, TN 37214
City & Co. A;49,145.76; 6.09% 0.09% 0.08%
P.O. Box 549 record
Hopkinsville, KY
42241-0549
</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.
25
<PAGE>
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 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.
26
<PAGE>
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 Directors. 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.
27
<PAGE>
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.
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.
28
<PAGE>
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, Inc.
("Nations Funds"), a Maryland corporation, for itself and on behalf of Nations
Government Securities Fund, Nations International Equity Fund and Nations Small
Company Growth 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 Aggressive Growth Fund, Pacific Horizon International Equity
Fund and Pacific Horizon U.S. Government Securities 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 (as defined in
paragraph 1.3). 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 (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.
I-1
<PAGE>
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 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.
I-2
<PAGE>
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 Funds Trust and Nations Institutional
Reserves, 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.
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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 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.
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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 confirmation
evidencing the Acquiring Fund Shares credited on the Closing
Date or shall provide evidence satisfactory to each Acquired
Fund that such Acquiring Fund Shares have been credited to
each Acquired Fund's account on the books of each Acquiring
Fund. At the Closing(s), each party shall deliver to the other
such bills of sale, checks, assignments, assumptions of
liability share certificates, if any, receipts or other
documents of transfer, assignment or conveyance as such other
party or its counsel may reasonably request.
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3.5. Within 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.
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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 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. 33-4038;
811-4614), 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.
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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 Fund Trust and Nations Institutional
Reserves, 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.
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.
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<PAGE>
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 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 Nations Funds
shall be managed under the direction of the Directors
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' 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 Nations Funds is a party or by which its
properties or assets are bound;
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<PAGE>
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 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
Directors, 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;
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<PAGE>
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 Maryland 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 Small Company Growth Fund, Nations
International Equity Fund and Nations Government
Securities 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 Small
Company Growth Fund, Nations International Equity Fund
and Nations Government Securities 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
Small Company Growth Fund, Nations International
Equity Fund and Nations Government Securities 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 Small Company
Growth Fund, Nations International Equity Fund and
Nations Government Securities 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;
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<PAGE>
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;
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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 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;
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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-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;
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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;
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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
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.
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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 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 Nations
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 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;
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;
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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 Charter 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
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<PAGE>
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").
6.5. With respect to each Acquiring Fund, the Board of Directors of
Nations Funds, including a majority of the "non-interested"
Directors, 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
as 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.
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<PAGE>
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;
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<PAGE>
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 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:
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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; (c) "Appendix II
-- Expense Summaries of Pacific Horizon Funds and the
Corresponding Nations Funds" in the Combined Proxy
Statement/Prospectus; and (d) the PRO FORMA financial
statements in the Statement of Additional Information,
agree with the underlying accounting records of the
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.
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<PAGE>
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. 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.
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<PAGE>
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, (c) "Appendix II -- Expense
Summaries of Pacific Horizon Funds and the Corresponding
Nations Funds" in the Combined Proxy Statement/Prospectus; and
(d) the pro forma financial statements in the Statement of
Additional Information, agree with the underlying accounting
records of the Acquiring Funds or with written estimates
provided by officers of Nations Funds having responsibility
for financial and reporting matters, and were found to be
mathematically correct.
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<PAGE>
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:
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;
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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
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.
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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
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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 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 Directors 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.
I-29
<PAGE>
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 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:
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
I-30
<PAGE>
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 Directors,
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 Charter. The execution and delivery
by such officers shall not be deemed to have been made by any
of them individually or to impose any liability on any of them
personally, but shall bind only the assets and the property of
the respective Acquiring Fund of Nations Funds as provided in
its Charter.
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.
I-31
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: NATIONS FUND, INC., for itself and on behalf of each
Acquiring Fund
/s/ Richard H. Blank, Jr. By: /s/ A. Max Walker
- - -------------------------- ---------------------
Richard H. Blank, Jr. A. Max Walker
Secretary President and Chairman of the Board of Directors
ATTEST: PACIFIC HORIZON FUNDS, INC., for itself and on
behalf of each Acquired Fund
By: /s/ Dr. Cornelius J. Pings
------------------------------
Dr. Cornelius J. Pings
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
</TABLE>
I-32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C>
PACIFIC HORIZON FUND/SHARE CLASS CORRESPONDING NATIONS FUND/SHARE CLASS
- - -------------------------------- --------------------------------------
AGGRESSIVE GROWTH FUND NATIONS SMALL COMPANY GROWTH FUND
A Shares (Class D Common Stock) Investor A Shares
B Shares (Class D - Special Series 3 Common Stock) Investor B Shares
K Shares (Class D - Special Series 5 Common Stock) Investor C Shares
INTERNATIONAL EQUITY FUND NATIONS INTERNATIONAL EQUITY FUND
A Shares (Class T Common Stock) Investor A Shares
B Shares (Class T - Special Series 3 Common Stock) Investor B Shares
K Shares (Class T - Special Series 5 Common Stock) Investor C Shares
U.S. GOVERNMENT SECURITIES FUND NATIONS GOVERNMENT SECURITIES FUND
A Shares (Class E Common Stock) Investor A Shares
K Shares (Class E - Special Series 5 Common Stock) Investor C Shares
</TABLE>
<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. 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 AGGRESSIVE GROWTH FUND-CLASS A SHARES
NATIONS SMALL COMPANY GROWTH FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY GROWTH COMBINED FUND
GROWTH FUND FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a 5.75% 5.75% 5.75%
percentage of offering price ...................
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 .................................... 0.60% 0.90% 0.90%
12b-1 Fees/Shareholder Servicing Fees............... 0.25% 0.25% 0.25%
Other Expenses ..................................... 0.74% 0.33% 0.33%
---- ---- ----
TOTAL FUND OPERATING EXPENSES:........................... 1.59% 1.48% 1.48%
==== ==== ====
</TABLE>
- - --------------------
1Certain 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.
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 SMALL
AGGRESSIVE COMPANY GROWTH COMBINED FUND
GROWTH FUND FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 73 72 72
3 years ........................................... 105 102 102
5 years ........................................... 139 134 134
10 years .......................................... 236 225 225
</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 AGGRESSIVE GROWTH FUND-CLASS B SHARES
NATIONS SMALL COMPANY GROWTH FUND-INVESTOR B SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY COMBINED FUND
GROWTH FUND GROWTH FUND PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases (as a None None None
percentage of offering price) ..................
Maximum Sales Load Imposed on
Reinvested Dividends............................ None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds) ....... 5.00% 5.00% 5.00%
Redemption Fees .................................... None None None
Exchange Fee ....................................... None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees .................................... 0.60% 0.90% 0.90%
12b-1 Fees/Shareholder Servicing Fees............... 1.00% 1.00% 1.00%
Other Expenses...................................... 0.74% 0.33% 0.33%
---- ---- ----
TOTAL FUND OPERATING EXPENSES:........................... 2.34% 2.23% 2.23%
==== ==== ====
</TABLE>
- - --------------------
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY GROWTH COMBINED FUND
GROWTH FUND FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 74 73 73
3 years ........................................... 103 100 100
5 years ........................................... 145 139 139
10 years .......................................... 268 238 238
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a
5% gross annual return and no redemption.
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY COMBINED FUND
GROWTH FUND GROWTH FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 24 23 23
3 years ........................................... 73 70 70
5 years ........................................... 125 119 119
10 years .......................................... 268 238 238
</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 AGGRESSIVE GROWTH FUND-CLASS K SHARES
NATIONS SMALL COMPANY GROWTH FUND-INVESTOR C SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY COMBINED FUND
GROWTH FUND GROWTH FUND PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases (as a None None None
percentage of offering price)...................
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 .................................... 0.60% 0.90% 0.90%
12b-1 Fees/Shareholder Servicing Fees (after waivers)1 0.75% 1.00% 1.00%
Other Expenses...................................... 0.74% 0.33% 0.33%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers):2 2.09% 2.23% 2.23%
==== ==== ====
</TABLE>
- - --------------------
1 12b-1/Shareholder Servicing Fees (absent waivers) would be 1.00% for the
Pacific Horizon Aggressive Growth Fund.
2 Total Fund Operating Expenses (absent waivers) would be a 2.34% for the
Pacific Horizon Aggressive Growth 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 SMALL
AGGRESSIVE COMPANY COMBINED FUND
GROWTH FUND GROWTH FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 21 33 33
3 years ........................................... 65 70 70
5 years ........................................... 112 119 119
10 years .......................................... 242 258 258
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% gross annual return and (2) no redemption.
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS SMALL
AGGRESSIVE COMPANY COMBINED FUND
GROWTH FUND GROWTH FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 21 23 23
3 years ........................................... 65 70 70
5 years ........................................... 112 119 119
10 years .......................................... 242 258 258
</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 INTERNATIONAL EQUITY FUND-CLASS A SHARES
NATIONS INTERNATIONAL EQUITY FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ............ 5.75% 5.75% 5.75%
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% 0.80% 0.80%
12b-1/Shareholder Servicing Fees.................... 0.25% 0.25% 0.25%
Other Expenses (after waivers)3..................... 1.00% 0.35% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers)4:.......... 1.25% 1.40% 1.40%
==== ==== =====
</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 0.75% for the Pacific Horizon
International Equity Fund.
3 Other Expenses (absent waivers) would be 1.09% for the Pacific Horizon
International Equity Fund.
4 Total Fund Operating Expenses (absent waivers) would be 2.09% for the
Pacific Horizon International Equity 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
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 70 71 71
3 years ........................................... 95 99 99
5 years ........................................... 122 130 130
10 years .......................................... 200 216 216
</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>
PACIFIC HORIZON INTERNATIONAL EQUITY FUND-CLASS B SHARES
NATIONS INTERNATIONAL EQUITY FUND-INVESTOR B SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY 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)............................ 5.00% 5.00% 5.00%
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% 0.80% 0.80%
12b-1/Shareholder Servicing Fees.................... 1.00% 1.00% 1.00%
Other Expenses (after waivers)2..................... 1.00% 0.35% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers)3:.......... 2.00% 2.15% 2.15%
==== ==== =====
</TABLE>
- - -------------------
1 Management Fees (absent waivers) would be 0.75% for the Pacific Horizon
International Equity Fund.
2 Other Expenses (absent waivers) would be 1.09% for the Pacific Horizon
International Equity Fund.
3 Total Fund Operating Expenses (absent waivers) would be 2.84% for the
Pacific Horizon International Equity 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
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 70 72 72
3 years ........................................... 93 97 97
5 years ........................................... 128 135 135
10 years .......................................... 233 229 229
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) no redemption:
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 20 22 22
3 years ........................................... 63 67 67
5 years ........................................... 108 115 115
10 years .......................................... 233 229 229
</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 ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS
ARE REINVESTED AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND
OPERATING EXPENSES ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-6
<PAGE>
PACIFIC HORIZON INTERNATIONAL EQUITY FUND-CLASS K SHARES
NATIONS INTERNATIONAL EQUITY FUND-INVESTOR C SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY 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% 0.80% 0.80%
12b-1/Shareholders Servicing Fees (after waivers)2.. 0.75% 1.00% 1.00%
Other Expenses (after waivers)3..................... 1.00% 0.35% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers)4:.......... 1.75% 2.15% 2.15%
==== ==== =====
</TABLE>
- - -----------------
1 Management Fees (absent waivers) would be 0.75% for the Pacific Horizon
International Equity Fund.
2 Distribution and Servicing Fees (absent waivers) would be 1.00% for the
Pacific Horizon International Equity Fund.
3 Other Expenses (absent waivers) would be 1.09% for the Pacific Horizon
International Equity Fund.
4 Total Fund Operating Expenses (absent waivers) would be 2.84% for the
Pacific Horizon International Equity 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
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 18 32 32
3 years ........................................... 55 67 67
5 years ........................................... 95 115 115
10 years .......................................... 206 249 249
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) no redemption:
PACIFIC HORIZON NATIONS
INTERNATIONAL INTERNATIONAL COMBINED FUND
EQUITY FUND EQUITY FUND PRO FORMA
1 year ............................................ 18 22 22
3 years ........................................... 55 67 67
5 years ........................................... 95 115 115
10 years........................................... 206 249 249
</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-7
<PAGE>
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND-CLASS A SHARES
NATIONS GOVERNMENT SECURITIES FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
U.S. GOVERNMENT COMBINED FUND
GOVERNMENT SECURITIES FUND PRO FORMA
SECURITIES FUND
<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.................... 0.11% 0.50% 0.50%
12b-1 Fees/Shareholder Servicing (after waivers)3... 0.10% 0.25% 0.25%
Other Expenses (after waivers)4..................... 0.64% 0.35% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers)5:.......... 0.85% 1.10% 1.10%
==== ==== =====
</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 0.35% for the Pacific Horizon
U.S. Government Securities Fund.
3 12b-1 Fees/shareholder Servicing Fees (absent waivers) would be 0.25% for
the Pacific Horizon U.S. Government Securities Fund.
4 Other Expenses (absent waivers) would be 0.77% for the Pacific Horizon
U.S. Government Securities Fund.
5 Total Fund Operating Expenses (absent waivers) would be 1.37% for the
Pacific Horizon U.S. Government Securities 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
U.S. GOVERNMENT GOVERNMENT COMBINED FUND
SECURITIES FUND SECURITIES FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 56 58 58
3 years ........................................... 73 81 81
5 years ........................................... 92 105 105
10 years .......................................... 148 175 175
</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-8
<PAGE>
PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND-CLASS K SHARES
NATIONS GOVERNMENT SECURITIES FUND-INVESTOR C SHARES
<TABLE>
<CAPTION>
PACIFIC HORIZON NATIONS
U.S. GOVERNMENT COMBINED FUND
GOVERNMENT SECURITIES FUND PRO FORMA
SECURITIES FUND
<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.................... 0.11% 0.50% 0.50%
12b-1 Fees/Shareholder Servicing Fees (after waivers)2 0.60% 1.00% 1.00%
Other Expenses (after waivers)3..................... 0.64% 0.35% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers)4:.......... 1.35% 1.85% 1.85%
==== ==== =====
</TABLE>
- - ------------------
1 Management Fees (absent waivers) would be 0.35% for the Pacific Horizon
U.S. Government Securities Fund.
2 12-b/Servicing Fees (absent waivers) would be 1.00% for the Pacific
Horizon U.S. Government Securities Fund.
3 Other Expenses (absent waivers) would be 0.77% for the Pacific Horizon
U.S. Government Securities Fund.
4 Total Fund Operating Expenses (absent waivers) would be 2.12% for the
Pacific Horizon U.S. Government Securities 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
U.S. GOVERNMENT GOVERNMENT COMBINED FUND
SECURITIES FUND SECURITIES FUND PRO FORMA
<S> <C> <C> <C>
1 year ............................................ 14 29 29
3 years ........................................... 43 58 58
5 years ........................................... 74 100 100
10 years .......................................... 163 218 218
You would pay the following expenses on a $1,000 investment, assuming a
5% gross return and no redemption:
PACIFIC HORIZON NATIONS
U.S. GOVERNMENT GOVERNMENT COMBINED FUND
SECURITIES FUND SECURITIES FUND PRO FORMA
1 year ............................................ 14 19 19
3 years ........................................... 43 58 58
5 years ........................................... 74 100 100
10 years .......................................... 163 218 218
</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 ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE
REINVESTED AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND OPERATING
EXPENSES ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-9
<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 AGGRESSIVE GROWTH FUND/NATIONS SMALL
COMPANY GROWTH FUND
Investment Objectives:
1. PACIFIC HORIZON AGGRESSIVE GROWTH FUND: to seek to achieve maximum
capital appreciation.
2. NATIONS SMALL COMPANY GROWTH FUND: to seek long-term capital growth by
investing primarily in equity securities.
Comment: Both Funds, under normal market conditions, will invest at
least 65% of their assets in equity securities. The Pacific Horizon Fund's
holdings will consist primarily of common stock of domestic companies, most of
which will be small-capitalization companies that the investment adviser expects
will achieve above average growth in earnings and price. Similarly, the Nations
Fund will invest at least 65% of its assets in companies with a market
capitalization of $1 billion or less, although up to 35% of its assets may be
invested in securities of issuers with capitalization greater than $1 billion.
While both Funds may invest in debt securities, the Nations Fund limits
its investment in such securities to 35% of total assets (and typically will not
invest more than 10% of its assets) in debt securities, while the Pacific
Horizon Fund may invest in debt securities during temporary defensive periods
without limit.
Both Funds limit any investment in foreign securities to 20% of total
assets.
II. PACIFIC HORIZON INTERNATIONAL EQUITY FUND/NATIONS
INTERNATIONAL EQUITY FUND
Investment Objectives:
1. PACIFIC HORIZON INTERNATIONAL EQUITY FUND: to seek long term capital
growth by investing primarily in foreign equity securities.
2. NATIONS INTERNATIONAL EQUITY FUND: to seek long-term capital growth by
investing in equity securities of non-United States companies in Europe,
Australia, the Far East and other regions, including developing
countries.
Comment: Both Funds typically will invest their assets in foreign
equity securities. While the Nations Fund will invest at least 65% of its assets
in such securities, the Pacific Horizon Fund will invest at least 80% of its
assets in foreign equity securities. Both Funds intend to diversify their
holdings across companies in at least three different countries. Under certain
circumstances, both Funds may invest substantially all of its assets in one or
two countries. While the Nations Fund may invest up to 35% of its assets in
other types of securities, such as foreign debt obligations, the Pacific Horizon
Fund may invest in such securities without limitation, but only under unusual
market conditions. Otherwise, the Pacific Horizon Fund may invest up to 20% of
its total assets in convertible bonds and debt securities.
III-1
<PAGE>
Each Fund may invest in emerging markets or developing countries, which
generally include the following: (i) countries with an emerging stock market as
defined by the International Finance Corporation; (ii) countries with low- to
middle-income economies according to the World Bank; and (iii) countries listed
in World Bank publications as developing. Emerging market countries include, but
are not limited to: Argentina, Brazil, Chile, China, the Czech Republic,
Columbia, Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the
Philippines, Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand,
Taiwan and Turkey.
Both Funds may invest in futures and options for the purpose of hedging
currency fluctuations. The Pacific Horizon Fund may also use foreign currency
options to increase the Fund's gross income. In addition, both Funds may invest
in U.S. dollar-denominated instruments or obligations and in the U.S. stock
markets for temporary defensive purposes.
While the Pacific Horizon Fund may purchase bank obligations, including
certificates of deposit and bankers' acceptances and make interest bearing
savings account deposits in commercial banks in amounts not exceeding 5% of
total assets, the Nations Fund has no intention to so invest.
III. PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND/NATIONS
GOVERNMENT SECURITIES FUND
Investment Objectives:
1. PACIFIC HORIZON U.S. GOVERNMENT SECURITIES FUND: to seek a high level of
current income consistent with preservation of capital.
2. NATIONS GOVERNMENT SECURITIES FUND: to seek high current income
consistent with moderate fluctuation of principal.
Comment: Both Funds typically will invest their assets in U.S.
Government obligations, which are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Pacific Horizon Fund will,
under normal market conditions, always have at least 65% so invested, while the
Nations Fund will so invest under normal market conditions.
Both Funds may invest up to 35% of their total assets in non-government
related fixed income securities, although the Nations Fund may invest such
percentage in a broader category of securities, including foreign securities and
real estate investment trusts. While the Pacific Horizon Fund may invest only in
non-governmental debt securities that are in the highest rating category by a
nationally recognized statistical rating organization, the Nations Fund may
invest in debt securities that are rated in any of the top four investment grade
categories. While the Pacific Horizon Fund has no specified duration or average
dollar weighted maturity, it is expected that the average dollar weighted
maturity of the Nations Fund's portfolio will be between 5 and 30 years and the
Nations Fund's duration is expected to be between 3.5 and 8 years.
Both Funds may invest without limit, for temporary defensive purposes,
in cash or cash equivalents.
III-2
<PAGE>
APPENDIX IV
SHAREHOLDER TRANSACTIONS AND SERVICES OF THE NATIONS FUNDS AND THE
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 5.75% on A Shares of the Pacific
Horizon Aggressive Growth and International Equity Funds and a maximum sales
charge of 4.75% on A Shares of Pacific Horizon U.S. Government Securities Fund.
The sales charge on the 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 5.75% on Investor A Shares of
Nations Small Company Growth Fund and Nations International Equity Fund and
4.75% on Nations Government Securities Fund. Sales charges are reduced as the
amount invested increases. An investor also may be entitled to reduced sales
charges on Investor A Shares through Rights of Accumulation, a Letter of Intent,
Quantity Discounts or through certain affiliations with BankAmerica Corporation.
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 through rights of accumulation, letters of intent, quantity
discounts, or through certain affiliations with BankAmerica Corporation.
IV-1
<PAGE>
B. Purchase Policies
<TABLE>
<CAPTION>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
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.
C. Redemption Procedures
PACIFIC HORIZON FUNDS NATIONS FUNDS
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>
* 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>
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>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
Systematic/automatic investment plan Yes ($50 or more) Yes (in any amount from $50 to
$100,000).
E. Share Exchanges
PACIFIC HORIZON FUNDS NATIONS FUNDS
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.
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.
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.
</TABLE>
- - ---------------
+ 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>
II. PACIFIC HORIZON FUNDS - B SHARES
CORRESPONDING NATIONS FUNDS - INVESTOR B SHARES
A. Sales Charges and Exemptions
There is a maximum deferred sales charge of 5.00% on Class B Shares and
Investor B Shares of each of the Pacific Horizon Funds and the Nations Funds,
respectively, if such shares are redeemed within a specified number of years of
the initial purchase. The deferred sales charge is reduced as the number of
years the shares are held increases, and there is no deferred sales charge on
shares held for seven years or longer.
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 affiliations; for IRA, Roth IRA Investment Plan.
or 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.
C. Redemption Procedures
PACIFIC HORIZON FUNDS NATIONS FUNDS
</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>
<TABLE>
<CAPTION>
<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 B Shares and Pacific Horizon may redeem B
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>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
Systematic/automatic investment plan Yes Yes (in any amount from $50 to
$100,000).
Conversion feature Yes (to A Shares in 8 years) Yes (to Investor A shares in 8 years)
E. Share Exchanges
PACIFIC HORIZON FUNDS NATIONS FUNDS
By mail Yes Yes
By telephone Yes Yes
Minimum The B Shares exchanged must have a The Investor B Shares exchanged must
current value of at least $500. have a current value of at least
$1,000
</TABLE>
Investor B Shares of a Nations Fund may be exchanged for Investor B
Shares of any other Nations Fund non-money market fund or Investor C Shares of a
non-Nations Institutional Reserves money market fund. 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-5
<PAGE>
B Shares of a Pacific Horizon Fund may be exchanged for B Shares of any
other Pacific Horizon Fund or Time Horizon Fund or the Y Shares of Pacific
Horizon's Prime Fund. Exchanges are subject to the minimum investment
requirements imposed.
III. 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>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
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 SEP-IRAs.
Purchase methods Through Bank of America; Service Through Selling Agents, Servicing
Organizations; in person; by mail; Agents, a Nations Fund Personal
by wire; by 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-6
<PAGE>
C. Redemption Procedures
<TABLE>
<CAPTION>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
Through an authorized selling or Yes Yes
servicing agent
By mail Yes Yes
By telephone Yes Yes#
By wire Yes Yes
Check writing feature (U.S. Government Yes+ No
Securities Fund Only)
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>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
Systematic/automatic investment plan Yes Yes (in any amount from $50 to
$100,000).
- - -------------
+ 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.
</TABLE>
IV-7
<PAGE>
E. Share Exchanges
<TABLE>
<CAPTION>
<S> <C> <C>
PACIFIC HORIZON FUNDS NATIONS FUNDS
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
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.
IV. DIVIDENDS. Any dividends from net investment income for the Pacific Horizon
U.S. Government Securities Fund and Nations Government Securities Fund are
declared daily and paid monthly; any dividends from net investment income for
Nations Small Company Growth Fund are declared and paid monthly, and any net
realized gains from these Funds are distributed at least annually. Any dividends
from net investment income for the Nations International Equity Fund are
declared and paid quarterly, and any net realized gains are distributed at least
annually. Any dividend from net investment income or capital gains of the
Pacific Horizon Aggressive Growth and International Equity Funds are paid as a
dividend annually.
IV-8
<PAGE>
APPENDIX V
Management's Discussion of Nations Fund Performance
-----------------------------------------------
Nations
International Equity
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. WATSON SHARES HIS VIEWS
ON NATIONS INTERNATIONAL EQUITY 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 PHILOSOPHY AND STYLE.
Stephen Watson is Principal The Fund emphasizes growth at a reasonable price in
Portfolio Manager of Nations selecting regions, countries and stocks. By combining good
International Equity Fund and growth stock selection with active regional and country
is the Head of the allocation, we aim to build a portfolio that strategically
International and Global overweights growing markets while tactically avoiding those
Portfolio Team for Gartmore with less favorable prospects. The investment process is
Global Partners, investment driven by fundamental research that includes both
sub-adviser to the Fund. macroeconomic and company-level analysis, carried out by
INVESTMENT OBJECTIVE regionally focused investment teams.
The Fund seeks long-term WHAT WERE INTERNATIONAL ECONOMIC AND MARKET CONDITIONS LIKE
capital growth by investing DURING THE REPORTING PERIOD?
primarily in equity securities Global equity markets had a tumultuous ride over the 12
of non-United States companies months ended March 31, 1998. The ups and downs of the
in Europe, Australia, the Far markets during this period reflected a combination of
East and other regions, extraordinary political and economic developments,
including developing countries. particularly -- but not entirely -- in the Far East. The
PERFORMANCE REVIEW spring of 1997 was marked by two significant political
For the 12-month period ended milestones: the buildup to Britain's handover of Hong Kong
March 31, 1998, Nations to China on July 1, 1997, and, in the United Kingdom, the
International Equity Fund May 1997 election of a new Labour government, ending 19
Primary A Shares provided a years of Conservative Party rule.
total return of 16.06%. The reporting period began with stock markets in the Far
East in a positive mode, a situation that quickly changed
following the devaluation of Thailand's currency, the baht,
on July 2, 1997. The weakness of the Thai baht precipitated
the first of successive rounds of currency devaluations and
stock market declines across the Pacific Rim.
*The outlook of this Fund's portfolio manager may differ
from that presented for other Nations Funds mutual funds.
Source for all statistical data -- Gartmore Global Partners.
INVESTING IN INTERNATIONAL INVESTMENTS MAY INVOLVE SPECIAL
RISKS, INCLUDING FOREIGN TAXATION, CURRENCY RISKS, RISKS
ASSOCIATED WITH POSSIBLE DIFFERENCES IN FINANCIAL STANDARDS
AND OTHER MONETARY AND POLITICAL RISKS ASSOCIATED WITH
FUTURE POLITICAL AND ECONOMIC DEVELOPMENTS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
V-1
<PAGE>
Nations
International Equity
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
By the end of September 1997, Japan, which had been the star
performer among major non-U.S. stock markets the previous
calendar quarter, had become the worst-performing market
represented in the benchmark Morgan Stanley Capital
International Europe, Australasia and Far East (MSCI EAFE)
Index.** Depreciation of the yen, weak consumer spending and
the economic and financial turmoil of its Pacific Rim
neighbors all contributed to the slide in the Japanese stock
market.
While events in Asia hurt stock markets globally, most of
the impact outside the Pacific Rim was confined to the third
quarter of the reporting period and primarily affected
companies with exposure to Asia in terms of revenue.
Otherwise, stock markets in the U.K. and Continental
Europe -- particularly those in Italy, Spain and Portugal,
which are aiming to benefit from participation in Economic
and Monetary Union (EMU) -- rose throughout most of the
period, fueled by increasing merger and acquisition
activity, positive corporate news and favorable economic
data.
In the emerging markets, Latin America was initially hit
harder by the Asian downturn than were most developed
markets. However, Latin American stock markets generally
recovered enough to post modest gains by the end of the
reporting period. Asian stock markets also staged partial
recoveries in the first three months of 1998.
THE FUND'S UNDERWEIGHT POSITION WHAT COUNTRY OR REGIONAL ALLOCATION DECISIONS CONTRIBUTED
IN JAPAN RELATIVE TO THE MSCI THE MOST TO THE FUND'S PERFORMANCE?
EAFE INDEX PROVIDED THE MOST The Fund's underweight position in Japan relative to the
BENEFIT FROM A REGIONAL MSCI EAFE Index provided the most benefit from a regional
ALLOCATION PERSPECTIVE. allocation perspective. Our emphasis on emerging markets
outside of the Far East, specifically Brazil and Mexico,
also added value. In Europe, an overweight stance toward
Switzerland also helped performance.
WHAT COUNTRY OR REGIONAL ALLOCATION DECISIONS DETRACTED FROM
THE FUND'S PERFORMANCE?
The decision to maintain an overweight position in the Far
East through the first half of the reporting period had a
negative impact on performance, as this region
underperformed the benchmark MSCI EAFE Index. However, we
reduced the Fund's exposure to Southeast Asia during the
period, focusing on markets such as Hong Kong and Australia,
where the potential for long-term appreciation was
considered stronger.
In Europe, the Fund's underweighting in France detracted
from performance, as the French market outperformed the MSCI
EAFE Index. Also dampening the Fund's returns was its
underweight stance toward the U.K., although we
substantially increased exposure to this market over the
period.
**Morgan Stanley Capital International Europe, Australasia
and Far East Index is an unmanaged, capitalization-weighted
index that tracks stocks traded on sixteen exchanges in
Europe, Australia and the Far East. It is unavailable for
investment.
</TABLE>
V-2
<PAGE>
Nations
International Equity
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
DID ANY PARTICULAR SECTOR DECISIONS CONTRIBUTE TO THE FUND'S
PERFORMANCE?
Our heavy emphasis on the pharmaceutical sector in
Switzerland added value, with both Novartis and Roche
Holding outperforming the Swiss market index. In Italy, the
Fund's significant holdings in telecommunication
stocks -- through Telecom Italia Mobile and its parent,
Telecom Italia -- benefited the Fund, as the share prices of
both companies outperformed the MSCI Italy Index.***
IN EUROPE, THE FUND WAS HELPED WHAT ARE SOME EXAMPLES OF STOCKS HELD BY THE FUND THAT
BY HEAVY EXPOSURE TO SOME OF PERFORMED PARTICULARLY WELL?
THE BEST PERFORMING SECTORS. In Europe, the Fund was helped by heavy exposure to some of
the best performing sectors, including insurance, support
services, electronics, pharmaceuticals and
telecommunications. Individually, shares in Bank of Ireland,
Lloyds TSB Group, the German software company SAP and
Britain's mobile telephone company, Vodafone Group,
substantially outperformed the benchmark MSCI EAFE Index.
Elsewhere, the Fund took profits on Australia's News Corp.
Ltd. (parent company of motion picture studio 20th Century
Fox), whose share price was boosted by the success of the
movie Titanic.
WHAT IMPACT DID CURRENCY HAVE ON THE FUND'S PERFORMANCE?
A broadly stronger U.S. dollar throughout most of the
reporting period had a negative impact on performance.
However, the British pound ended the period a fraction
stronger against the dollar than it had been at the start of
the period, providing some benefit to U.S. investors. The
Fund was particularly vulnerable to further drops in the
Japanese yen relative to the dollar, so in November 1997, we
placed a currency hedge on the Fund's yen exposure as a
protective measure. We removed the hedge in January 1998 as
the Japanese government's efforts to stimulate the economy
caused the yen to rally. This hedging strategy benefited
Fund performance.
WHAT IS YOUR INTERNATIONAL ECONOMIC AND MARKET OUTLOOK FOR
THE YEAR AHEAD?
The primary concern is the impact of the Asian slowdown on
companies not only within the region, but also in Europe and
Latin America. In Japan, it has become clear that the
government's repeated attempts to stimulate economic growth
through fiscal policy will not provide a long-term solution
to the stagnant Japanese economy. Instead, Japan needs to
make serious efforts to deregulate and open up its economy
to foreign investors. In the meantime, with weakening
domestic demand combined with close trade and investment
links with the rest of the Pacific region, the outlook for
Japanese corporate earnings has been revised downward.
***Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
</TABLE>
V-3
<PAGE>
Nations
International Equity
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In Continental Europe, the pending transition to Economic
and Monetary Union in 1999 should continue to temper
government spending plans and encourage more cross-border
equity investment. The upcoming September 1998 election in
Germany, while important, is unlikely to disrupt stock
markets because both candidates favor a strong, unified
Europe. Overall, Europe should continue to experience a
positive interest-rate environment, corporate restructurings
and improving earnings -- all contributing to a favorable
investment backdrop for stocks.
WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THIS
ENVIRONMENT?
We believe that major investment opportunities will be found
in Continental Europe and the U.K. Although the U.K. economy
is experiencing a slowdown in the manufacturing sector, the
services industry is booming. On the Continent, the economic
climate remains buoyant heading into EMU, with peripheral
markets such as Spain and Italy particularly strong because
of increasingly favorable macroeconomic environments.
Mergers and acquisitions across many sectors -- particularly
in banking, insurance and pharmaceuticals -- should also
help support European stock markets. In addition, the
electronics and technology services sector appears poised
for continued success due to increased demand related to the
millennium computer "bug" and the transition to EMU.
Elsewhere, we see growth opportunities in Latin America,
especially in Brazil, where valuations appear reasonable and
the privatization process is on track.
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
We are presently increasing the Fund's exposure to both the
U.K. and Continental Europe, concentrating investments in
growth sectors such as financial services,
telecommunications, services and pharmaceuticals. Outside of
Europe, we continue to favor Latin America over the Pacific
Rim and expect to concentrate on large-capitalization stocks
that are likely to benefit from positive economic
conditions. We will, however, selectively seek opportunities
in the Far East among companies that offer a combination of
inexpensive valuations, reasonable growth prospects and
sound balance sheets.
</TABLE>
V-4
<PAGE>
Nations
International Equity
Fund
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
20.9% Great Britain
2.6% Australia
2.6% Mexico
2.9% Spain
3.8% Brazil
3.6% Sweden
4.0% Italy
7.0% Netherlands
7.9% Germany
8.0% Switzerland
15.0% Other
10.2% France
11.5% Japan
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 Novartis AG 2.7%
-----------------------------------------
2 Schweiz Ruckversicherungs 2.3%
-----------------------------------------
3 TOTAL, "B" Shares ord 1.7%
-----------------------------------------
4 Pinault-Printemps-Redoute SA 1.7%
-----------------------------------------
5 ING Groep N.V. 1.6%
-----------------------------------------
6 Telecom Italia Mobile Spa 1.5%
-----------------------------------------
7 Banco de Santander SA ord 1.5%
-----------------------------------------
8 Bank of Ireland 1.5%
-----------------------------------------
9 Lloyds TSB Group plc 1.5%
-----------------------------------------
10 Aegon N.V. 1.4%
-----------------------------------------
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-5
<PAGE>
Nations
International Equity
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period 'MSCI
(Fiscal Year Covered) 'International Equity $16,727' EAFE Index $18,516'
<S> <C> <C>
Dec. 2, 1991 10000 10000
1991 10416 10520
9700 9279
10171 9484
9934 9636
1992 9523 9273
10071 10393
10393 11447
11338 12214
1993 12114 12328
12023 12767
12310 13428
12771 13450
1994 12429 13322
11876 13580
12147 13690
13034 14271
1995 13479 14861
14225 15301
14463 15555
14421 15547
1996 14621 15806
14413 15570
16094 17602
15729 17490
1997 14807 16131
Mar. 31 1998 16727 18516
</TABLE>
Investor B Shares (as of 3/31/98)*
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period 'MSCI
(Fiscal Year Covered) 'International Equity $14,787' EAFE Index $15,927'
<S> <C> <C>
June 7, 1993 10000 10000
9747 9846
10581 10506
1993 11279 10604
11174 10982
11406 11550
11808 11569
1994 11479 11459
10942 11681
11167 11775
11967 12276
1995 12351 12782
13005 13161
13193 13379
13114 13373
1996 13264 13595
13040 13392
14535 15141
14169 15044
1997 13299 13875
Mar. 31, 1998 14787 15927
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
SINCE INCEPTION
(12/2/91 through 3/31/98) 8.47%
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 International Equity
Fund from the date each class of shares
was first offered. The Morgan Stanley
Capital International Europe,
Australasia and Far East Index ("MSCI
EAFE Index") is an unmanaged,
capitalization-weighted index that
tracks stocks traded on sixteen
exchanges in Europe, Australia and the
Far East. 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) 8.77% 8.47%
</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 12/2/91 6/28/96 6/3/92 6/7/93 6/17/92
NAV CDSC*
- - ---------------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 16.06% 15.09% 15.77% 14.93% 9.93% 15.05%
- - ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 12.09% NA 11.81% 11.06% 10.24% 11.23%
5 Years 10.68% NA 10.41% NA NA 9.69%
Since Inception 8.47% 7.93% 8.15% 8.77% 8.47% 8.00%
</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.
*Figures at CDSC reflect the maximum applicable contingent deferred sales
charge.
Figures at net asset value (NAV) do not reflect any sales charges.
V-6
<PAGE>
Nations
Small Company Growth
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. BILLEADEAU SHARES HIS
VIEWS ON NATIONS SMALL COMPANY GROWTH 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 PHILOSOPHY AND STYLE.
Scott Billeadeau, CFA, is Our approach to small-capitalization investing emphasizes a
Senior Portfolio Manager of rigorous, disciplined and fundamental-based process that
Nations Small Company Growth identifies successful companies at the early stages of their
Fund and a Director of Equity economic life cycle, long before they are recognized by the
Management for TradeStreet greater investing public.
Investment Associates, Inc.,
investment sub-adviser to the HOW DID THE FUND PERFORM UNDER THE MARKET CONDITIONS THAT
Fund. PREVAILED OVER THE LAST 12 MONTHS?
INVESTMENT OBJECTIVE It was a volatile period for small-company stocks. Due to
The Fund seeks long-term underperformance in April 1997, small-capitalization stocks
capital growth by investing appeared "cheap" relative to larger-company stocks. Relative
primarily in equity securities. valuations were close to an all-time low June through
PERFORMANCE REVIEW September 1997, making small-capitalization stocks
For the 12-month period ended attractive. So overall, May through September proved to be
March 31, 1998, Nations Small strong months. Then the Asian financial crisis sent
Company Growth Fund Primary A investors toward the purchase of large-capitalization
Shares provided a total return blue-chip stocks rather than small-capitalization stocks
of 49.41%.** during the third fiscal quarter. With a total return of
49.41%, the Fund (Primary A Shares) outperformed its peer
group, the Lipper SmallCap Funds Universe which returned
43.53%.***
WHAT PARTICULAR SECTORS OR STOCKS WERE FAVORABLE FOR THE
FUND?+
Sectors that were favorable for Nations Small Company Growth
Fund were financial services, technology and consumer
cyclicals.
Small capitalization stocks from the financial sector did
well due to low interest rates, a strong economy and
consolidation in that industry. During the fiscal year,
several banks in the portfolio were taken over by or merged
into larger banks. That type of activity significantly added
to the Fund's performance. The stocks of City National,
SouthWest Securities, OnBanc and US Bancorp performed
particularly well.
*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, which has the effect of
increasing total return.
***Lipper Analytical Services, Inc. is an independent mutual
fund monitor. Funds included in the Lipper SmallCap Funds
Universe invest primarily in companies with market
capitalizations less than $1 billion at time of purchase.
+Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
Source for all statistical data -- TradeStreet Investment
Associates, Inc.
BECAUSE SMALL COMPANIES OFTEN HAVE NARROWER MARKETS AND
LIMITED FINANCIAL RESOURCES AND THEIR STOCKS ARE NOT AS
ACTIVELY TRADED AS LARGE COMPANY STOCKS, THEIR SHARE PRICES
WILL BE MORE VOLATILE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
</TABLE>
V-7
<PAGE>
Nations
Small Company Growth
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
The consumer cyclicals sector benefited in the third fiscal
quarter because those small company stocks are domestic in
nature and, thus, were not impacted by the Asian financial
crisis. Add to that a good domestic economy, and it's
obvious why those securities benefited. In particular, the
stocks of retailers Ethan Allen Retailers and Pacific
Sunwear performed well.
Adding to the positive annual return was the Fund's
underweighting in several underperforming sectors. For
example, the health care sector has underperformed in the
small-capitalization universe, especially when compared to
large-capitalization health care stocks which profited from
mergers and consolidation. In addition, smaller health care
companies tend to be one-product companies which carry much
more risk than well-diversified larger companies. (The same
is true for technology.) Due to these factors, we have
significantly underweighted the Fund in health care against
the benchmark.
Normally, small-capitalization growth funds own more health
care stocks than the Fund does, but because of the inherent
risk, we were particularly selective. That philosophy
benefitted the Fund because it was underweighted in a sector
that underperformed.
SMALL CAPITALIZATION STOCKS WHAT PARTICULAR SECTORS OR STOCKS WERE UNFAVORABLE FOR THE
FROM THE FINANCIAL SECTOR DID FUND?
WELL DUE TO LOW INTEREST RATES, Small-capitalization technology stocks, in general, showed
A STRONG ECONOMY AND poor returns, especially those with Asian exposure. These
CONSOLIDATION IN THAT INDUSTRY. companies may not have direct exposure to the Asian markets,
but because they supply companies that do, they were
affected by the Asian financial crisis.
We've had to identify the technology companies that do have
this indirect exposure and evaluate the Fund's positions in
them. Many have stayed the course and are now beginning to
rebound. However, we are selling those that have significant
Asian exposure. Basically, it comes down to whether we
consider the underperformance as a short-term disruption to
the company or as having a lasting fundamental effect on the
stock.
Other stocks that didn't meet expectations included Delta
Woodside Industries and Proxim, Inc.
THE MARKET IS BEGINNING TO WHAT ECONOMIC FACTORS INFLUENCED THE FUND'S PERFORMANCE AND
FAVOR GROWTH STOCKS, WHAT DO YOU ANTICIPATE IN THE COMING YEAR?
PARTICULARLY THOSE OF MEDIUM- The first and second fiscal quarters of 1997 were favorable
AND SMALL-SIZED COMPANIES. to small-capitalization investors. The third fiscal quarter
was lackluster as a result of the Asian financial crisis,
which caused liquidity to dry up in the small-
capitalization universe as investors moved toward
larger-capitalization stocks. Consequently,
large-capitalization stocks have grown to an all-time high
in terms of the number of investors choosing them over
small-capitalization stocks.
</TABLE>
V-8
<PAGE>
Nations
Small Company Growth
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
However, the market is beginning to favor growth stocks,
particularly those of medium- and small-sized companies. In
fact, during the first calendar quarter of 1998, mid- and
small-capitalization stocks have comprised the largest
percentage of companies reporting better-than-expected
earnings. Also, although the economy is strong, we believe
it will begin to slow. That should favor the growth
universe, and we believe growth stocks will outperform value
stocks.
To capitalize, we'll identify and purchase stocks of
companies that we believe have visible and sustainable
earnings growth. In total, we believe that the market shift
toward growth stocks and the Fund's anticipated return on
investment should reward shareholders in the long run.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
4.0% Apparel and Textiles
4.3% Medical Products and Supplies
4.4% Retail -- Specialty
4.5% Computer Software
5.2% Electronics
5.8% Professional Services
7.6% Telecommunications
64.2% Other
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS (AS A % OF NET ASSETS AS
OF 3/31/98)
-----------------------------------------
1 REMEC, Inc. 2.0%
-----------------------------------------
2 Core Laboratories N.V. 1.9%
-----------------------------------------
3 Cybex Computer Products
Corporation 1.8%
-----------------------------------------
4 SCB Computer Technology, Inc. 1.7%
-----------------------------------------
5 Stanford Telecommunications,
Inc. 1.6%
-----------------------------------------
6 Henry Schein, Inc. 1.6%
-----------------------------------------
7 Quicksilver 1.6%
-----------------------------------------
8 Orthodontic Centers of
America 1.5%
-----------------------------------------
9 Lason Holdings Inc. 1.4%
-----------------------------------------
10 Rogue Wave Software 1.4%
-----------------------------------------
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-9
<PAGE>
Nations
Small Company Growth
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period Russell
(Fiscal Year Covered) Small Company Growth $16,832 2000 Index $16,103 Lipper SmallCap Funds Universe $16,214
<S> <C> <C> <C>
Dec. 12 1995 10000 10000 10000
1995 9875 10264 10169
10470 10788 10802
11159 11327 11611
11283 11366 11836
1996 11909 11957 12148
11266 11339 11352
13512 13177 13257
15584 15138 15419
1997 14272 14631 14633
Mar. 31 1998 16832 16103 16214
</TABLE>
Investor B Shares (as of 3/31/98)*
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period Small Company Growth Russell
(Fiscal Year Covered) $16,459 2000 Index $16,103 Lipper SmallCap Funds Universe $16,214
<S> <C> <C> <C>
Dec. 12 1995 10000 10000 10000
1995 9881 10264 10169
10439 10788 10802
11096 11327 11611
11199 11366 11836
1996 11795 11957 12148
11122 11339 11352
13304 13177 13257
15315 15138 15419
1997 13978 14631 14633
Mar. 31 1998 16459 16103 16214
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(12/12/95 through 3/31/98) 25.39%
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 Small Company Growth
Fund from the date each class of shares
was first offered. Figures for the
Russell 2000 Index, an unmanaged
capitalization-weighted index that
includes 2,000 of the smallest stocks,
representing approximately 11% of the
U.S. equity market, include
reinvestment of dividends. Funds
included in the Lipper SmallCap Funds
Universe invest primarily in companies
with market capitalization less than $1
billion at the time of purchase. It is
not possible to invest in an index or
Lipper universe. 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*
(12/12/95 through
3/31/98) 24.18% 23.19%
[CHART LEGEND]
</TABLE>
TOTAL RETURN (AS OF 3/31/98)
<TABLE>
<CAPTION>
PRIMARY A INVESTOR A INVESTOR B INVESTOR C
Inception Date 12/12/95 12/12/95 12/12/95 9/22/97
NAV CDSC*
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR PERFORMANCE 49.41% 49.15% 47.99% 42.99% NA
- - ------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Since Inception 25.39% 24.94% 24.18% 23.19% 8.75%
</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 reflects the performance of the Pilot Small Capitalization
Equity Fund, which was reorganized into Nations Small Company Growth Fund on May
23, 1997.
The performance shown includes the effect 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-10
<PAGE>
Nations
Government Securities
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. GUNSTER SHARES HIS VIEWS
ON NATIONS GOVERNMENT SECURITIES 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.
Christopher G. Gunster is The Fund invests primarily in U.S. Treasuries,
Portfolio Manager of Nations mortgage-backed securities and government agency bonds. The
Government Securities Fund and Fund moves strategically among these sectors and along the
Portfolio Manager, Fixed Income yield curve to provide both a high level of current income
Management for TradeStreet and capital appreciation.
Investment Associates, Inc., WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE DURING THE
the investment sub-adviser to REPORTING PERIOD?
the Fund. During the period, economic growth was well above the most
INVESTMENT OBJECTIVE optimistic expectations of long-term sustainable levels,
The Fund seeks high current productivity rates were high and unemployment rates were at
income consistent with moderate 30-year lows. In addition, inflation continued to fall and
fluctuation of principal. The budget deficits declined, providing a favorable backdrop for
Fund invests primarily in financial assets.
intermediate-term securities In this economic environment, the U.S. Federal Reserve Board
issued or guaranteed by the (the Fed) opted to keep the Federal Funds rate steady at
U.S. Government, its agencies 5.5%. The benchmark 30-year U.S. Treasury bond started the
or instrumentalities. period at just over 7%, traded in a fairly tight range until
PERFORMANCE REVIEW August 1997 and then declined in yield in reaction to the
For the 12-month period ended Asian financial crisis, ending the period at just under 6%.
March 31, 1998, Nations (Bond yields move in the opposite direction of bond prices,
Government Securities Fund so that when yields go down, prices generally go up.)
Primary A Shares provided a Early in the reporting period, the economy experienced
total return of 11.65%.** impressive overall growth and little 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.
*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-11
<PAGE>
Nations
Government Securities
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 would affect 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 U.S. bond market, investors fled from corporate,
mortgage-backed and asset-backed securities into U.S.
Treasuries. As a result, any fund with large holdings in
U.S. Treasuries did well.
In early 1998, Fed Chairman Alan Greenspan discussed the
possibility of disinflationary shocks from the problems in
Asia. This caused the bond market yield curve to steepen
dramatically with yields on short maturity instruments
declining and the yields on long-term bonds remaining
relatively stable. 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.
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?***
Until the Asian financial crisis hit in October 1997, the
Fund invested primarily in mortgage-backed and U.S. Treasury
securities. As the Asian crisis unfolded, interest rates
declined and U.S. Treasury securities did well; however,
mortgage-backed securities did not. To minimize the negative
effect of homeowners' refinancing due to lower interest
rates and to capitalize on the strengthening U.S. Treasury
market, we reduced the Fund's holdings in mortgage-backed
securities and emphasized U.S. Treasuries. This sector
allocation performed well as rates continued to decline
through January 1998.
When interest rates increased at the end of February and
beginning of March 1998, we reduced the Fund's exposure to
U.S. Treasuries and invested in other
higher-income-producing securities. Specifically, we focused
on prepaid mortgage-backed securities that have historically
provided solid performance in this type of environment.
Because they are less likely to be refinanced, these
securities provide more income potential than U.S. Treasury
and agency securities, and less risk than other
mortgage-backed securities.
***Portfolio characteristics were current as of March 31,
1998, are subject to change and may not be representative of
current characteristics.
</TABLE>
V-12
<PAGE>
Nations
Government Securities
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
Our decision to overweight U.S. Treasury securities in
October 1997 benefited the Fund, helping it make up
significant ground relative to its underperformance during
the beginning of the period. In addition, because
longer-term U.S. Treasuries perform particularly well when
markets rally, the Fund's longer duration boosted
performance.
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
At the beginning of the fiscal year, we felt that the
nation's strong economic growth rate, combined with low
unemployment expectations and a rise in manufacturing, could
lead to inflationary pressures that would prompt the Fed to
raise interest rates.
While we were accurate in our forecast of exceptional
economic growth, we were incorrect on the direction of
inflation. The Fund's defensive stance on
duration -- investing in securities with shorter maturities
in preparation for higher interest rates -- hurt its overall
performance because this prevented the Fund from fully
participating in the bond market rally. While the Fund's
duration standpoint hurt us in the first part of the year,
it benefited the Fund later on.
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, which may affect our markets in the
third or fourth quarter of 1998. If this occurs, we expect
the economy to slow, prompting the labor market to ease and
the Fed to reduce interest rates. However, we do not expect
the slowdown to be so severe as to cause a recession.
If, however, the Asian situation does not have a significant
impact and economic growth remains strong, then the Fed will
likely raise rates. Either way, we expect interest rates to
remain stable in the short term as this debate continues.
</TABLE>
V-13
<PAGE>
Nations
Government Securities
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
In the coming months, we expect HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THESE
to maintain the Fund's current ANTICIPATED DEVELOPMENTS?
stance, which emphasizes In the coming months, we expect to maintain the Fund's
prepaid mortgages that should current stance, which emphasizes prepaid mortgage-backed
provide the potential for solid securities that should provide the potential for solid
performance in this performance in this environment. With the Fed on hold and
environment. the effects of the Asian financial crisis still unclear, we
believe that short-term rates will not change significantly.
As a result, we will be overweighting mortgage-backed and
agency-backed securities -- higher income producing
bonds -- relative to U.S. Treasuries.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
<TABLE>
<S> <C>
Other Assets and Liabilities (Net) 0.2%
Municipal Bonds 14.0%
U.S. Treasury Obligations 23.9%
Mortgage-Backed Securities 61.9%
</TABLE>
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
------------------------------------------
1 Federal National Mortgage
Association (FNMA)
Certificates 36.5%
------------------------------------------
2 Government National Mortgage
Association (GNMA)
Certificates 17.1%
------------------------------------------
3 U.S. Treasury Bond
6.125% 11/15/27 17.0%
------------------------------------------
4 U.S. Treasury Strip Principal
only 05/15/13 6.9%
------------------------------------------
5 Texas State Department of
Housing and Community Affairs,
Series C, 6.800% 09/01/29 6.5%
------------------------------------------
6 Chicago, Illinois, Public
Building 7.000% 01/01/07 6.4%
------------------------------------------
7 Freddie Mac Certificate,
Series 1999, Class PB
6.300% 01/15/17 6.0%
------------------------------------------
8 Federal Home Loan Mortgage
Corporation Certificates 2.2%
------------------------------------------
9 Portsmouth Virginia, Taxable
Ref., 6.630% 07/15/14 1.1%
------------------------------------------
10 Government National Mortgage
Association II (GNMA II)
Certificate, 11.000% 10/20/20 0.1%
------------------------------------------
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-14
<PAGE>
Nations
Government Securities
Fund Performance
GROWTH OF $10,000 INVESTMENT
Primary A Shares (as of 3/31/98)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Government Securities $15,649 Salomon Brothers Mortgage Index $17,406
Assumes the reinvestment of all distributions.
<S> <C> <C>
April 11 1991 10000 10000
10118 10203
10647 10768
1991 11178 11245
10983 11185
11419 11637
11794 11980
1992 11782 12074
12136 12427
12378 12691
12673 12807
1993 12685 12923
12303 12652
12096 12583
12033 12683
1994 12037 12739
12635 13410
13221 14105
13449 14390
1995 13876 14875
13599 14820
13585 14920
13812 15234
1996 14228 15674
14017 15693
14516 16265
14894 16734
1997 15445 17126
Mar. 31 1998 15649 17406
<CAPTION>
Measurement Period
(Fiscal Year Covered) Lehman Brothers Intermediate Treasury Index $16,514
Assumes the reinvestment of all distributions.
<S> <C>
April 11 1991 10000
10167
10651
1991 11170
11047
11476
11988
1992 11945
12395
12640
12908
1993 12927
12685
12615
12711
1994 12697
13222
13842
14051
1995 14526
14423
14516
14765
1996 15106
15095
15514
15912
1997 16268
Mar. 31 1998 16514
</TABLE>
Investor B Shares (as of 3/31/98)*
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Government Securities $12,144 Salomon Brothers Mortgage Index $13,849
Assumes the reinvestment of all distributions.
<S> <C> <C>
June 7 1993 10000 10000
10073 10097
10296 10190
1993 10289 10282
9963 10066
9779 10012
9713 10091
1994 9700 10136
10166 10670
10620 11222
10786 11450
1995 11110 11835
10871 11791
10842 11871
11005 12121
1996 11318 12471
11132 12486
11510 12941
11787 13314
1997 12197 13627
Mar. 31 1998 12144 13849
<CAPTION>
Measurement Period
(Fiscal Year Covered) Lehman Brothers Intermediate Treasury Index $13,257
Assumes the reinvestment of all distributions.
<S> <C>
June 7 1993 10000
10147
10362
1993 10377
10184
10128
10205
1994 10193
10614
11112
11280
1995 11661
11579
11654
11854
1996 12127
12118
12454
12774
1997 13059
Mar. 31 1998 13257
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
Since Inception
(4/11/91 through 3/31/98) 6.64%
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 Government Securities
Fund from the date each class of shares
was first offered. Figures for the
Lehman Intermediate Treasury Index
track the market value of U.S. Treasury
securities with maturities of 3 to 10
years. The Salomon Brothers Mortgage
Index is comprised of 30-year and
15-year GNMA, FNMA and FHLMC
securities, and FNMA and FHLMC balloon
mortgages. Both indices are unmanaged
and include reinvestment of dividends.
Both indices are 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) 4.45% 4.12%
</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 4/11/91 6/28/96 4/17/91 6/7/93 7/6/92
NAV CDSC*
- - -----------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE 11.65% 11.23% 11.37% 10.78% 5.78% 10.84%
- - -----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
3 Years 7.39% NA 7.13% 6.65% 5.76% 6.71%
5 Years 5.22% NA 5.00% NA NA 4.50%
Since Inception 6.64% 7.93% 6.40% 4.45% 4.12% 4.76%
</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-15
<PAGE>
APPENDIX VI
This Appendix provides information about INVESCO Global Asset
Management (N.A.), Inc. ("Invesco") and Putnam Investment Management, Inc.
("Putnam"), the two investment sub-advisers that would, subject to shareholder
approval, provide investment sub-advisory services to Nations International
Equity Fund with Gartmore Global Partners ("Gartmore"). Pursuant to the proposed
sub-advisory arrangements, each of the three investment sub-advisers would be
responsible for approximately one-third of the Nations International Equity
Fund's assets and each investment sub-adviser would receive fees based on the
actual amount of assets managed by such investment sub-adviser. The aggregate
fees, computed daily and payable monthly, paid by NBAI to the three investment
sub-advisers, would not exceed .70% on an annual basis of the average daily net
assets of Nations International Equity Fund managed by Gartmore; 0.65% for those
assets managed by Invesco Global Asset Management (N.A.), Inc.; and 0.55% for
those assets managed by Putnam Investment Management, Inc.
INVESCO GLOBAL ASSET MANAGEMENT (N.A.), INC. ("INVESCO")
Invesco, with principal offices located at 1315 Peachtree Street, N.E.,
Atlanta, Georgia 30309, is a division of INVESCO Global, a publicly traded
investment management firm located in London, England, and a wholly owned
subsidiary of AMVESCAP PLC, a publicly traded UK financial holding company also
located in London, England that, through its subsidiaries, engages in
international investment management.
The International Equity Portfolio Management Team of Invesco would be
responsible for the day-to-day management of the assets allocated to Invesco of
the Nations International Equity Fund.
PUTNAM INVESTMENT MANAGEMENT, INC. ("PUTNAM")
Putnam, with principal offices located at One Post Office Square,
Boston, Massachusetts 02109, is a wholly owned subsidiary of Putnam Investment,
Inc., an investment management firm founded in 1937 and a majority-owned
subsidiary of Marsh & McLennan Companies, a publicly traded professional
services firm that engages, through its subsidiaries, in the business of
investment management.
The Core International Equity Group of Putnam would be responsible for
the day-to-day management of the assets allocated to Putnam of the Nations
International Equity Fund.
VI-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1999
PACIFIC HORIZON FUNDS, INC.
P.O. Box 8968
Wilmington, Delaware 19899
1-800-346-2087
NATIONS FUND, INC.
One NationsBank Plaza, 33rd Floor
Charlotte, North Carolina 28255
1-800-321-7854
(APRIL 12, 1999 SPECIAL MEETING OF SHAREHOLDERS OF PACIFIC HORIZON FUNDS)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Proxy/Prospectus dated the date hereof, for the
Special Meeting of Shareholders of Pacific Horizon to be held on April 12, 1999.
Copies of the Proxy/Prospectus may be obtained at no charge by writing or
calling Pacific Horizon or Nations at the addresses or telephone numbers set
forth above. Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the
Proxy/Prospectus.
INCORPORATION OF DOCUMENTS BY REFERENCE IN STATEMENT OF ADDITIONAL INFORMATION
Further information about the Investor A, Investor B and Investor C
Shares of Nations Small Company Growth Fund and Nations International Equity
Fund and the Investor A and C Shares of Nations Government Securities Fund, is
contained in and incorporated herein by reference to the statement of additional
information for Nations Small Company Growth Fund, Nations International Equity
Fund and Nations Government Securities Fund, dated August 1, 1998, as
supplemented.
Further information about the A Shares, B Shares and K Shares of the
Pacific Horizon Aggressive Growth Fund and Pacific Horizon International Equity
Fund, and the A Shares and K Shares of the Pacific Horizon U.S. Government
Securities Fund, is contained in and incorporated herein by reference to the
statement of additional information for Aggressive Growth Fund and Pacific
Horizon International Equity Fund and the Pacific Horizon U.S.
Government Securities Fund, dated July 1, 1998.
1
<PAGE>
The audited financial statements and related Report of Independent
Auditors for the year ended March 31, 1998 and the unaudited financial statement
for the semi-annual period ended September 30, 1998 for the Nations Small
Company Growth Fund, Nations International Equity Fund and Nations Government
Securities Fund are incorporated herein by reference. No other parts of the
annual and semi-annual reports are incorporated herein by reference.
The audited financial statements and related Report of Independent
Accountants for the year ended February 28, 1998 and the unaudited financial
statements for the semi-annual period ended August 31, 1998 for the Pacific
Horizon Aggressive Growth, International Equity and U.S. Government Securities
Fund are incorporated herein by reference. No other parts of the annual and
semi-annual reports are incorporated herein by reference.
2
<PAGE>
TABLE OF CONTENTS
General Information...........................................................4
Introductory Note to PRO FORMA Financial Information..........................5
3
<PAGE>
GENERAL INFORMATION
The Reorganization contemplates the transfer of all of the assets and
liabilities of each Pacific Horizon Fund to a corresponding Nations Fund in
exchange for Shares of designated classes of the corresponding Nations Fund.
The Shares issued by Nations will have an aggregate value equal to the
aggregate value of the shares of the respective Pacific Horizon Funds that were
outstanding immediately before the Closing.
After the transfer of their assets and liabilities in exchange for
Shares of the Nations Funds, the Pacific Horizon Funds will distribute the
Shares of the Nations Funds to their shareholders in liquidation of the Pacific
Horizon Funds. Each shareholder owning shares of a particular Pacific Horizon
Fund at the Closing will receive Shares of the corresponding Nations Fund of
equal value, and will receive any unpaid dividends or distributions that were
declared before the Closing on shares of the Pacific Horizon Funds. Nations will
establish an account for each former shareholder of the Pacific Horizon Funds
reflecting the appropriate number of Nations Fund Shares distributed to the
shareholder. These accounts will be substantially identical to the accounts
maintained by Pacific Horizon for each shareholder. Upon completion of the
reorganization with respect to all Pacific Horizon funds, all outstanding shares
of the Pacific Horizon Funds will have been redeemed and cancelled in exchange
for Shares of the Nations Funds distributed, and Pacific Horizon will wind up
its affairs and be deregistered as an investment company under the 1940 Act and
dissolved under Maryland law.
Other than in the normal course of business, it is not expected that
there will be any material realignment of the portfolio holdings of the Pacific
Horizon Funds after the Reorganization.
For further information about the transaction, see the
Proxy/Prospectus.
4
<PAGE>
INTRODUCTORY NOTE TO PRO FORMA FINANCIAL INFORMATION
The following unaudited PRO FORMA information gives effect to the proposed
transfer of the assets and liabilities of the Pacific Horizon Funds to the
Nations Funds, accounted for as if each transfer had occurred as of September
30, 1998. In addition, each PRO-FORMA combined statement has been prepared based
upon the proposed fee and expense structure of the applicable surviving Nations
Fund.
The PRO FORMA financial information should be read in conjunction with the
historical financial statements and notes thereto of the Pacific Horizon Funds
and Nations Funds included or incorporated herein by reference in this Statement
of Additional Information. Each combination of the above Pacific Horizon Funds
and Nations Funds will be accounted for as a tax-free reorganization.
5
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- - ------------------------------------------------------------------------------------------------------------
Nations Small Company Growth Fund / Pacific Horizon Aggressive Growth Fund
- - ------------------------------------------------------------------------------------------------------------
Pro Forma Combining Schedule of Investments (unaudited)
- - ------------------------------------------------------------------------------------------------------------
September 30,1998
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nations Pacific Pro Security Description Pro
Small Horizon Forma Nations Pacific Forma
Company Aggressive Combined Small Horizon Combined
Growth Fund Growth Fund Shares Company Aggressive Market
Shares Shares Growth Fund Growth Fund Value
(000) (000) (000) Market Market
Value Value
(000) (000) (000)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADR'S - 1.52%
SCB COMPUTER TECHNOLOGY INC
450 359 809 $3,487 $2,781 $6,268
SELECT APPOINTMENTS HOLDINGS
- 84 84 PUBLIC LIMITED CO. - 1,452 1,452
--- --- --- ----- ----- -----
450 443 893 3,487 4,233 7,720
--- --- --- ----- ----- -----
COMMON STOCK - 94.79%
1-800 CONTACTS INC
- 60 60 - 354 354
3D LABS INC LIMITED
294 - 294 1,231 - 1,231
ACUSON
116 - 116 1,979 - 1,979
ADVANCED LIGHTING TECHS
328 - 328 2,790 - 2,790
AEROFLEX INC
374 - 374 3,696 - 3,696
AHL SERVICES INC
89 11 100 2,918 344 3,262
AIR EXPRESS INTERNATIONAL CORP
152 - 152 2,431 - 2,431
ALASKA AIRGROUP INCORPORATED
- 32 32 - 1,097 1,097
ALBERTO CULVER
164 - 164 3,822 - 3,822
ALFACELL CORP
24 - 24 17 - 17
ALLEGIANCE CORPORATION
- 59 59 - 1,755 1,755
ALLEN TELECOM INC
408 - 408 2,731 - 2,731
ALTERA CORPORATION
- 34 34 - 1,184 1,184
AMCOL INTERNATIONAL CORP
190 101 291 2,159 1,145 3,304
AMERICAN DISPOSAL SERVICES
56 - 56 2,177 - 2,177
AMERICAN POWER CONVERSION
- 65 65 - 2,461 2,461
<PAGE>
ANALYSTS INTL CORP
101 67 168 3,023 1,995 5,018
ANAREN MICROWAVE INC
292 - 292 3,397 - 3,397
ANTEC CORP COMM
415 233 648 6,384 3,581 9,965
APPLIED POWER INC
147 65 212 4,026 1,778 5,804
ASHLAND INC
- 24 24 - 1,105 1,105
ASTROPOWER INC
191 - 191 1,287 - 1,287
AVID TECHNOLOGY INC.
110 101 211 2,624 2,405 5,029
BARRA INC
204 50 254 4,176 1,025 5,201
BE AEROSPACE INC
96 70 166 2,110 1,531 3,641
BEC ENERGY COM
- 52 52 - 2,283 2,283
BED BATH & BEYOND INC
- 134 134 - 3,142 3,142
BEST BUY COMPANY INC
- 95 95 - 3,934 3,934
BIOGEN INC
- 53 53 - 3,495 3,495
BLUE RHINO CORP
192 - 192 1,944 - 1,944
BMC SOFTWARE INC
- 101 101 - 6,048 6,048
BON-TON STORES
135 - 135 1,013 - 1,013
CADENCE DESIGN SYSTEM
- 85 85 INCORPORATED - 2,160 2,160
CANANDAIGUA WINE COMPANY
- 27 27 INCORPORATED-CLASS A - 1,047 1,047
CAREER EDUCATION CORP
220 - 220 4,813 - 4,813
C-COR ELECTRONICS
295 - 295 3,792 - 3,792
CELLSTAR CORP
292 - 292 1,261 - 1,261
CENTENNIAL HEALTH CORP
112 - 112 890 - 890
CENTURY TELEPHONE ENTERPRISE
- 30 30 - 1,403 1,403
CHAMPION ENTERPRISES INC
45 - 45 1,049 - 1,049
CIBER INC
- 29 29 - 579 579
CINCINNATI BELL INC
- 74 74 - 1,911 1,911
CITRIX SYSTEMS INC
- 20 20 - 1,420 1,420
CITY NATIONAL CORP
163 - 163 5,098 - 5,098
<PAGE>
CKE RESTAURANTS INC
- 57 57 - 1,705 1,705
COHERENT INC.
171 - 171 1,597 - 1,597
COLTEC INDUSTRIES
153 - 153 2,316 - 2,316
COMPUWARE CORPORATION
- 94 94 - 5,511 5,511
COMVERSE TECHNOLOGY INC.
- 6 6 - 233 233
CORE LABORATORIES
202 - 202 3,478 - 3,478
CPS SYSTEMS INC.
- 57 57 - 191 191
CULP INC
77 - 77 613 - 613
CYBEX CORP
208 - 208 5,215 - 5,215
CYLINK CORPORATION
- 52 52 - 235 235
DAIL CORPORATION
- 73 73 - 1,499 1,499
DELPHI FINANCIAL GROUP CL A
95 - 95 3,741 - 3,741
DIONEX CORP
121 - 121 2,806 - 2,806
DOLE FOOD COMPANY
- 17 17 - 611 611
DURA PHARMACEUTICALS INC.
209 181 390 2,284 1,981 4,265
EARTHGRAINS
- 27 27 - 820 820
EL PASO ENERGY CORPORATION
- 11 11 - 363 363
ENERGY EAST CORPPRATION
- 42 42 - 2,162 2,162
ESTERLINE TECHNOLOGIES CORP
179 20 199 3,521 390 3,911
ETHAN ALLEN INTERIORS INC
67 - 67 2,417 - 2,417
EXEL LIMITED
- 5 5 - 337 337
FEDERAL-MOGUL CORPORATION
- 37 37 - 1,716 1,716
FILENET CORPORATION
- 41 41 - 578 578
FIRST REPUBLIC BANK
180 72 252 5,478 2,193 7,671
FIRSTFED FINANCIAL CORP
120 - 120 2,051 - 2,051
FOSSIL INC
190 162 352 2,594 2,209 4,803
<PAGE>
GALEY & LORD INC
223 - 223 2,658 - 2,658
GARDEN FRESH RESTAURANTS
189 - 189 2,784 - 2,784
GARDNER DENVER MACHINERY
131 99 230 1,844 1,404 3,248
GILAT COMMUNICATIONS LTD
314 - 314 2,056 - 2,056
GILAT SATELLITE NETWORKS LTD
202 - 202 9,068 - 9,068
GOLDEN STATE BANCORP., INC.
141 - 141 2,805 - 2,805
GROUP MAINTENANCE AMER. CORP.
403 - 403 5,815 - 5,815
HA-LO INDUSTRIES
216 59 275 6,331 1,729 8,060
HARMONIC LIGHTWAVES INC
336 - 336 4,110 - 4,110
HENRY SCHEIN INC
109 - 109 3,802 - 3,802
HILLENBRAND INDUSTRIES
- 60 60 - 2,930 2,930
HON INDUSTRIES
- 46 46 - 1,096 1,096
HORIZON OFFSHORE INC
318 - 318 2,105 - 2,105
HOUGHTON MIFFLIN COMPANY
- 51 51 - 1,590 1,590
HUMAN GENOME SCIENCES INC
106 - 106 3,165 - 3,165
HUNT TRANSPORT SERVICES INC
- 36 36 - 523 523
HYPERION SOLUTIONS CORP.
157 - 157 3,409 - 3,409
IMC MORTGAGE COMPANY
405 - 405 797 - 797
INACOM CORP
144 141 285 2,714 2,663 5,377
INTERFACE INC
222 185 407 2,658 2,224 4,882
INTERSTATE BAKERIES
- 74 74 - 2,279 2,279
INVACARE CORP
189 21 210 4,445 491 4,936
JO-ANN STORES INC-CL A
103 - 103 2,293 - 2,293
JONES APPAREL GROUP INC
- 5 5 - 108 108
KAUFMAN & BROAD HOME CORPORATI
154 - 154 3,619 - 3,619
KAYDON CORP
81 - 81 2,126 - 2,126
KEANE INC
- 21 21 - 727 727
KINDER MORGAN ENERGY PARTNERS
161 - 161 5,343 - 5,343
<PAGE>
LASON INC
98 34 132 5,002 1,753 6,755
LENNAR CORP
69 - 69 1,540 - 1,540
LEVEL ONE COMMUNICATIONS, INC
- 41 41 - 821 821
LEXMARK INTERNATIONAL GROUP,
- 48 48 INCL CL-A - 3,313 3,313
MARTEK BIOSCIENCES CORP
249 - 249 2,055 - 2,055
MARTIN MARIETTA MATERIALS INC
- 30 30 - 1,309 1,309
MAXIM INTERGRATED PRODUCTS
- 62 62 - 1,714 1,714
MCCLATCHY NEWSPAPERS CL A
52 - 52 1,555 - 1,555
MCKESSON CORP
- 28 28 - 2,538 2,538
MESABA HOLDINGS, INC.
- 10 10 - 151 151
METRIKA SYSTEMS CORPORATION.
- 82 82 - 774 774
MIDWAY AIRLINES CORP
236 - 236 2,331 - 2,331
MILLER (HERMAN) INC
- 59 59 - 1,157 1,157
NEWPARK RES INC
208 - 208 1,430 - 1,430
NORTHLAND CRANBERRIES INC CL A
316 - 316 3,183 - 3,183
NOVA CORP GEORGIA
201 - 201 6,181 - 6,181
NOVACARE INC
197 - 197 603 - 603
OLD KENT FINANCIAL CORP
- 23 23 - 678 678
ORTEL CORP
416 - 416 6,662 - 6,662
ORTHALLIANCE INC-CL A
311 - 311 2,527 - 2,527
ORTHODONTIC CENTERS OF AMERICA
342 213 555 5,700 3,549 9,249
OUTBACK STEAKHOUSE, INC.
- 38 38 - 1,008 1,008
OWENS-ILLINOIS, INC
- 40 40 - 990 990
PAINE WEBBER GROUP INCORPORATED
- 39 39 - 1,179 1,179
PERCEPTRON INC
311 - 311 1,866 - 1,866
PERSONNEL GROUP AMER INC
288 156 444 3,540 1,917 5,457
PHILLIPS-VANHEUSEN CORP
266 - 266 2,530 - 2,530
<PAGE>
PHYSICIAN RELIANCE NETWORK
362 127 489 4,256 1,495 5,751
PHYSICIANS SPECIALTY CORP
332 - 332 2,368 - 2,368
PITTSON BRINK'S GROUP
- 38 38 - 1,313 1,313
PLEXUS CORP
63 - 63 1,215 - 1,215
PROMUS HOTEL CORPORATION
- 39 39 - 1,072 1,072
PROVINCE HEALTHCARE CO
156 40 196 5,297 1,349 6,646
PROXIM INC COM
378 - 378 4,908 - 4,908
PSS WORLD MEDICAL INC.
- 99 99 - 1,826 1,826
PULTE CORP
112 - 112 2,756 - 2,756
QUICKSILVER
247 223 470 4,487 4,061 8,548
RALCORP HOLDINGS INC
- 76 76 - 1,067 1,067
REMEC INC
480 - 480 3,820 - 3,820
RESPIRONICS INC
276 - 276 3,101 - 3,101
RF MICRO DEVICES INC
217 - 217 3,924 - 3,924
ROGUE WAVE SOFTWARE INC
407 - 407 2,948 - 2,948
ROMAC INTERNATIONAL INC
223 57 280 4,005 1,033 5,038
SAFESKIN CORPORATION
- 36 36 - 1,130 1,130
SAWTEK INC
257 - 257 3,630 - 3,630
SCORE BOARD INC
1 - 1 - - -
SDL INC
325 - 325 4,065 - 4,065
SEGUE SOFTWARE INC
212 - 212 3,498 - 3,498
SERVICE EXPERTS INC
163 - 163 4,531 - 4,531
SHIRE PHARMACEUTICALS GR-ADR
166 - 166 3,640 - 3,640
SHOPKO STORES INC
87 66 153 2,828 2,158 4,986
SIEBEL SYSTEMS INC
- 43 43 - 1,219 1,219
SIPEX CORPORATION
161 - 161 4,085 - 4,085
SMARTALK TELESERVICES INC
345 - 345 2,562 - 2,562
SOLECTRON CORP.
- 64 64 - 3,067 3,067
<PAGE>
SOLUTIA INCORPORATION
- 53 53 - 1,200 1,200
SOMNUS MEDICAL TECHNOLOGIES
333 - 333 1,039 - 1,039
SOUTHDOWN INCORPORATED
- 29 29 - 1,283 1,283
SPECTRIAN CORP
175 - 175 2,123 - 2,123
STANFORD TELECOMMUNICATIONS
456 - 456 4,213 - 4,213
STEEL TECHNOLOGIES INC
116 - 116 844 - 844
SUNAMERICA INCORPORATED
- 28 28 - 1,684 1,684
SYMANTEC CORP
311 - 311 4,108 - 4,108
SYMBOL TECHNOLOGIES
- 50 50 INCORPORATED - 2,560 2,560
SYNOPSYS INCORPORATED
- 26 26 - 869 869
SYSTEMS & COMPUTER TECH CORP.
111 92 203 1,423 1,181 2,604
TEFRON LTD
374 - 374 2,947 - 2,947
TRAMMELL CROW CO
69 - 69 1,770 - 1,770
TRIAD GUARANTY INC
80 71 151 2,048 1,798 3,846
TRISTAR AEROSPACE CO
170 - 170 1,634 - 1,634
UNIPHASE CORPORATION
- 33 33 - 1,333 1,333
VICAL INC
206 - 206 2,271 - 2,271
WASHINGTON POST CLASS B
- 3 3 - 1,482 1,482
WATSON PHARMACEUTICAL
- 55 55 INCORPORATED - 2,766 2,766
WHITMAN CORPORATION
- 88 88 - 1,409 1,409
WINDMERE DURABLE HOLDINGS
119 74 193 671 417 1,088
WILLIS LEASE FINANCE
- 49 49 CORPORATION - 806 806
------ ----- ------ ------- ------- -------
22,531 5,886 28,417 328,616 152,109 480,725
------ ----- ------ ------- ------- -------
Investment Companies - 3.39%
NATIONS CASH RESERVES
17,164 - 17,164 17,164 - 17,164
------ ----- ------ ------- ------- -------
17,164 - 17,164 17,164 - 17,164
------ ----- ------ ------- ------- -------
<PAGE>
------ ----- ------ Total Investments-99.70% ------- ------- -------
40,145 6,329 46,474 (Cost $436,331, $170,178, $349,267 $156,342 $505,609
------ ----- ------ $606,509 respectively) ------- ------- -------
</TABLE>
- - --------------------------------------------------------------------------------
Nations Small Company Growth Fund / Pacific Horizon Aggressive Growth Fund
- - --------------------------------------------------------------------------------
Pro Forma Combining Statement of Net Assets (unaudited)
- - --------------------------------------------------------------------------------
September 30,1998
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nations Pacific Adjustments Pro Forma
Small Horizon to Pro Forma Combined
Company Aggressive
Growth Fund Growth Fund
- - -----------------------------------------------------------------------------------
(in 000's) (in 000's) (in 000's) (in 000's)
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investments $349,267 $156,342 $ - $ 505,609
- - -----------------------------------------------------------------------------------
Other Assets and Liabilities:
- - -----------------------------------------------------------------------------------
Other assets and liabilities, net (7,298) 8,830 - 1,532
- - -----------------------------------------------------------------------------------
Total Other Assets and
Liabilities (7,298) 8,830 - 1,532
- - -----------------------------------------------------------------------------------
Net Assets $341,969 $165,172 $ - $507,141
- - -----------------------------------------------------------------------------------
Net Assets by Class:
- - -----------------------------------------------------------------------------------
Primary A $321,210 $ - $ - $321,210
Investor A / Class A 14,507 161,892 - 176,399
Investor B / Class B 4,343 227 - 4,570
Investor C / Class K 1,909 3,053 - 4,962
- - -----------------------------------------------------------------------------------
$341,969 $165,172 $ - $507,141
- - -----------------------------------------------------------------------------------
Shares Outstanding by Class:
- - -----------------------------------------------------------------------------------
Primary A 30,602 - - 30,602
<PAGE>
Investor A / Class A 1,389 9,724 5,783 16,896
Investor B / Class B 422 14 8 444
Investor C / Class K 183 185 108 476
32,596 9,923 5,899 48,418
- - -----------------------------------------------------------------------------------
Net Asset Value per Share by Class:
- - -----------------------------------------------------------------------------------
Primary A $10.50 $ - $ - $10.50
Investor A / Class A $10.44 $ 16.65 $ - $10.44
Investor B / Class B $10.30 $ 16.63 $ - $10.30
Investor C / Class K $10.42 $ 16.45 $ - $10.42
- - -----------------------------------------------------------------------------------
</TABLE>
See Notes to Pro Forma Financial Statements
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Nations Small Company Growth Fund / Pacific Horizon Aggressive Growth Fund
- - --------------------------------------------------------------------------------
Pro Forma Combining Statement of Operations (unaudited)
- - --------------------------------------------------------------------------------
Twelve Month Period Ending September 30,1998
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Nations Pacific Adjustments Pro Forma
Small Horizon to Pro Forma Combined
Company Aggressive
Growth Fund Growth Fund
- - -----------------------------------------------------------------------------------------------------------
(in 000's) (in 000's) (in 000's) (in 000's)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
- - -----------------------------------------------------------------------------------------------------------
Interest $ 568 $ 523 $ 0 $ 1,091
- - -----------------------------------------------------------------------------------------------------------
Dividends 1,209 281 -- 1,490
- - -----------------------------------------------------------------------------------------------------------
Securities lending 139 -- -- 139
- - -----------------------------------------------------------------------------------------------------------
Total Investment Income 1,916 804 -- 2,720
- - -----------------------------------------------------------------------------------------------------------
EXPENSES:
- - -----------------------------------------------------------------------------------------------------------
Investment Advisory 2,812 1,264 352 (a) 4,428
- - -----------------------------------------------------------------------------------------------------------
Administration 281 633 218 (a) 1,132
- - -----------------------------------------------------------------------------------------------------------
Transfer Agent 123 433 (341)(b) 215
- - -----------------------------------------------------------------------------------------------------------
Custodian (d) 28 4 (b) 32
- - -----------------------------------------------------------------------------------------------------------
Legal and Audit Fees 25 31 (27)(b) 29
- - -----------------------------------------------------------------------------------------------------------
Registration & Filing 119 28 -- 147
- - -----------------------------------------------------------------------------------------------------------
Trustees' Fees 6 3 (2)(b) 7
- - -----------------------------------------------------------------------------------------------------------
Interest Expense 8 -- -- 8
- - -----------------------------------------------------------------------------------------------------------
Other expenses 36 105 (72)(b) 69
- - -----------------------------------------------------------------------------------------------------------
Subtotal 3,438 2,501 128 6,067
- - -----------------------------------------------------------------------------------------------------------
Shareholder Servicing and
Distribution Fees
- - -----------------------------------------------------------------------------------------------------------
Investor A / Class A 26 519 -- 545
Investor B / Class B 33 -- -- 33
Investor C / Class K 25 28 -- 53
- - -----------------------------------------------------------------------------------------------------------
Subtotal 84 547 -- 631
- - -----------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------
Fees waived and/or reimbursed by investment --
<PAGE>
- - -----------------------------------------------------------------------------------------------------------
advisor, administrator and/or
distributor (759) (7) 766 (b) --
- - -----------------------------------------------------------------------------------------------------------
Total Expenses 2,763 3,041 894 6,698
- - -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (847) (2,237) (894) (3,978)
- - -----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- - -----------------------------------------------------------------------------------------------------------
Net realized gain/(loss) on
investments 22,787 29,939 -- 52,726
- - -----------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation/
(depreciation) of investments (147,948) (30,463) -- (178,411)
- - -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss)
on investments (125,161) (524) -- (125,685)
- - -----------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($126,008) $ (2,761) $ (894) $(129,663)
- - -----------------------------------------------------------------------------------------------------------
Legend:
- - -------------------------------------------------------------------------------------
(a) Reflects adjustment to the acquiring fund
contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Reflects adjustment to the level of the acquiring fund's voluntary expense
reimbursement.
(d) Net of expense offset arrangements amounts to less than .01% of average net
assets.
- - -------------------------------------------------------------------------------------
See Notes to Pro Forma Financial Statements
- - -------------------------------------------------------------------------------------
</TABLE>
Nations Small Company Growth Fund
Pacific Horizon Aggressive Growth Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
Nations Fund, Inc. (the "Company") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end investment company. As
of September 30, 1998 the Company offers nine separate
<PAGE>
portfolios. The unaudited Pro Forma Combining Statement of Net Assets assumes
the exchange described in the next paragraph occurred as of September 30,1998
and the unaudited Pro Forma Combining Statement of Operations for the year ended
September 30, 1998 assumes the exchange occurred as of October 1,1997. These
statements have been derived from books and records utilized in calculating
daily net asset value of each fund at September 30,1998 and for the twelve month
period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Pacific Horizon Aggressive Growth Fund in exchange
for shares of Nations Small Company Growth Fund. Under generally accepted
accounting principles, the historical cost of investment securities will be
carried forward to the surving entity and the results of operations of the
Nations Small Company Growth Fund for pre-combination periods will not be
restated. The pro forma statements do not reflect the expenses of either fund in
carrying out its obligations under the proposed Agreement and Plan of
Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
2. Pro Forma Operations
Pro forma operating expenses include the actual expenses of each fund and the
combined fund, with certain expenses adjusted to reflect the expected expenses
of the combined entity. The investment advisory and administration fees have
been calculated for the combined fund based on the contractual rates expected to
be in effect for the Nations Small Company Growth Fund at the time of the
Reorganization at the combined level of average net assets for the twelve month
period ended September 30, 1998.
<PAGE>
- - --------------------------------------------------------------------------------
Nations Government Securities Fund /
Pacific Horizon U.S. Government Securities Fund
- - --------------------------------------------------------------------------------
Pro Forma Combining Schedule of Investments (unaudited)
- - --------------------------------------------------------------------------------
September 30,1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro
Pacific Forma Pacific
Nations Horizon Combined Nations Horizon Pro
Government US Government US Forma
Securities Government Securities Government Combined
Fund Securities Description Fund Securities
Fund Fund
Principal Principal Principal
Amount Amount Amount Value Value Value
(in 000's) (in 000's) (in 000's) (in 000's) (in 000's) (in 000's)
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agency Bonds - 6.26%
1,591 1,591 Export Funding Trust, 8.210%, 12/29/06 $1,913 $ $1,913
Federal Home Loan Mortgage Corporation
5,000 5,000 (FHLMC) Certificate, 7.440%, 9/1/06 5,370 5,370
Federal National Mortgage Association (FNMA)
5,000 5,000 Certificate, 6.875%, 9/24/12 5,656 5,656
Federal National Mortgage Association (FNMA)
2,000 2,000 Certificate, 6.960%, 9/5/12 2,271 2,271
- - -------------------------------- -----------------------------
13,591 - 13,591 15,210 - 15,210
- - -------------------------------- -----------------------------
Non Agency Mortgage-Backed Securities - 4.62%
10,000 10,000 Allied Capital Commercial Mortgage 10,406 10,406
Trust 6.600%, 7/25/04
29,000 29,000 VENDE 98-3 CLASS IO 03/15/29 326 326
36,160 36,160 VENDEE MORTGAGE TRUST IO 09/15/27 497 497
- - -------------------------------- -----------------------------
10,000 65,160 75,160 10,406 823 11,229
- - -------------------------------- -----------------------------
U.S Government Agency Mortgage-Backed
Securities - 79.73%
100 100 FHLMC 10.000%, 9/1/18 106 106
980 980 FHLMC 6.500%, 3/1/00 - 1/1/09 995 995
15,000 15,000 FHLMC 7.000%, 11/13/98 TBA 15,394 15,394
11,523 11,523 FHLMC 7.000%, 12/1/27 11,829 11,829
218 218 FHLMC 7.500%, 6/1/09 - 8/1/08 225 225
604 604 FHLMC 8.000%, 8/1/07 - 5/1/17 626 626
1,137 1,137 FHLMC 8.500%, 9/1/01 - 6/1/17 1,168 1,168
693 693 FHLMC 9.000%, 2/1/02 - 12/1/16 725 725
306 306 FHLMC 9.500%, 9/1/20 - 6/1/21 332 332
<PAGE>
2,000 2,000 FHLMC Series 1466, Class PI, REMIC, 2,082 2,082
7.000%, 8/15/20
5,000 5,000 FHLMC Series 1999, Class PB, 7.500%, 5,206 5,206
10/15/24
FHLMC Series 2023, Class B, 6.500%,
4,931 4,931 1/15/13 4,952 4,952
FHLMC Series 2054, Class UA, 6.500%,
11,850 11,850 9/15/25 12,139 12,139
534 534 FNMA 6.000%, 5/1/01 535 535
6,597 6,597 FNMA 6.500%, 5/1/13 - 6/1/28 6,715 6,715
4,762 4,762 FNMA 6.750%, 3/18/28 4,814 4,814
1,799 1,799 FNMA 6.990%, 6/1/23 1,952 1,952
12,900 12,900 FNMA 7.000%, 2/25/04 - 8/1/25 13,250 13,250
5,940 5,940 FNMA 7.500%, 9/1/27 6,127 6,127
162 162 FNMA 8.000%, 4/1/06 166 166
136 136 FNMA 8.250%, 4/1/09 142 142
578 578 FNMA 8.500%, 11/1/01 - 7/1/21 598 598
203 203 FNMA 9.000%, 12/1/16 211 211
671 671 FNMA POOL # 345858 8/01/36 691 691
77 77 GNMA 11.750, 9/15/00 - 12/15/00 (2 Pools) 79 79
73 73 GNMA 13.000%, 1/15/11 - 4/15/11 (4 Pools) 84 84
348 348 GNMA 6.00% 416028 12/15/10 355 355
13,974 13,974 GNMA 6.5000%, 11/15/27 14,302 14,302
6,288 28,835 35,123 GNMA 7.000%, 12/15/08 - 5/15/28 6,491 29,884 36,375
9,992 16,590 26,582 GNMA 7.500%, 5/15/13 - 7/15/28 10,349 17,301 27,650
815 5,830 6,645 GNMA 8.000%, 6/15/22 - 7/15/26 851 6,110 6,961
3,681 3,681 GNMA, 8.50%, 10/15/09 - 12/15/22 3,922 3,922
31 142 173 GNMA 9.000%, 6/15/01 - 6/15/18 33 150 183
159 317 476 GNMA 9.500%, 3/15/01 - 2/15/06 166 334 500
22 605 627 GNMA, 10.00%, 9/15/00 - 11/15/20 24 649 673
129 895 1,024 GNMA, 10.50%, 1/15/99 - 4/15/21 142 959 1,101
19 125 144 GNMA, 11.00%, 3/15/01 - 8/15/18 20 142 162
2 2 GNMA 11.50% 126288 2/15/00 2 2
55 44 99 GNMA II 11.000%, 7/20/19 - 10/20/20 60 50 110
45 45 GNMA II 9.0% 205616 2/20/02 48 48
461 461 GNMA II, 9.50%, 2/20/01 - 4/20/06 482 482
9,733 9,733 RFM 6.750%, 6/25/28 9,842 9,842
- - -------------------------------- -----------------------------
129,320 58,591 187,911 132,733 61,079 193,812
- - -------------------------------- -----------------------------
<PAGE>
U.S. Treasury Obligations - 2.02%
2,200 2,200 U.S. Treasury Strip 0.00% 8/15/03 1,781 1,781
1,850 1,850 U.S. Treasury Strip 0.00% 08/15/23 500 500
600 600 U.S. Treasury Strip 0.00% 5/15/07 405 405
1,675 1,675 U.S. TREASURY STRIP 0.00% 5/15/09 1,012 1,012
2,500 2,500 U.S. Treasury Strip 0.00% 02/15/13 1,207 1,207
- - -------------------------------- -----------------------------
- 8,825 8,825 - 4,905 4,905
- - -------------------------------- -----------------------------
Municipal Bonds - 3.86%
Portsmouth Virginia, Taxable Ref.,
1,315 1,315 6.630%, 7/15/14 1,418 1,418
7,480 7,480 Texas State Department of Housing and
Community Affairs, Single Family 7,971 7,971
Revenue, (Teams-Taxable-Mortgage),
Series C, (MBIA Insured),
6.800%, 9/1/29
- - -------------------------------- -----------------------------
8,795 - 8,795 9,389 - 9,389
- - -------------------------------- -----------------------------
Investment Company - 0.64%
Shares Shares
(in 000's) (in 000's)
Nations Cash Reserves
1,574 1,574 1,574 1,574
- - -------------------------------- -----------------------------
1,574 - 1,574 1,574 - 1,574
- - -------------------------------- -----------------------------
Total Investments - 97.13% (Cost
$164,893, $65,144, $230,037,
163,280 132,576 295,856 respectively) $169,312 $66,807 $236,119
- - -------------------------------- -----------------------------
</TABLE>
- - --------------------------------------------------------------------------------
Nations Government Securities Fund /
Pacific Horizon U.S. Government Securities Fund
- - --------------------------------------------------------------------------------
Pro Forma Combining Statement of Net Assets (unaudited)
- - --------------------------------------------------------------------------------
September 30,1998
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
Nations Pacific Adjustments Pro Forma
Government Horizon to Pro Forma Combined
Securities U.S.
Fund Government
Securities
Fund
- - --------------------------------------------------------------------------------------
(in 000's) (in 000's) (in 000's) (in 000's)
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investments $169,312 $ 66,807 $ - $236,119
<PAGE>
- - --------------------------------------------------------------------------------------
Other Assets and Liabilities:
- - --------------------------------------------------------------------------------------
Receivable for Fund shares sold 51,050 - - 51,050
- - --------------------------------------------------------------------------------------
Payable for Securities Purchased (45,265) - - (45,265)
- - --------------------------------------------------------------------------------------
Other assets and liabilities, net (290) 1,471 - 1,181
- - --------------------------------------------------------------------------------------
Total Other Assets and Liabilities 5,495 1,471 - 6,966
- - --------------------------------------------------------------------------------------
Net Assets $174,807 $ 68,278 $ - $ 243,085
- - --------------------------------------------------------------------------------------
Net Assets by Class:
- - --------------------------------------------------------------------------------------
Primary A $119,903 $ - $ - $ 119,903
Investor A / Class A 22,349 66,988 - 89,337
Investor B 32,305 - - 32,305
Investor C / Class K 250 1,290 - 1,540
- - --------------------------------------------------------------------------------------
$174,807 $ 68,278 $ - $ 243,085
- - --------------------------------------------------------------------------------------
Shares Outstanding by Class:
- - --------------------------------------------------------------------------------------
Primary A 11,629 - - 11,629
Investor A / Class A 2,168 6,990 (493) 8,665
Investor B 3,133 - - 3,133
Investor C / Class K 24 134 (9) 149
- - --------------------------------------------------------------------------------------
16,954 7,124 (502) 23,576
- - --------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------
Net Asset Value per Share by
Class:
- - --------------------------------------------------------------------------------------
Primary A $ 10.31 $ - $ - $ 10.31
- - --------------------------------------------------------------------------------------
Investor A / Class A $ 10.31 $ 9.58 $ - $ 10.31
- - --------------------------------------------------------------------------------------
Investor B $ 10.31 $ - $ - $ 10.31
- - --------------------------------------------------------------------------------------
<PAGE>
- - --------------------------------------------------------------------------------------
Investor C / Class K $ 10.31 $ 9.59 $ - $ 10.31
- - --------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------
See Notes to Pro Forma Financial Statements
- - --------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
Nations Government Securities Fund /
Pacific Horizon U.S. Government Securities Fund
- - --------------------------------------------------------------------------------
Pro Forma Combining Statement of Operations (unaudited)
- - --------------------------------------------------------------------------------
Twelve Month Period Ending September 30,1998
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
Nations Pacific Adjustments Pro Forma
Government Horizon to Pro Forma Combined
Securities U.S.
Fund Government
Securities
Fund
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in 000's) (in 000's) (in 000's) (in 000's)
- - ---------------------------------------------------------------------------------------
INVESTMENT INCOME:
- - ---------------------------------------------------------------------------------------
Interest $9,194 $4,964 $0 $14,158
- - ---------------------------------------------------------------------------------------
Dividends 222 164 - 386
- - ---------------------------------------------------------------------------------------
Total Investment Income 9,416 5,128 - 14,544
- - ---------------------------------------------------------------------------------------
EXPENSES:
- - ---------------------------------------------------------------------------------------
Investment Advisory 911 252 (65) (a) 1,098
- - ---------------------------------------------------------------------------------------
Administration 147 145 191 (a) 483
- - ---------------------------------------------------------------------------------------
Transfer Agent 110 127 (136) (b) 101
- - ---------------------------------------------------------------------------------------
Custodian (d) 46 62 (69) (b) 39
- - ---------------------------------------------------------------------------------------
Legal and Audit Fees 49 25 (23) (b) 51
- - ---------------------------------------------------------------------------------------
Registration & Filing 72 24 (10) (b) 86
- - ---------------------------------------------------------------------------------------
Directors Fees 2 - 1 3
- - ---------------------------------------------------------------------------------------
Interest Expense 3 - - 3
- - ---------------------------------------------------------------------------------------
Other expenses (6) 86 (74) (b) 6
- - ---------------------------------------------------------------------------------------
Subtotal 1,334 721 (185) 1,870
- - ---------------------------------------------------------------------------------------
<PAGE>
- - ---------------------------------------------------------------------------------------
Shareholder Servicing and
Distribution Fees
- - ---------------------------------------------------------------------------------------
Primary B 1 - - 1
- - ---------------------------------------------------------------------------------------
Investor A / Class A 36 178 - 214
- - ---------------------------------------------------------------------------------------
Investor B 306 - - 306
- - ---------------------------------------------------------------------------------------
Investor C / Class K 7 10 - 17
- - ---------------------------------------------------------------------------------------
Subtotal 350 188 - 538
- - ---------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------
Fees waived and/or reimbursed by
investment
advisor, administrator and/or
distributor (197) (399) 596 (c) -
- - ---------------------------------------------------------------------------------------
Total Expenses 1,487 510 411 2,408
- - ---------------------------------------------------------------------------------------
NET INVESTMENT INCOME 7,929 4,618 (411) 12,136
- - ---------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- - ---------------------------------------------------------------------------------------
Net realized gain/(loss) on
investments 8,134 809 - 8,943
- - ---------------------------------------------------------------------------------------
Net change in unrealized
appreciation/
(depreciation) of investments 2,131 1,268 - 3,399
- - ---------------------------------------------------------------------------------------
Net realized and unrealized
gain/(loss)
on investments 10,265 2,077 - 12,342
- - ---------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $18,194 $ 6,695 $(411) $24,478
- - ---------------------------------------------------------------------------------------
</TABLE>
Legend:
- - ------
(a) Reflects adjustment to the acquiring fund
contractual fee obligation.
(b) Adjustment reflects expected savings when the two funds become one.
(c) Reflects adjustment to the level of the acquiring fund's voluntary expense
reimbursement.
<PAGE>
(d) Net of expense offset arrangements amounts to less than .01% of average net
assets.
- - --------------------------------------------------------------------------------
See Notes to Pro Forma Financial Statements
- - --------------------------------------------------------------------------------
Nations Government Securities Fund
Pacific Horizon U.S. Government Securities Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination
Nations Fund, Inc. (the "Company") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end investment company. As
of September 30, 1998 the Company offers nine separate portfolios. The unaudited
Pro Forma Combining Statement of Net Assets assumes the exchange described in
the next paragraph occurred as of September 30,1998 and the unaudited Pro Forma
Combining Statement of Operations for the year ended September 30, 1998 assumes
the exchange occurred as of October 1,1997. These statements have been derived
from books and records utilized in calculating daily net asset value of each
fund at September 30,1998 and for the twelve month period then ended.
The pro forma statements give effect to the proposed transfer of the assets and
stated liabilities of the Pacific Horizon U.S. Government Securities Fund in
exchange for shares of Nations Government Securities Fund. Under generally
accepted accounting principles, the historical cost of investment securities
will be carried forward to the surviving entity and the results of operations
of the Nations Government Securities Fund for pre-combination periods
will not be restated. The pro forma statements do not reflect the expenses of
either fund in carrying out its obligations under the proposed Agreement and
Plan of Reorganization.
The unaudited Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of the funds incorporated
by reference in the Statement of Additional Information.
2. Pro Forma Operations
Pro forma operating expenses include the actual expenses of each fund and the
combined fund, with certain expenses adjusted to reflect the expected expenses
of the combined entity. The investment advisory and administration fees have
been calculated for the combined fund based on the contractual rates expected to
be in effect for the Nations Government Securities Fund at the time of the
Reorganization at the combined level of average net assets for the twelve month
period ended September 30, 1998.
<PAGE>
NATIONS FUND, INC.
FILE NOS. 333-69637
Exhibit Number Description
- - -------------- -----------
Ex-99.17 Form of Proxy Ballot
EXH. 99.17
PACIFIC HORIZON FUNDS, INC.
AGGRESSIVE GROWTH 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 AGGRESSIVE GROWTH 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 AGGRESSIVE GROWTH 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, Inc. 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.
INTERNATIONAL EQUITY 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 INTERNATIONAL EQUITY 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 INTERNATIONAL EQUITY 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, Inc. 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.
U.S. GOVERNMENT SECURITIES 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 U.S. GOVERNMENT SECURITIES 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 U.S. GOVERNMENT SECURITIES 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, Inc. 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
