<PAGE>
EMERALD FUNDS 1998 ANNUAL REPORT
EMERALD
INTERNATIONAL EQUITY FUND
This report is submitted for general information of Nations Funds
shareholders and must be preceded or accompanied by a current Nations
Funds prospectus.
<PAGE>
TABLE OF
CONTENTS
<TABLE>
<S> <C>
INTERVIEW WITH YOUR PORTFOLIO MANAGER 1
SCHEDULE OF PORTFOLIO INVESTMENTS 4
STATEMENT OF ASSETS AND LIABILITIES 8
STATEMENT OF OPERATIONS 9
STATEMENT OF CHANGES IN NET ASSETS 10
NOTES TO FINANCIAL STATEMENTS 11
FINANCIAL HIGHLIGHTS 16
INDEPENDENT AUDITORS' REPORT 18
</TABLE>
<PAGE>
July 1998
Dear Shareholder,
We are pleased to present the Annual Report for the Emerald International Equity
Fund for the fiscal period of December 1, 1997 through May 15, 1998. The report
contains information concerning the Fund's performance, portfolio holdings and
financial statements for the fiscal period. We hope you will take a moment to
review it.
As you know, the Emerald International Equity Fund was reorganized into Nations
International Value Fund on May 22, 1998. The reorganization was approved by the
Fund's shareholders at a special meeting of shareholders on May 4, 1998, and
reconvened on May 8, 1998.
As a Nations Funds shareholder, you will receive a semi-annual report for
Nations International Value Fund at the beginning of December for the period of
May 16, 1998 through September 30, 1998.
We appreciate your ongoing commitment to Nations Funds and look forward to
continuing to help you pursue your investment goals over the course of your
lifetime. If you have any questions or would like assistance, please contact us
anytime between 8:30 a.m. and 6:00 p.m., Eastern time, at 1-800-321-7854.
Sincerely,
Nations Funds
NOT MAY LOSE VALUE
FDIC -- INSURED NO BANK GUARANTEE
Nations Funds Distributor: Stephens Inc. Stephens Inc., which is not affiliated
with NationsBank, N.A., is not a bank and securities offered by it are not
guaranteed by any bank or insured by the FDIC. Stephens Inc., member NYSE, SIPC.
Nations Funds Investment Adviser: NationsBanc Advisors, Inc
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
COMMENTARY FOR PERIOD FROM DECEMBER 1, 1997 TO MAY 15, 1998
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
For the period from December 1, 1997 to May 15, 1998, the Fund's total return
was 20.22% and 20.54% for the retail class and the institutional class,
respectively. In comparison, the Morgan Stanley Capital International Europe,
Australasia, and Far East (EAFE) index, an unmanaged index of primarily large-
capitalization stocks, increased by 15.32%.
WHAT FACTORS CONTRIBUTED TO THE FUND'S RETURNS?
European stocks contributed to performance while stocks in Asia and Latin
America detracted from performance, reflecting the general trend in world
markets with European markets outperforming developed and emerging Asian
markets. Finance and consumer goods sector stocks were heavy contributors to
performance while multi-industry and utility companies had a negative impact on
the portfolio. It is important to note that country and sector weightings in the
portfolio are exclusively a residual product of the bottom up, value investment
process.
WHAT DOES YOUR VALUE-DRIVEN PERSPECTIVE TELL YOU ABOUT THE UPHEAVAL IN THE FAR
EAST?
We continue to believe that the consensus view on Asia is overly pessimistic and
that in the long run Asian economies will continue to have higher economic
growth rates than those of Europe and North America. The recent upheavals have
not changed that long-term view. In fact, the turnaround from over optimism in
the pricing of securities to the over pessimism in the valuations placed on
companies has brought many world class companies in those markets within buying
range. As value investors, we like falling prices when buying into good
businesses, as the intrinsic value of a business does not change as rapidly as
stock prices. We do not know where the market bottom is for each stock that we
buy; but we buy when stocks have fallen well below their intrinsic value and
provide us with a margin of safety. We can take advantage of this mis-pricing
because of our long-term investment horizon. We are patient with our holdings
and will give them time for the market to realize the undervaluation.
GIVE US AN EXAMPLE OF A WINNER AND LOSER IN YOUR PORTFOLIO?
Groupe Danone, a leading French packaged foods company, was up significantly and
is one of our largest holdings. This is a great business that generates stable
earnings and free cash flow. Amongst its better known products are Evian mineral
water and Danone yogurt. A stock that has not performed to date is Iscor Ltd., a
South African steel and mining company. The company is going through a major
restructuring to be competitive in global markets. It is exceedingly cheap on
both an asset and cash flow basis. Iscor is a small position, but we believe
that it has considerable upside potential given its current valuation.
WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
As a team, we are focused, long-term value investors and do not feel that we can
make accurate predictions over short time periods. However, over the next three
to five years we expect the stocks in the Fund to do very well. The continued
negative investor sentiment towards Asia is creating opportunities to buy
excellent businesses at a discount to their true value. This is also true in
Latin America. Going forward we see more value in Asian and Latin American
stocks versus those in Europe. In fact, this shift has already been taking place
gradually in our portfolio. Over the period we have gone from an over 70%
exposure in Europe to approximately 50% today. Our sole focus as a business is
on purchasing undervalued businesses for our clients. We actively work to
prevent market forecasts or public expectations from distracting us from this
focused pursuit.
1
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND (as of April 30, 1998)
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
Hypothetical -- Past performance is not a guarantee of future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MSCI EAFE INSTITUTIONAL SHARES
<S> <C> <C>
Dec-95 $10,000 $10,000
Mar-96 $10,210 $10,186
Jun-96 $10,467 $10,806
Sep-96 $10,462 $10,656
Dec-96 $10,620 $11,473
Mar-97 $10,453 $12,168
Jun-97 $11,811 $13,780
Sep-97 $11,769 $14,404
Dec-97 $10,855 $13,887
Mar-98 $12,460 $16,407
Apr-98 $12,561 $16,345
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF APRIL 30, 1998
INSTITUTIONAL
SHARES
<S> <C>
1 Year 33.56%
Since Inception (12/27/95) 23.34%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
NAV WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST.
During the periods indicated, fee waivers and/or expense reimbursements were in
effect. Without these waivers and/or reimbursements, performance would have been
lower.
- ---------------
The performance of the Emerald International Equity Fund is measured against the
Morgan Stanley Capital International Europe, Australia and Far East (EAFE)
Index, an unmanaged index of primarily large-capitalization stocks issued in
Europe, Australia and the Far East. This index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for these
value- added services.
2
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND (as of April 30, 1998)
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
Hypothetical -- Past performance is not a guarantee of future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MSCI EAFE RETAIL SHARES
<S> <C> <C>
Dec-95 $10,000 $10,000
Mar-96 $10,210 $10,176
Jun-96 $10,467 $10,806
Sep-96 $10,462 $10,656
Dec-96 $10,620 $11,470
Mar-97 $10,453 $12,135
Jun-97 $11,811 $13,728
Sep-97 $11,769 $14,322
Dec-97 $10,855 $13,811
Mar-98 $12,460 $16,296
Apr-98 $12,561 $16,223
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF APRIL 30, 1998
RETAIL
SHARES
<S> <C>
1 Year 32.92%
Since Inception (12/27/95) 22.91%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
NAV WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THE ORIGINAL COST.
During the periods indicated, fee waivers and/or expense reimbursements were in
effect. Without these waivers and/or reimbursements, performance would have been
lower.
- ---------------
The performance of the Emerald International Equity Fund is measured against the
Morgan Stanley Capital International Europe, Australia and Far East (EAFE)
Index, an unmanaged index of primarily large-capitalization stocks issued in
Europe, Australia and the Far East. This index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. The Fund's performance reflects the deduction of fees for these
value- added services.
3
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
May 15, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<S> <C> <C>
COMMON STOCKS (96.7%)
ARGENTINA (3.0%)
ENERGY SOURCES (3.0%)
YPF Sociedad Anonima, Class D, ADR ................................. 106,650 $ 3,726,084
-------------
AUSTRIA (0.6%)
UTILITIES -- ELECTRICAL AND GAS (0.6%)
EVN Energie-Versorgung Nied., ADR .................................. 24,860 734,623
-------------
BRAZIL (7.6%)
BANKING (1.0%)
Banco Bradesco, ADR ................................................ 165,000 1,302,230
-------------
OIL & GAS PRODUCTION (1.0%)
Petroleo Brasileiro S.A., ADR ...................................... 56,000 1,226,775
-------------
SOFT DRINKS (1.8%)
Compania Cervejaria Brahma, ADR .................................... 179,400 2,220,075
-------------
TELECOMMUNICATIONS (0.8%)
Telebras, Preferred Shares, ADR .................................... 8,800 1,025,200
-------------
UTILITIES -- ELECTRICAL AND GAS (3.0%)
Electrobras, ADR ................................................... 205,750 3,696,277
-------------
9,470,557
-------------
DENMARK (6.3%)
BANKING (3.2%)
Den Danske Bank, Unsponsored ADR ................................... 32,910 4,036,075
-------------
TELECOMMUNICATIONS (3.1%)
Tele Danmark AS, Class B, ADR ...................................... 84,950 3,817,441
-------------
7,853,516
-------------
FRANCE (10.4%)
AUTOMOBILES (1.8%)
PSA Peugeot Citroen, ADR (b) ....................................... 47,300 2,236,420
-------------
BANKING (1.9%)
Cie Financiere De Paribus SA (b) ................................... 10,500 1,089,569
Societe Generale, ADR .............................................. 28,900 1,159,899
-------------
2,249,468
-------------
ENERGY SOURCES (3.3%)
Elf Aquitane, ADR .................................................. 57,500 4,140,000
-------------
</TABLE>
- ---------------
See Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<S> <C> <C>
FRANCE (10.4%) (CONTINUED)
FOOD AND HOUSEHOLD PRODUCTS (3.4%)
Groupe Danone, ADR ................................................. 85,700 $ 4,285,000
-------------
12,910,888
-------------
GERMANY (6.3%)
AUTOMOBILES (3.8%)
Daimler-Benz, ADR .................................................. 43,930 4,706,002
-------------
UTILITIES (2.5%)
Dem Deutsche Telekom, ORD (b) ...................................... 122,000 3,153,879
-------------
7,859,881
-------------
HONG KONG (9.0%)
BANKING (3.1%)
HSBC Holdings, PLC, ADR ............................................ 14,700 3,851,533
-------------
DIVERSIFIED OPERATIONS (5.9%)
HKD Citic Pacific Limited (b) ...................................... 599,000 1,577,166
Hutchison Whampoa, Unsponsored ADR ................................. 117,000 3,141,007
Swire Pacific Ltd. ................................................. 623,000 2,685,628
-------------
7,403,801
-------------
11,255,334
-------------
ITALY (3.9%)
BANKING (1.4%)
Istituto Mobiliare Italiano, SPA, ADR .............................. 32,857 1,741,421
-------------
TELECOMMUNICATIONS (2.5%)
Telecom Intalia, SPA, ADR (b) ...................................... 41,410 3,147,160
-------------
4,888,581
-------------
JAPAN (16.1%)
ELECTRICAL AND ELECTRONICS (7.3%)
Hitachi Ltd., ADR .................................................. 82,100 6,039,481
Kyocera Corp., ADR ................................................. 30,900 3,176,906
-------------
9,216,387
-------------
HOME FURNISHINGS (0.6%)
Matsushita Electric, ADR ........................................... 4,400 699,600
-------------
INSURANCE (3.2%)
Tokio Marine & Fire Insurance Co., ADR ............................. 75,400 3,965,569
-------------
MACHINERY & EQUIPMENT (4.2%)
Komatsu Ltd. Japanese ORD .......................................... 304,000 1,324,145
Mitsubishi Heavy Industries Ltd., Japanese ORD ..................... 1,098,000 4,029,180
-------------
5,353,325
-------------
</TABLE>
- -------------
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<S> <C> <C>
JAPAN (16.1%) (CONTINUED)
OIL & GAS PRODUCTION (0.8%)
Nippon Oil Co. Ltd. ................................................ 282,000 $ 967,512
-------------
20,202,393
-------------
MEXICO (2.8%)
TELECOMMUNICATIONS (2.8%)
Telefonos de Mexico, Class L, ADR .................................. 65,225 3,428,389
-------------
NETHERLANDS (4.7%)
INSURANCE (2.2%)
ING Groep N.V., ADR ................................................ 41,080 2,688,173
-------------
TELECOMMUNICATIONS (2.5%)
Royal PTT Nederland, ADR ........................................... 55,790 3,159,108
-------------
5,847,281
-------------
SINGAPORE (3.0%)
BANKING (2.1%)
Develop Bank Singapore, ADR ........................................ 112,130 2,569,256
-------------
MULTI-INDUSTRY (0.9%)
Jardine Matheson Holdings Ltd., ADR ................................ 283,900 1,112,888
-------------
3,682,144
-------------
SOUTH AFRICA (3.3%)
METALS/STEEL (0.4%)
Iscor Ltd., ADR (b) ................................................ 131,700 448,254
-------------
MISC MATERIALS AND COMMODITIES (2.9%)
De Beers Construction Mines, Unsponsored ADR ....................... 156,000 3,646,500
-------------
4,094,754
-------------
SOUTH KOREA (1.2%)
METALS/STEEL (0.5%)
Pohang Iron & Steel Co. Inc., ADR .................................. 36,900 590,400
-------------
UTILITIES -- ELETRICAL AND GAS (0.7%)
Korea Electric Power Corp., ADR .................................... 108,800 877,200
-------------
1,467,600
-------------
SPAIN (0.8%)
BANKING (0.8%)
Corp. Bancaria de Espana (Argentaria), ADR ......................... 23,400 956,475
-------------
SWITZERLAND (2.9%)
FOOD AND HOUSEHOLD PRODUCTS (2.9%)
Nestle S.A., Registered ADR ........................................ 35,300 3,575,347
-------------
</TABLE>
- ---------------
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
----------- -------------
<S> <C> <C>
UNITED KINGDOM (13.6%)
BEVERAGES AND TOBACCO (7.7%)
B.A.T. Industries PLC, ADR ......................................... 166,500 $ 3,173,906
Diageo PLC, ADR .................................................... 135,451 6,535,511
-------------
9,709,417
-------------
CHEMICALS (1.5%)
Imperial Chemical, ADR ............................................. 23,800 1,911,438
-------------
MISC MATERIALS AND COMMODITIES (0.5%)
Tate & Lyle PLC, ADR ............................................... 20,000 661,536
-------------
MULTI-INDUSTRY (3.3%)
BTR PLC, ADR ....................................................... 298,382 4,059,613
-------------
TEXTILES (0.6%)
Coats Viyella, ADR ................................................. 166,140 739,024
-------------
17,081,028
-------------
VENEZUELA (1.2%)
TELEPHONE INTEGRATED (1.2%)
Cia Anonima Telefonos De Venezuela, ADR ............................ 30,000 1,050,000
Cia Telefonos De Venezuela, ADR .................................... 12,800 448,000
-------------
1,498,000
-------------
TOTAL COMMON STOCKS (COST $111,404,140)............................... 120,532,875
-------------
SHORT-TERM INVESTMENTS (2.4%)
CASH SWEEP ACCOUNT (2.4%)
Bank of New York ................................................... 2,946,784 2,946,784
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,946,784)........................ 2,946,784
-------------
TOTAL (COST $114,350,925) (A) -- 99.1%................................ $ 123,479,659
-------------
-------------
</TABLE>
- -------------
Percentages indicated are based on net assets of $124,540,346.
(a) The cost for financial reporting purposes is substantially the same for
federal income tax purposes and differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.......................................... $16,283,172
Unrealized depreciation.......................................... (7,154,438)
----------
Net unrealized appreciation...................................... $9,128,734
----------
----------
</TABLE>
(b) Represents non-income producing security.
ADR -- American Depository Receipt.
ORD -- Ordinary.
PLC -- Public Limited Company.
- -------------
See Notes to Financial Statements.
7
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
May 15, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $114,350,925)................... $ 123,479,659
Interest and dividends receivable......................................... 672,266
Receivable for investment securities sold................................. 918,123
Tax reclaim receivable.................................................... 56,799
Prepaid expenses.......................................................... 13,739
-------------
Total Assets................................................................ 125,140,586
-------------
LIABILITES:
Payable for capital shares redeemed....................................... 41,743
Payable for investment securities purchased............................... 479,700
Accrued expenses and other liabilities:
Investment advisory fees................................................ 51,840
Administration fees..................................................... 4,653
Shareholder processing fees (Retail Shares)............................. 739
Other liabilities....................................................... 21,565
-------------
Total Liabilities........................................................... 600,240
-------------
NET ASSETS.................................................................. $ 124,540,346
-------------
-------------
NET ASSETS:
Retail Shares............................................................. $ 5,128,214
Institutional Shares...................................................... 119,412,132
-------------
Total....................................................................... $ 124,540,346
-------------
-------------
OUTSTANDING SHARES OF BENEFICIAL INTEREST:
Retail Shares............................................................. 332,077
Institutional Shares...................................................... 7,689,270
-------------
Total....................................................................... 8,021,347
-------------
-------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE:
Retail Shares............................................................. $ 15.44
Institutional Shares...................................................... $ 15.53
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par ($0.001)............................ $ 8,021
Additional paid-in capital................................................ 109,033,056
Accumulated undistributed net investment income........................... 579,010
Accumulated net realized gains on investment transactions and foreign
currency transactions................................................... 5,792,052
Net unrealized appreciation from investments.............................. 9,128,207
-------------
Net Assets.................................................................. $ 124,540,346
-------------
-------------
</TABLE>
- ------------
See Notes to Financial Statements.
8
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the period ended May 15, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 1,086,013
Interest............................................... 96,590
Foreign withholding taxes.............................. (92,496)
------------
Total Investment Income.................................. 1,090,107
------------
EXPENSES:
Investment advisory fees............................... $ 330,112
Administration fees.................................... 25,584
Shareholder processing fees (Retail Shares)............ 5,689
Combined distribution and service fees (Retail
Shares).............................................. 5,689
Transfer agent fees and expenses....................... 25,496
Custodian fees and expenses............................ 2,043
Legal fees............................................. 1,593
Audit fees............................................. 6,498
Reports to shareholders (Institutional Shares)......... 3,217
Registration and filing fees........................... 16,689
Other expenses......................................... 7,037
----------
Gross Expenses........................................... 429,647
Less: Expense reimbursements............................. (3,902)
----------
Net Expenses............................................. 425,745
------------
Net Investment Income.................................... 664,362
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on securities transactions.......... 5,460,954
Net realized losses from foreign currency
transactions......................................... (12,290)
Net change in unrealized appreciation of investments... 5,638,496
------------
Net realized and unrealized gains on investments....... 11,087,160
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ 11,751,522
------------
------------
</TABLE>
- -------------
* For the period from December 1, 1997 through May 15, 1998.
See Notes to Financial Statements.
9
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 15, NOVEMBER 30,
1998* 1997
-------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss).................... $ 664,362 $ 342,949
Net realized gains (losses) on securities
transactions.................................. 5,460,954 1,541,113
Net realized gains (losses) from foreign
currency transactins.......................... (12,290) (11,468)
-------------- -------------
Net change in unrealized appreciation
(depreciation) from investments and
translation of assets and liabilities in
foreign currencies............................ 5,638,496 2,556,440
-------------- -------------
Net increase (decrease) in net assets resulting
from operations............................... 11,751,522 4,429,034
Dividends to shareholders from net investment
income:
Retail Shares................................... -- (5,024)
Institutional Shares............................ -- (335,369)
-------------- -------------
Total dividends to shareholders from net
investment income............................... -- (340,393)
-------------- -------------
Distributions to shareholders in excess of net
investment income:
Retail Shares................................... -- (15,291)
Institutional Shares............................ -- (57,072)
-------------- -------------
Total distributions to shareholders in excess of
net investment income........................... -- (72,363)
-------------- -------------
Distributions to shareholders from net realized
gains:
Retail Shares................................... (95,931) (263)
Institutional Shares............................ (1,209,852) (42,435)
-------------- -------------
Total distributions to shareholders from net
realized gains.................................. (1,305,783) (42,698)
-------------- -------------
Total dividends and distributions to
shareholders.................................... (1,305,783) (455,454)
-------------- -------------
Fund Share Transactions:
Net proceeds from shares subscribed............. 66,388,468 46,361,463
Net asset value of shares issued to shareholders
in reivestment of dividends and
distributions................................. 549,511 24,521
Cost of shares redeemed......................... (11,379,994) (9,465,465)
-------------- -------------
Net increase (decrease) in net assets from Fund
share transactions............................ 55,557,985 36,920,519
-------------- -------------
Total increase (decrease)......................... 66,003,724 40,894,099
NET ASSETS:
Beginning of period............................. 58,536,622 17,642,523
-------------- -------------
End of period................................... $ 124,540,346 $ 58,536,622
-------------- -------------
-------------- -------------
</TABLE>
- -------------
* For the period from December 1, 1997 through May 15, 1998.
See Notes to Financial Statements.
10
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
Emerald Funds (the "Trust") was organized as a Massachusetts business trust on
March 15, 1988. The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment
company. The Trust operates as a series company currently comprising fourteen
portfolios. The accompanying financial statements and notes relate to the
International Equity Fund only. (the "Fund"). The investment objective of the
Fund is to seek long-term capital appreciation. The Fund seeks to achieve its
investment objective by investing primarily in equity securities of foreign
issuers.
Barnett Capital Advisors, Inc. ("Barnett"), a wholly-owned subsidiary of
Barnett Banks, Inc., serves as the International Equity Fund's investment
adviser. Brandes Investment Partners, L.P. ("Brandes") serves as the Fund's
sub-adviser.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
serves as the Fund's administrator. BISYS Fund Services, Inc. serves as the
Fund's transfer agent and fund accountant. Emerald Asset Management, Inc. (the
"Distributor") serves as the distributor of the Fund's shares. BISYS and BISYS
Fund Services, Inc. are each a wholly-owned subsidiary and the Distributor is an
indirect wholly-owned subsidiary of The BISYS Group, Inc.
The Fund is authorized to issue two classes of shares: Retail Shares and
Institutional Shares. Retail Shares and Institutional Shares are substantially
the same, except that Retail Shares bear the fees payable under a Combined
Distribution and Service Plan (the "Combined Plan") adopted by the Board of
Trustees pursuant to Rule 12b-1 under the 1940 Act. Retail Shares bear the fees
payable under a Shareholder Processing Plan (the "Processing Plan"). In addition
to the fees paid pursuant to the Combined Plan and the Processing Plan, each
class of shares also bears the expenses associated with the printing of their
shareholder reports.
On January 9, 1998, Barnett Banks, Inc. was merged into a subsidiary of
NationsBank Corporation ("NationsBank"). As a result of the merger, Barnett
became a wholly-owned subsidiary of NationsBank.
On February 12, 1998, the Board of Trustees of the Trust approved the
reorganization of the Trust with Nations Fund Trust, Nations Fund, Inc. and
Nations Institutional Reserves (collectively, "Nations Funds"), three investment
companies that are part of the Nations Family of Funds. The reorganization was
approved by shareholders of the Trust, including shareholders of the Fund at a
special meeting of shareholders held on May 4, 1998 as reconvened May 8, 1998.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual amounts could differ from these estimates.
A) Security Valuation:
The Fund values portfolio securities (other than debt securities with remaining
maturities of 60 days or less) at the last reported sales price on the
securities exchange on which such securities are primarily traded or at the last
sales price on the NASDAQ National Securities Market. Securities not listed on
an exchange or the NASDAQ National Securities Market or securities for which
there were no transactions are valued at the mean between the current quoted bid
and asked prices on the date of valuation. Bid price is used when no asked price
is available. The Fund may also use an independent pricing service, approved by
the Board of Trustees, to value certain of its securities. Such prices reflect
market
11
<PAGE>
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values, which may be established through the use of electronic data processing
techniques and matrix systems. Restricted securities and securities for which
market quotations are not readily available, if any, are valued at fair value
using methods approved by the Board of Trustees. Debt securities with remaining
maturities of 60 days or less are valued at amortized cost.
B) Securities Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized gains and
losses on the sales of investments are calculated on the identified cost basis.
Interest income, including accretion of discount and amortization of the premium
on investments, is accrued daily. Dividend income is recorded on the ex-dividend
date.
C) Dividends and Distributions to Shareholders:
Dividends from net investment income, if any, are declared and paid annually.
Distributions of net realized gains, if any, will be paid at least annually.
However, to the extent that net realized gains of the Fund could be reduced by
any capital loss carryovers of the Fund, such gains will not be distributed.
Dividends and distributions are recorded by the Fund on the ex-dividend date.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are considered either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
D) Repurchase Agreements:
The Trust's custodian and other banks acting in a sub-custodian capacity, take
possession of the collateral pledged for investments in repurchase agreements.
The underlying collateral is valued daily on a mark-to-market basis to determine
that the value, including accrued interest, exceeds the repurchase price. In the
event of the seller's default on the obligation to repurchase, the Fund has the
right to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
E) Reverse Repurchase Agreements:
The Fund may enter into a reverse repurchase agreement. Under such an agreement,
the Fund sells portfolio securities and then agrees to buy them back later at an
agreed-upon time and price. When the Fund enters into a reverse repurchase
agreement, it will place in a separate custodial account liquid securities that
have a value equal to or more than the price the Fund must pay when it buys back
the securities, and the account will be continuously monitored to make sure the
appropriate value is maintained. Reverse repurchase agreements involve the
possible risk that the value of portfolio securities the Fund relinquishes may
decline below the price the Fund must pay when the transaction closes. Interest
paid by the Fund in a reverse repurchase agreement is considered a reduction of
the Fund's income. Reverse repurchase agreements are considered to be borrowings
by the Fund under the 1940 Act.
F) Expenses:
The investment income and expenses of the Fund (other than expenses incurred
under the Combined Plan, the Processing Plan, and the expenses associated with
printing reports to shareholders which are charged directly to the class of
shares incurring such expenses) and realized and unrealized gains and losses on
investments of the Fund are allocated to each class of shares based upon its
relative net asset
12
<PAGE>
- --------------------------------------------------------------------------------
value on the date income is earned or expenses and realized and unrealized gains
and losses are incurred.
G) Federal Income Taxes:
For federal income tax purposes, the Fund is treated as a separate entity for
the purpose of determining its qualification as a regulated investment company
under the Internal Revenue Code (the "Code"). It is the policy of the Fund to
meet the requirements of the Code applicable to regulated investment companies,
including the requirement that it distribute substantially all of its taxable
income to shareholders. Therefore, no federal income tax provision is required.
H) Foreign Currency Translation:
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at
the current rate of exchange at the end of the period; and
(ii) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in foreign exchange.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities. The Fund reports certain foreign currency related transactions as
components of realized gains for financial reporting purposes, whereas such
components are treated as ordinary income for federal tax purposes.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the level of governmental supervision and
regulation of foreign securities markets and the possibilities of political or
economic instability.
I) Forward Foreign Exchange Contracts:
The Fund may enter into forward foreign exchange contracts ("forward") which is
an agreement between two parties to buy and sell a currency at a set price on a
future date. The market value of the forward fluctuates with changes in currency
exchange rates. The forward is marked-to-market daily and the change in market
value is recorded by the Fund as unrealized appreciation or depreciation. When
the forward is closed, the Fund records a gain or loss equal to the difference
between the value at the time it was opened and the value at the time it was
closed. The Fund could be exposed to risk if a counterparty is unable to meet
the terms of a forward or if the value of the currency changes unfavorably.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into an Investment Advisory Agreement with Barnett, an
Administration Agreement with BISYS and a Transfer Agency Agreement with BISYS
Fund Services, Inc. and a Distribution Agreement with the Distributor. In
addition, Barnett has entered into a sub-advisory agreement with Brandes with
respect to the International Equity Fund. BISYS' fees for serving as fund
accountant to the Fund are included as part of the administration fee. The Fund
pays BISYS' out-of-pocket accounting expenses.
As sub-adviser, Brandes manages the investments of the Fund and is
responsible for all purchases and sales of the Fund's portfolio securities, but
is subject to the general supervision of both the Board of Trustees and Barnett,
as the investment adviser.
For its services, Barnett is entitled to receive a fee based on the Fund's
average daily net assets at the annual rate of 1.00%. Barnett has agreed to pay
Brandes a sub-advisory fee at an annual rate of 0.50% of the average daily net
assets of the Fund.
As administrator, BISYS assists in supervising the operations of the Fund.
For its services, BISYS is entitled to a fee, accrued daily and payable monthly,
at the effective annual rate of 0.0775% of the first $5
13
<PAGE>
- --------------------------------------------------------------------------------
billion of the Trust's aggregate net assets, 0.07% of the next $2.5 billion,
0.065% of the next $2.5 billion and 0.05% of all assets exceeding $10 billion.
In the event that the aggregate average daily net assets fall below $3 billion,
the fee will be increased to 0.08% of the aggregate average daily net assets of
the Trust.
For its services as transfer agent, BISYS Fund Services, Inc. earned fees in
the amount of $25,496 for the period ended May 15, 1998.
Under the Processing Plan with respect to Retail Shares of the Fund,
institutions (including BISYS) that have entered into agreements with the Trust
("Service Organizations") agree to provide various shareholder and
administrative support services to the shareholders of Retail Shares. For their
services, Service Organizations are entitled to a fee ("Shareholder Processing
Fee") accrued daily and paid monthly at an annual rate of 0.25% of the
respective average daily net assets of Retail Shares. For the period ended May
15, 1998, the Fund (Retail Shares) incurred $5,689 in expenses with regards to
the Processing Plan.
Barnett has voluntarily agreed to reimburse Fund expenses to the extent the
expenses of the variable net asset value fund exceed a predetermined level
determined from time to time by Barnett. For the period ended May 15, 1998,
Barnett reimbursed Fund expenses of $3,902 pursuant to these voluntary
limitations:
The Fund has adopted the Combined Plan. Under the Combined Plan, the Fund
may make payments to the Distributor and Service Organizations for distribution
and shareholder liaison services provided to Retail shareholders. Under the
Combined Plan, payments by the Fund may not exceed an annual rate of 0.25% of
the average daily net assets of the Fund's Retail Shares. The Fund (Retail
Shares) incurred $5,689 pursuant to the Combined Plan for the period ended May
15, 1998.
Certain officers of the Trust are "affiliated persons" (as defined in the
1940 Act) of BISYS or the Distributor. Two of the Trustees receive an annual fee
of $20,000 while the remaining four Trustees receive an annual fee of $15,000
and a meeting fee of $2,000 per meeting was received by all six Trustees, for
services relating to all of the portfolios constituting the Trust. For the
period ended May 15, 1998, the Fund incurred $1,593 of legal expenses of a law
firm, a partner of which serves as Secretary to the Trust.
NOTE 4 -- SECURITIES TRANSACTIONS
For the period ended May 15, 1998, the cost of purchases and the proceeds from
sales of portfolio securities (excluding short-term investments) was as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C>
$63,842,685 $66,286,279
</TABLE>
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund are summarized below:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND (000 OMITTED):
PERIOD ENDED YEAR ENDED
MAY 15, 1998* NOVEMBER 30, 1997
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail Shares
Sold.................................. 110 $ 1,552 370 $ 4,813
Reinvestment of dividends............. 7 98 -- 1
Redeemed.............................. (110) (1,607) (55) (740)
-------- -------- -------- --------
Net increase -- Retail.................. 7 43 315 4,074
-------- -------- -------- --------
Institutional Shares
Sold.................................. 4,183 64,837 3,256 41,549
Reinvestment of dividends............. 34 451 2 24
Redeemed.............................. (650) (9,773) (688) (8,726)
-------- -------- -------- --------
Net increase -- Institutional........... 3,567 55,515 2,570 32,847
-------- -------- -------- --------
Net increase in Fund.................... 3,574 $ 55,558 2,885 $ 36,921
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
* For the period from December 1, 1997 through May 15, 1998.
NOTE 6 -- SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
A Special Meeting of Shareholders of the Trust (the "Meeting") was held on May
4, 1998 as reconvened
14
<PAGE>
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May 8, 1998. At the Meeting, shareholders of the Fund approved the following
proposals:
1. Proposal to ratify and approve (i) an interim investment advisory
agreement between the Trust and Barnett Capital Advisors Inc. with
respect to the Fund and (ii) an interim investment sub-advisory agreement
between Barnett Capital Advisors Inc. and Brandes Investment Partners,
L.P. with respect to the Fund, in each case for the period from January
9, 1998 forward.
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
FAVOR AGAINST ABSTAINED
- ------------ ------------ ------------
<S> <C> <C>
4,673,406 1,387 3,096
</TABLE>
2. Proposal to approve an Agreement and Plan of Reorganization between the
Trust and Nations Fund, Inc. ("Nations") which provides for the transfer
of all of the assets and liabilities of the Fund to a corresponding fund
of Nations in exchange for shares of designated classes of such Nations
fund, and which contemplates the reorganization of the Trust.
<TABLE>
<CAPTION>
VOTES IN VOTES VOTES
FAVOR AGAINST ABSTAINED
- ------------ ------------ ------------
<S> <C> <C>
4,460,350 4,239 3,096
</TABLE>
NOTE 7 -- SUBSEQUENT EVENT (UNAUDITED)
On May 15, 1998 and May 22, 1998, all of the assets and liabilities of the
Trust's portfolios were transferred to corresponding funds in the Nations Funds
family, including the assets and liabilities of the Fund which were transferred
on May 22, 1998. As a result, the shareholders of the Trust's portfolios,
including shareholders of the Fund, have become shareholders of Nations Funds.
15
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 15, NOVEMBER 30, NOVEMBER 30,
1998* 1997 1996***(a)
------------- ------------- -------------
<S> <C> <C> <C>
RETAIL SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 13.13 $ 11.29 $ 10.00
------ ------ -------------
Income from investment operations:
Net investment income........................... 0.08 0.01 0.04
Net realized and unrealized gains on
securities.................................... 2.52 1.91 1.31
------ ------ -------------
Total Income from investment operations......... 2.60 1.92 1.35
------ ------ -------------
Less dividends and distributions:
Dividends from net investment income............ -- (0.01) (0.04)
Dividends in excess of net investment income.... -- (0.05) --
Distributions from net realized gains on
securities.................................... (0.29) (0.02) (0.02)
------ ------ -------------
Total dividends and distributions............... (0.29) (0.08) (0.06)
------ ------ -------------
Net change in net asset value................... 2.31 1.84 1.29
------ ------ -------------
NET ASSET VALUE, END OF PERIOD.................... $ 15.44 $ 13.13 $ 11.29
------ ------ -------------
------ ------ -------------
Total return...................................... 20.22%(b) 17.11% 13.54%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................ $ 5,128 $ 4,259 $ 115
Ratio of expenses to average net assets......... 1.81%(c) 1.73% 0.00%(c)
Ratio of net investment income to average net
assets........................................ 1.21%(c) 0.26% 1.83%(c)
Ratio of expenses to average net assets**....... 1.82%(c) 1.93% 57.40%(c)
Ratio of net investment income to average net
assets**...................................... 1.20%(c) 0.06% (55.57)%(c)
Portfolio turnover.............................. 88%(b) 29% 50%(b)
</TABLE>
- -------------
* For the period from December 1, 1997 through May 15, 1998.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such reimbursements had not occurred, the ratio would have been as
indicated.
*** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
(a) Effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's Investment Sub-Adviser.
(b) Not annualized.
(c) Annualized.
See Notes to Financial Statements.
16
<PAGE>
EMERALD INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 15, NOVEMBER 30, NOVEMBER 30,
1998* 1997 1996***(a)
------------- ------------- --------------
<S> <C> <C> <C>
INSTITUTIONAL SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 13.17 $ 11.29 $ 10.00
------------- ------------- -------
Income from investment operations:
Net investment income........................... 0.09 0.09 0.06
Net realized and unrealized gains on
securities.................................... 2.56 1.91 1.29
------------- ------------- -------
Total Income from investment operations......... 2.65 2.00 1.35
------------- ------------- -------
Less dividends and distributions:
Dividends from net investment income............ -- (0.09) (0.06)
Dividends in excess of net investment income.... -- (0.01) --
Distributions from net realized gains on
securities.................................... (0.29) (0.02) --
------------- ------------- -------
Total dividends and distributions............... (0.29) (0.12) (0.06)
------------- ------------- -------
Net change in net asset value................... 2.36 1.88 1.29
------------- ------------- -------
NET ASSET VALUE, END OF PERIOD.................... $ 15.53 $ 13.17 $ 11.29
------------- ------------- -------
------------- ------------- -------
Total return...................................... 20.54%(b) 17.75% 13.47%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s)................ $ 119,412 $ 54,277 $ 17,528
Ratio of expenses to average net assets......... 1.25%(c) 1.21% 0.00%(c)
Ratio of net investment income to average net
assets........................................ 2.06%(c) 0.89% 1.99%(c)
Ratio of expenses to average net assets**....... 1.26%(c) 1.21% 3.46%(c)
Ratio of net investment income to average net
assets**...................................... 2.05%(c) 0.89% (1.47)%(c)
Portfolio turnover.............................. 88%(b) 29% 50%(b)
</TABLE>
- -------------
* For the period from December 1, 1997 through May 15, 1998.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such reimbursements had not occurred, the ratio would have been as
indicated.
*** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
(a) Effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's Investment Sub-Adviser.
(b) Not annualized.
(c) Annualized.
See Notes to Financial Statements.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Trustees of the
Emerald Funds:
We have audited the accompanying statement of assets and liabilities of the
Emerald International Equity Fund (the Fund), including the schedule of
portfolio investments, as of May 15, 1998, the related statement of operations
for the period December 1, 1997 through May 15, 1998, and the statements of
changes in net assets and the financial highlights for the period from December
1, 1997 through May 15, 1998 and for the year ended November 30, 1997. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
accompanying financial highlights for the periods ended November 30, 1996, and
the prior periods as indicated herein, were audited by other auditors whose
report thereon dated January 22, 1997 expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of May
15, 1998, by confirmation with the custodian and brokers and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights for the period
from December 1, 1997 through May 15, 1998 and for the year ended November 30,
1997 present fairly, in all material respects, the financial position of the
Emerald International Equity Fund at May 15, 1998, and the results of its
operations for the period from December 1, 1997 through May 15, 1998, and the
changes in its net assets and the financial highlights for the period from
December 1, 1997 through May 15, 1998 and for the year ended November 30, 1997,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
July 1, 1998
18
