NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
One Bank of America Plaza
Charlotte, North Carolina 28255
TELEPHONE: (800) 652-5096
February 26, 1999
Dear Shareholder:
On behalf of the Board of Directors of Nations Fund Portfolios, Inc.
(the "Company"), we are pleased to invite you to a special meeting of
shareholders of the Company's Nations Pacific Growth Fund (the "Pacific Growth
Fund") to be held at 10:00 a.m. (Eastern time) on March 29, 1999, at One Bank of
America Plaza, 33rd Floor, Charlotte, North Carolina (the "Meeting"). At the
Meeting, you will be asked to approve a proposed Agreement and Plan of
Consolidation, dated as of February 26, 1999 (the "Consolidation Agreement"), by
and between the Pacific Growth Fund and the Company's Nations Emerging Markets
Fund (the "Emerging Markets Fund").
Because of market depreciation and redemption activity attributable to
the recent financial and market turmoil in Asia, the Pacific Growth Fund's
assets have recently declined to levels that make it inefficient for the Pacific
Growth Fund to continue to operate on a stand-alone basis. Accordingly, it is
proposed that the Pacific Growth Fund be consolidated into the Emerging Markets
Fund, another international equity mutual fund in the Nations Funds Family (the
"Consolidation"). The Emerging Markets Fund was chosen in order to offer
shareholders a more geographically diverse long-term international equity
investment than the Pacific Growth Fund's focused Pacific rim exposure. The
proposed Consolidation would combine two Funds with generally similar investment
objectives into a single Fund. The Funds' total operating expense ratios (after
waivers) are identical. Before waivers, the Emerging Markets Fund's total
operating expense ratio is lower than that of the Pacific Growth Fund. The
Consolidation is intended to benefit shareholders by:
>> improving efficiency in the operation of the Funds, including
potentially achieving economies of scale and greater portfolio
diversification;
>> facilitating investment management, administration and marketing of
the combined Fund; and
>> eliminating duplicative shareholder costs and portfolio holdings.
Shareholders of the Pacific Growth Fund who hold their shares in a
taxable account will recognize a gain or loss for federal income tax purposes as
a result of the Consolidation. If shareholder approval is obtained and the other
conditions to the Consolidation are satisfied, it is anticipated that the
Pacific Growth Fund will be consolidated into the Emerging Markets Fund on March
30, 1999, when your Pacific Growth Fund shares will be exchanged for shares of
the Emerging Markets Fund of equal dollar value.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE PROPOSED CONSOLIDATION.
The formal Notice of Special Meeting, a Combined Proxy
Statement/Prospectus and a Proxy Ballot are enclosed.
Whether or not you plan to attend the Special Meeting, you may vote by
proxy by marking, signing, dating and returning the enclosed Proxy Ballot(s) in
the enclosed postage-paid envelope or by telefacsimile at (704) 388-2641.
<PAGE>
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 BY
TELEFACSIMLIE (FRONT AND BACK) AT (704) 388-2641 OR IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
The proposed Consolidation and the reasons for the unanimous
recommendation of the Company's Board are discussed in detail in the enclosed
materials, which you should read carefully. If you have any questions about the
Consolidation, please do not hesitate to contact the Company at the toll-free
number set forth above.
We look forward to your attendance at the Meeting or receiving your
Proxy Ballot(s) so that your shares may be voted at the Meeting.
Sincerely,
A. Max Walker
President and Chairman of the Board of Directors
2
<PAGE>
NATIONS FUND PORTFOLIOS, INC.
Nations Pacific Growth Fund
One Bank of America Plaza
Charlotte, North Carolina 28255
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 29, 1999
To Nations Pacific Growth Fund Shareholders:
PLEAES TAKE NOTE THAT a special meeting of the shareholders (the
"Meeting") of the Nations Pacific Growth Fund (the "Pacific Growth Fund"), a
series of Nations Fund Portfolios, Inc. (the "Company"), will be held at 10:00
a.m., Eastern time, on March 29, 1999, at One Bank of America Plaza, 33rd Floor,
Charlotte, North Carolina, for purpose of considering and voting upon:
ITEM 1. A proposed Agreement and Plan of Consolidation, dated February
26, 1999 (the "Consolidation Agreement"), between the Pacific Growth
Fund and the Company's Nations Emerging Markets Fund (the "Emerging
Markets Fund" and, together with the Pacific Growth Fund, the "Funds").
The Consolidation Agreement provides for the transfer of the assets and
liabilities of the Pacific Growth Fund to the Emerging Markets Fund in
exchange for shares of equal value of corresponding classes of the
Emerging Markets Fund (the "Consolidation"). As a result of the
Consolidation, shareholders of the Pacific Growth Fund will become
shareholders of the Emerging Markets Fund.
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 February 5, 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 THEIR
PROXY BALLOT(S) BY TELEFACSIMILE (FRONT AND BACK) AT (704) 388-2641 OR IN THE
ENCLOSED ENVELOPE. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES
MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO THE
COMPANY 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,
Richard H. Blank, Jr.
Secretary
February 26, 1999
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated February 26, 1999
NATIONS FUND PORTFOLIOS, INC.
One Bank of America Plaza
101 South Tryon Street
Charlotte, North Carolina 28255
1-800-652-5096
This combined proxy statement/prospectus ("Proxy/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Nations Fund Portfolios, Inc. (the "Company") at a Special Meeting
of Shareholders of the Company's Nations Pacific Growth Fund (the "Pacific
Growth Fund") to be held March 29, 1999 at 10:00 a.m. (Eastern time) at One Bank
of America Plaza, 101 South Tryon Street, 33rd Floor, Charlotte, North Carolina.
This Special Meeting and any adjournment(s) are referred to as the "Meeting."
The Meeting has been called to consider the following proposal, and to conduct
such other business as may come before the Meeting.
PROPOSAL: To approve an Agreement and Plan of Consolidation dated
February 26, 1999 (the "Consolidation Agreement"), between the Pacific
Growth Fund and the Company's Nations Emerging Markets Fund (the
"Emerging Markets Fund" and, together with the Pacific Growth Fund, the
"Funds"). The Consolidation Agreement provides for the transfer of the
assets and liabilities of the Pacific Growth Fund to the Emerging
Markets Fund in exchange for shares of equal value of corresponding
classes of the Emerging Markets Fund (the "Consolidation"). As a result
of the Consolidation, shareholders of the Pacific Growth Fund will
become shareholders of the Emerging Markets Fund.
This Proxy/Prospectus is the Pacific Growth Fund's proxy statement for
the Meeting and will be mailed to shareholders on or about March 1, 1999. It is
also a prospectus for shares of the Emerging Markets Fund. The Proxy/Prospectus
sets forth concisely the information that a Pacific Growth Fund shareholder
should know before voting and should be retained for future reference.
Additional information about the Consolidation is set forth in the
Statement of Additional Information dated February 26, 1999. The information
contained in the Emerging Markets Fund prospectuses for the corresponding share
classes, dated August 1, 1998, as supplemented, is incorporated by reference
into this Proxy/Prospectus. In addition, a copy of the Emerging Markets Fund
prospectus for the corresponding share class(es) 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 Emerging
Markets Fund is the same Annual Report and Semi-Annual Report that Pacific
Growth Fund shareholders have already received in connection with their
ownership of Pacific Growth Fund shares. Additional copies of each document are
available without charge by calling or writing the Company at the telephone
number or address stated above. Each of these documents also is available on the
website of the Securities and Exchange Commission (the "SEC") at www.sec.gov.
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.
1
<PAGE>
SHARES OF THE EMERGING MARKETS FUND 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 NATIONS FUNDS IS STEPHENS INC.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
I. SUMMARY
About the Proposed Consolidation................................. 4
A. Fees and Expenses......................................... 4
B. The Consolidation Agreement............................... 4
C. Purpose of the Consolidation.............................. 5
D. Overview of the Funds..................................... 5
E. Risk Factors.............................................. 6
F. Federal Income Tax Consequences........................... 7
G. Board Consideration....................................... 7
Voting Information............................................... 7
II. THE CONSOLIDATION
Description of the Consolidation Agreement....................... 7
Purpose of the Consolidation..................................... 8
Organization of the Company...................................... 8
Capitalization of Each Fund...................................... 9
Comparison of Investment Objectives and Policies................. 9
Comparison of Total Expense Ratios............................... 11
Investment Adviser and Other Service Providers................... 11
Sales Loads, Shareholder Transactions and Services............... 13
Federal Income Tax Consequences.................................. 13
Board Consideration.............................................. 14
Other Information................................................ 14
III. INFORMATION RELATING TO VOTING MATTERS
General Information.............................................. 14
Quorum........................................................... 17
Annual Meetings and Shareholder Meetings......................... 17
Shareholder Approval............................................. 17
Other Business................................................... 18
IV. OTHER INFORMATION
How to Obtain Additional Information About the Funds............. 18
Financial Statements............................................. 18
Management's Discussion of Fund Performance...................... 18
Shareholder Inquiries............................................ 18
APPENDICES
I. THE CONSOLIDATION AGREEMENT
II. EXPENSE SUMMARIES OF THE FUNDS
III. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
</TABLE>
3
<PAGE>
I. SUMMARY
The following is a summary of certain information relating to the
proposal to be considered at the Meeting. More complete information about the
proposal is contained throughout the Proxy/Prospectus.
ABOUT THE PROPOSED CONSOLIDATION
A. FEES AND EXPENSES.
The following table shows, as of December 31, 1998, (i) the current
annualized total operating expense ratio of each class of the Pacific Growth
Fund and Emerging Markets Fund before and after fee waivers and/or expense
reimbursements, and (ii) the PRO FORMA annualized total operating expense ratio
of the Emerging Markets Fund, before and after fee waivers and/or expense
reimbursements, based upon the fee arrangements that are expected to be in place
upon consummation of the Consolidation. The table shows that the PRO FORMA total
operating expense ratios for each class of the Emerging Markets Fund, taking
into account voluntary fee waivers and/or expense reimbursements, is the same of
that of corresponding class of shares of the Pacific Growth Fund, and is lower
than that of the corresponding class of shares of the Pacific Growth Fund before
fee waivers and/or expense reimbursements. For more detail concerning fund
expense ratios, see Appendix II.
TOTAL EXPENSE INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------- ---------------------------------- -------------------------------------------
PRO FORMA
PACIFIC GROWTH FUND/ TOTAL EMERGING MARKETS FUND/ TOTAL EMERGING MARKETS FUND/ TOTAL
SHARE CLASS OPERATING SHARE CLASS OPERATING CLASS POST-CONSOLIDATION OPERATING
EXPENSES EXPENSES EXPENSES
BEFORE/AFTER BEFORE/AFTER BEFORE/AFTER
WAIVERS WAIVERS WAIVERS
- ----------------------------------- ---------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
Pacific Growth Fund Emerging Markets Fund Emerging Markets Fund
Primary A Shares Primary A Shares Primary A Shares
3.11%/2.00% 2.79%/2.00% 2.46%/2.00%
Primary B Shares Primary B Shares Primary B Shares
3.71%/2.50% 3.39%/2.50% 3.06%/2.50%
Investor A Shares Investor A Shares Investor A Shares
3.36%/2.25% 3.04%/2.25% 2.71%/2.25%
Investor B Shares Investor B Shares Investor B Shares
4.11%/3.00% 3.79%/3.00% 3.46%/3.00%
Investor C Shares Investor C Shares Investor C Shares
4.11%/3.00% 3.79%/3.00% 3.46%/3.00%
- ----------------------------------- ---------------------------------- ----------------------------------
</TABLE>
B. THE CONSOLIDATION AGREEMENT.
At a meeting held on October 7, 1998, the Company's Board of Directors
approved the Consolidation Agreement. If approved by shareholders and all
conditions to the proposed consolidation have been satisfied, consummation of
the Consolidation will result in shareholders of the Pacific Growth Fund
becoming shareholders of a corresponding class of the Emerging Markets Fund. The
Consolidation Agreement provides for (i) the transfer of all of the assets and
liabilities of the Pacific Growth Fund to the Emerging Markets Fund in exchange
for shares of designated classes of the Emerging Markets Fund; and (ii) the
distribution of these Emerging Markets Fund shares to shareholders of the
Pacific Growth Fund in liquidation of the Pacific Growth Fund. Upon completion
of the Consolidation, each Pacific Growth Fund shareholder will hold shares of
the Emerging Markets Fund that are equal in value to the shares of the Pacific
Growth Fund held by the shareholder immediately before the Consolidation.
4
<PAGE>
Shareholders of the Pacific Growth Fund would receive shares of the same
class of the Emerging Markets Fund as they currently hold:
CONSOLIDATION MAP
-----------------
PACIFIC GROWTH FUND SHAREHOLDERS WOULD RECEIVE SHARES OF THE
OWNING SHARES OF THE FOLLOWING FOLLOWING CLASSES OF THE
CLASSES: EMERGING MARKETS FUND:
-------- ----------------------
Primary A shares Primary A shares
Primary B shares Primary B shares
Investor A shares Investor A shares
Investor B shares Investor B shares
Investor C shares Investor C shares
The Consolidation Agreement must be approved by a vote of a majority of
the shareholders of the Pacific Growth Fund. The Meeting of the Pacific Growth
Fund's shareholders to vote on the Consolidation Agreement and other matters is
scheduled for March 29, 1999. The Consolidation, if approved, is expected to
occur on or about March 30, 1999. For more information about the Consolidation
Agreement, see "The Consolidation--Description of the Consolidation Agreement."
C. PURPOSE OF THE CONSOLIDATION.
Because of market depreciation and redemption activity attributable to
the recent financial and market turmoil in Asia, the Pacific Growth Fund's
assets have declined to about $10.5 million as of February 15, 1999.
Accordingly, the Consolidation has been proposed in order to offer its
shareholders a more geographically diverse long-term international equity
investment than the Pacific Growth Fund's focused Pacific Rim exposure. The
proposed Consolidation would combine two Funds with generally similar investment
objectives into a single Fund. The total operating expense ratios for each class
and corresponding class of the Funds (after waivers and/or expense
reimbursements) are identical. Before waivers and/or expense reimbursements, the
total operating expense ratios for each class of the Emerging Markets Fund are
lower than that of the corresponding class of the Pacific Growth Fund. The
Consolidation is intended to benefit shareholders by: (i) improving efficiency
in the operation of the Funds, including potentially achieving economies of
scale and greater portfolio diversification; (ii) facilitating investment
management, administration and marketing of the combined Fund; and (iii)
eliminating duplicative shareholder costs and portfolio holdings. For more
information about the purpose of the Consolidation, see "The
Consolidation--Purpose of the Consolidation."
D. OVERVIEW OF THE FUNDS.
Set forth below is a brief comparison of certain key features of the
Funds.
Investment Objectives and Policies. The investment objective and policies of the
Pacific Growth Fund are generally similar to the investment objective and
policies of the Emerging Markets Fund. Each Fund seeks to provide investors with
long-term capital appreciation by investing primarily in equity securities of
foreign companies. However, while the Pacific Growth Fund primarily invests in
securities of companies located in the Pacific Basin and the Far East (excluding
Japan), the Emerging Markets Fund primarily invests in securities of companies
located in emerging market countries. Emerging market countries include those
located in the Pacific Basin and the Far East (excluding Japan), but also
include India and countries in Latin America, Eastern Europe and Africa. If the
Consolidation is approved, the Pacific Growth Fund expects to sell a substantial
portion of its portfolio securities prior to the closing of the Consolidation
(the "Closing"). The proceeds of such sales will be held in temporary
investments or reinvested in assets that qualify to be held by the Emerging
Markets Fund. For additional information about the similarities and differences
between the investment objectives and policies of the Funds, see "The
Consolidation--Comparison of Investment Objectives and Policies."
5
<PAGE>
Operating Expenses. Taking into account voluntary fee waivers and/or expense
reimbursements, total operating expense ratios of each class of shares of the
Emerging Markets Fund are expected to be identical to the total operating
expense ratios of the corresponding class of shares of the Pacific Growth Fund.
Before fee waivers and/or expense reimbursements, such expense ratios for the
classes of the Emerging Markets Fund are lower than those of the corresponding
classes of the Pacific Growth Fund. The current and PRO FORMA total operating
expense ratios for each Fund and class are shown on page 4. For more detailed
expense information, see "Appendix II."
Service Providers. The Funds have the same investment adviser, investment
sub-adviser, administrators, distributor, transfer agent and independent
auditors, as discussed under "The Consolidation--Investment Adviser and Other
Service Providers."
Purchase, Redemption and Other Procedures. The purchase, redemption, dividend,
exchange and other policies and procedures of the Funds are identical. PLEASE
NOTE THAT NO FRONT-END OR CONTINGENT DEFERRED SALES LOADS WILL BE IMPOSED ON ANY
SHAREHOLDER OF THE PACIFIC GROWTH FUND AS A RESULT OF THE EXCHANGE OF SHARES IN
THE CONSOLIDATION. For more information concerning these policies and
procedures, see "The Consolidation--Shareholder Transactions and Services."
E. RISK FACTORS.
Because of the similarities in investment objectives and policies of the
Funds, an investment in the Emerging Markets Fund will generally involve risks
that are similar to those of the Pacific Growth Fund. However, there is one
primary difference. The Pacific Growth Fund primarily concentrates its
investments in the Pacific Rim (in both emerging markets and developed
countries, other than Japan), while the Emerging Markets Fund primarily invests
in only emerging markets countries, including not only those located in the
Pacific Rim, but throughout the world. In general, while the Emerging Markets
Fund places greater emphasis on emerging markets countries than does the Pacific
Growth Fund, it invests its assets with greater geographical diversity.
There are also many similarities among the risks of an investment in
each Fund. For example, an investment by either Fund in common stocks and other
equity securities are subject to stock market risk. The value of the stocks that
a Fund holds, like the broader stock market, may decline over short or even
extended periods. Investors should also understand and consider carefully the
special risks involved in foreign investing. Such risks include, but are not
limited to: (1) restrictions on foreign investment and repatriation of capital;
(2) fluctuations in currency exchange rates, which can significantly affect a
Fund's share price; (3) costs of converting foreign currency into U.S. dollars
and U.S. dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in U.S. markets; (6) exposure to political and economic risks,
including the risk of nationalization, expropriation of assets and war; (7)
possible impositions of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. Both
Funds are subject to these risks.
Certain of the risks associated with investments by the Funds in
foreign securities are heightened with respect to investment in emerging markets
countries. Political and economic structures in many emerging market countries,
especially those in Eastern Europe, the Pacific Basin, and the Far East, 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 which are in
addition to the usual risks inherent in foreign investments. For example, some
emerging market countries may have fixed or managed currencies that are not
free-floating against the U.S. dollar. Further, certain currencies may not be
traded internationally and some countries with emerging securities markets have
sustained long periods of substantially high inflation or rapid fluctuation in
inflation rates which can have negative effects on a country's economy or
securities markets.
Additionally, while the Funds intend, under normal market conditions, to
invest in securities of issuers located at least three different countries, they
may from time to time invest all of their assets in securities of issuers
6
<PAGE>
located in one country. In such a case, events occurring in that country are
more likely to affect the Funds' investments.
F. FEDERAL INCOME TAX CONSEQUENCES.
SHAREHOLDERS OF THE PACIFIC GROWTH FUND WHOSE SHARES ARE HELD IN A
TAXABLE ACCOUNT WILL RECOGNIZE A TAXABLE GAIN OR LOSS FOR FEDERAL INCOME TAX
PURPOSES. For each such shareholder, this gain or loss will be measured by the
difference between the tax basis in the Pacific Growth Fund shares and their net
asset value at Closing. Shareholders who hold Pacific Growth Fund shares in a
tax-deferred retirement account will not recognize a taxable gain or loss as a
result of the Consolidation. For more information about the tax consequences of
the Consolidation, see "The Consolidation--Federal Income Tax Consequences."
G. BOARD CONSIDERATION.
In considering the Consolidation Agreement, the Board of Directors of
the Company, including the non-interested Directors, were advised by their legal
counsel as to their fiduciary duties under Maryland law and the Investment
Company Act of 1940, as amended (the "1940 Act"), and the required
determinations that the Board should make under the Act in connection with the
Consolidation. After considering the relevant factors, the Board of Directors of
the Company, including all of the non-interested Directors, found on behalf of
the Pacific Growth Fund that participation in the Consolidation, as contemplated
by the Consolidation Agreement, is in the best interests of the Pacific Growth
Fund and that the interests of the shareholders of the Pacific Growth Fund will
not be diluted as a result of the Consolidation. Similarly, the Board found on
behalf of the Emerging Markets Fund, that participation in the Consolidation, as
contemplated by the Consolidation Agreement, is in the best interests of the
Emerging Markets Fund and that the interests of the shareholders of the Emerging
Markets Fund will not be diluted as a result of the Consolidation. For more
information on the Board's considerations, see "The Consolidation--Board
Consideration."
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PACIFIC
GROWTH FUND SHAREHOLDERS VOTE FOR THE CONSOLIDATION AGREEMENT.
VOTING INFORMATION.
This Proxy/Prospectus is being furnished in connection with the
solicitation of proxies by the Company's Board of Directors. Only Pacific Growth
Fund shareholders of record at the close of business on February 5, 1999 will be
entitled to vote at the Meeting. Each whole or fractional share is entitled to a
whole or fractional vote. Shares represented by a properly executed proxy will
be voted in accordance with the instructions thereon or, if no specification is
made, the persons named as proxies will vote in favor of each proposal set forth
in the Notice of Meeting. Proxies may be revoked at any time before they are
exercised by attending the meeting and voting in person or by submitting to the
Company (i) a written notice of revocation or (ii) a subsequently executed
proxy. For additional information, including a description of the shareholder
votes required for approval of the proposal to be considered at the Meeting, see
"Information Relating to Voting Matters."
II. THE CONSOLIDATION
Important additional information about the Consolidation and the
Consolidation Agreement is set forth below. This description is qualified by
reference to the Appendices at the end of this document.
DESCRIPTION OF THE CONSOLIDATION AGREEMENT. The Consolidation Agreement
provides that at the Closing, the assets and liabilities of the Pacific Growth
Fund will be transferred to the Emerging Markets Fund in exchange for full and
fractional shares of designated classes of the Emerging Markets Fund. Primary A,
Primary B, Investor A, Investor B and Investor C shareholders of the Pacific
Growth Fund will receive shares of the same class of the Emerging Markets Fund.
7
<PAGE>
The shares issued by the Emerging Markets Fund in the Consolidation will
have an aggregate value equal to the aggregate value of the shares of the
Pacific Growth Fund that are outstanding immediately before the Closing.
Immediately after the transfer of its assets and liabilities in exchange
for Emerging Markets Fund shares, the Pacific Growth Fund will distribute the
shares of the Emerging Markets Fund received in the Consolidation to its
shareholders in liquidation of the Pacific Growth Fund and in exchange for the
outstanding shares of the Pacific Growth Fund. Each Pacific Growth Fund
shareholder at the Closing will receive shares of the same class of the Emerging
Markets Fund of equal value, and will also receive any unpaid dividends or
distributions that were declared before the Closing on Pacific Growth Fund
shares. The Emerging Markets Fund will establish an account for each former
shareholder of the Pacific Growth Fund reflecting the appropriate number of
Emerging Markets Fund shares distributed. These accounts will be identical in
all material respects to the accounts currently maintained by the Pacific Growth
Fund for each shareholder.
Upon completion of the Consolidation, all outstanding shares of the
Pacific Growth Fund will be canceled, and the Pacific Growth Fund will wind up
its affairs and be dissolved under Maryland law. Exchange or redemption requests
received thereafter will be deemed to be exchange or redemption requests for
shares of the Emerging Markets Fund distributed to the former shareholders of
the Pacific Growth Fund.
NationsBanc Advisors, Inc. ("NBAI") or its affiliates will bear all
customary expenses associated with the Consolidation, including the costs
associated with the Meeting and the Voting Materials.
PURPOSE OF THE CONSOLIDATION. As discussed above, because of market
depreciation and redemption activity attributable to the recent financial crises
in Asia, the Pacific Growth Fund's assets have declined to $10.5 million dollars
as of February 15, 1999. The Consolidation would offer shareholders a more
geographically diverse, long-term international equity investment than the
Pacific Growth Fund's focused Pacific Rim exposure. In this regard, the Emerging
Markets Fund does not intend to acquire all of the Pacific Growth Fund's
currently-held Asian-focused securities. Moreover, both Funds are currently of a
relatively small size with little or no expectation of a material addition of
assets in the near future. Management believes that the Consolidation would
strengthen the future viability of the Funds on a combined basis.
In addition, management believes the Consolidation will help the
combined Fund achieve economies of scale and eventually lower its transaction
costs and ongoing expenses. Before fee waivers and/or expense reimbursements,
the total operating expense ratios of the classes of the Emerging Markets Fund
are less than those of the corresponding classes of the Pacific Growth Fund. The
Consolidation should also help eliminate duplicative shareholder costs and
facilitate the administration and marketing of the combined Fund. Although some
of these benefits will accrue to the investment adviser, administrator and
distributor of the Fund, some may accrue to the benefit of shareholders. For
example, shareholders may benefit from lower operating expense ratios and
greater portfolio diversification.
ORGANIZATION OF THE COMPANY. The Company is registered as an open-end
management investment company under the 1940 Act and currently offers three
separate funds. The Company is one of several registered investment companies in
the Nations Funds Family, which collectively offer over sixty separate funds.
The Company is organized as a Maryland corporation and is subject to the
provisions of its Articles of Incorporation and By-Laws. Shares of the Funds
each have a par value of $.001 per share. Shares of the Funds are entitled to
one vote for each full share held and fractional votes for fractional shares
held, and will vote in the aggregate and not by class except as otherwise
required by law or when class voting is permitted by the Company's Board of
Directors. Shares of the Funds have no preemptive rights and have only such
conversion and exchange rights as the Company's Board of Directors may grant in
its discretion. When issued for payment as described in their respective
prospectuses, each Fund's shares are fully paid and non-assessable.
Each share of a class of a Fund represents an equal proportionate
interest in the Fund with other shares of the same class. Each share is entitled
to cash dividends and distributions earned on such shares as may be declared in
the discretion of the Board of Directors. Shares of each class bear a PRO RATA
portion of all operating expenses
8
<PAGE>
paid by the Fund, except that certain expenses relating to class-specific
services (such as distribution and shareholder servicing fees) may be allocated
to a particular class.
CAPITALIZATION OF EACH FUND. The following table shows the total net
assets, number of shares outstanding and net asset value per share of each Fund.
This information is generally referred to as the "capitalization" of each Fund.
The term "PRO FORMA capitalization" simply means the expected capitalization of
the Emerging Markets Fund after it has combined with the Pacific Growth Fund,
I.E., as if the Consolidation had already occurred.
The following table sets forth as of December 31, 1998 the
capitalization of each Fund and the PRO FORMA capitalization of the Emerging
Markets Fund adjusted to give effect to the Consolidation. The ongoing
investment performance and daily share purchase and redemption activity of each
Fund affects capitalization. Therefore, the capitalization of each Fund on the
Closing Date is likely to vary from the capitalization shown in the following
table.
<TABLE>
<CAPTION>
PRO FORMA CAPITALIZATION TABLE AS OF DECEMBER 31, 1998
- ---------------------------------- --------------------- ------------------ -------------------
SHARES NET ASSET VALUE
TOTAL NET ASSETS OUTSTANDING PER SHARE
- ---------------------------------- --------------------- ------------------ -------------------
<S> <C> <C> <C>
Pacific Growth Fund $9,754,999 1,605,791 $6.07
(Primary A Shares) (Primary A (Primary A Shares)
$11,248 Shares) $6.08
(Primary B Shares) 1,851 (Primary B Shares)
$696,794 (Primary B $6.06
(Investor A Shares) Shares) (Investor A
$919,023 115,060 Shares)
(Investor B Shares) (Investor A $6.02
$35,699 Shares) (Investor B
(Investor C Shares) 152,641 Shares)
(Investor B $6.00
Shares) (Investor C
5,949 Shares)
(Investor C
Shares)
- ---------------------------------- --------------------- ------------------ -------------------
Emerging Markets Fund $14,335,962 1,923,099 $7.45
(Primary A Shares) (Primary A (Primary A Shares)
$12,983 Shares) $7.41
(Primary B Shares) 1,751 (Primary B Shares)
$342,530 (Primary B $7.42
(Investor A Shares) Shares) (Investor A
$722,016 46,166 Shares)
(Investor B Shares) (Investor A $7.34
$90,133 Shares) (Investor B
(Investor C Shares) 98,395 Shares)
(Investor B $7.32
Shares) (Investor C
12,312 Shares)
(Investor C
Shares)
- ---------------------------------- --------------------- ------------------ -------------------
PRO FORMA Emerging Markets Fund $24,090,961 3,232,495 $7.45
(Primary A Shares) (Primary A (Primary A Shares)
$24,231 Shares) $7.41
(Primary B Shares) 3,269 (Primary B Shares)
$1,039,324 (Primary B $7.42
(Investor A Shares) Shares) (Investor A
$1,641,039 140,074 Shares)
(Investor B Shares) (Investor A $7.34
$125,832 Shares) (Investor B
(Investor C Shares) 223,602 Shares)
(Investor B $7.32
Shares) (Investor C
17,189 Shares)
(Investor C
Shares)
- ---------------------------------- --------------------- ------------------ -------------------
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES. The investment
objectives and policies of the Funds, except as described below, are generally
similar. The chart below highlights the investment objective of each Fund
9
<PAGE>
and some of each Fund's key investment policies. Additional information about
each Fund's investment objective and policies is contained in its prospectus and
statement of additional information.
The Pacific Growth Fund invests primarily in equity securities of
companies in the Pacific Rim and the Far East (excluding Japan). The Emerging
Markets Fund invests primarily in equity securities of companies located in
emerging markets countries, some of which may be in the Pacific Basin and the
Far East.
<TABLE>
<CAPTION>
- --------------- ----------------------------------------- ----------------------------------------
PACIFIC GROWTH FUND EMERGING MARKETS FUND
- --------------- ----------------------------------------- ----------------------------------------
<S> <C> <C>
Investment The Pacific Growth Fund seeks to The Emerging Markets Fund seeks to provide
Objective: provide investors with long-term investors with long-term growth by
capital growth by investing primarily investing primarily in equity securities
in equity securities of companies in of companies in emerging market countries.
the Pacific Basin and the Far East
(excluding Japan).
- --------------- ----------------------------------------- ----------------------------------------
Investment Under normal conditions, the Fund Under normal market conditions, the Fund
Policies: invests primarily in equity securities invests at least 65% of its total assets
of countries in the Pacific Basin and in equity securities of companies in
the Far East (except Japan). The emerging markets countries. The Fund
Pacific Basin and the Far East include considers countries with emerging markets
Australia, Hong Kong, India, Indonesia, to include the following: (i) countries
South Korea, Malaysia, New Zealand, with an emerging stock market as defined
Pakistan, China, the Philippines, by the International Finance Corporation;
Singapore, Sri Lanka, Taiwan, Thailand, (ii) countries with low- to middle-income
and other markets that may develop in economies according to the World Bank; and
the region. (iii) countries listed in World Bank
publications as developing. Emerging
Although the Fund may not invest in market countries include, but are not
securities issued by companies that limited to: Argentina, Brazil, Chile,
conduct their principal business in China, the Czech Republic, Columbia,
Japan, the Fund may invest in Ecuador, Greece, Hong Kong, Indonesia,
securities that are traded on the India, Malaysia, Mexico, the Philippines,
Japanese stock exchange. Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
The Fund is diversified and intends, The Fund is diversified and intends,
under normal circumstances to invest in under normal circumstances to invest
at least three different countries, in at least three different countries,
although it may invest all or a although it may invest all or a
significant portion of its assets in a significant portion of its assets in a
single country. single country.
The Fund focuses on equity securities The Fund focuses on equity securities
but also may invest in investment-grade but also may invest in
debt obligations. investment-grade debt obligations.
The Fund may invest in forward foreign The Fund may invest in forward foreign
exchange contracts. exchange contracts.
The Fund also may temporarily invest The Fund also may temporarily invest
all of its assets in U.S. financial all of its assets in U.S. financial
markets or in U.S. dollar-denominated markets or in U.S. dollar-denominated
instruments. instruments.
- --------------- ----------------------------------------- ----------------------------------------
</TABLE>
10
<PAGE>
COMPARISON OF TOTAL EXPENSE RATIOS. As with all mutual funds, each class
of the Funds incurs various costs and expenses in connection with its daily
activities. The total of these costs and expenses is the "total expense ratio"
and is expressed as a percentage of the average daily net assets of each class.
The following table shows, as of December 31, 1998, (i) the current
annualized total expense ratio of the Pacific Growth Fund and Emerging Markets
Fund before and after fee waivers and/or expense reimbursements and (ii) the PRO
FORMA annualized total expense ratio of the Emerging Markets Fund, before and
after fee waivers and/or expense reimbursements, based upon the fee arrangements
that will be in place upon consummation of the Consolidation. This table shows
that the Emerging Markets Fund's PRO FORMA expense ratios (after waivers and/or
expense reimbursements) are equal to those of the Pacific Growth Fund, and that,
the PRO FORMA expense ratios (before waivers and/or expense reimbursements), are
lower than those of the Pacific Growth Fund.
TOTAL EXPENSE INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------- -------------------------------------- ---------------------------------------
PRO FORMA
PACIFIC GROWTH FUND/ TOTAL EMERGING MARKETS FUND/ TOTAL EMERGING MARKETS FUND/ TOTAL
SHARE CLASS OPERATING SHARE CLASS OPERATING CLASS POST-CONSOLIDATION OPERATING
EXPENSES EXPENSES EXPENSES
BEFORE/AFTER BEFORE/AFTER BEFORE/AFTER
WAIVERS WAIVERS WAIVERS
- ----------------------------------- -------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Pacific Growth Fund Emerging Markets Fund Emerging Markets Fund
Primary A Shares Primary A Shares Primary A Shares
3.11%/2.00% 2.79%/2.00% 2.46%/2.00%
Primary B Shares Primary B Shares Primary B Shares
3.71%/2.50% 3.39%/2.50% 3.06%/2.50%
Investor A Shares Investor A Shares Investor A Shares
3.36%/2.25% 3.04%/2.25% 2.71%/2.25%
Investor B Shares Investor B Shares Investor B Shares
4.11%/3.00% 3.79%/3.00% 3.46%/3.00%
Investor C Shares Investor C Shares Investor C Shares
4.11%/3.00% 3.79%/3.00% 3.46%/3.00%
- ----------------------------------- ---------------------------------- ------------------------------------
</TABLE>
Due to a decline in assets in the Emerging Markets Fund and Pacific
Growth Fund, as of December 31, 1998, management has determined to limit the
total operating expense ratios of the Funds at 2.00% for the Primary A Shares;
2.50% for the Primary B Shares; 2.25% for the Investor A Shares; 3.00% for the
Investor B and Investor C Shares; respectively. These expense limitations are
reflected in the table above. THESE EXPENSE LIMITATIONS ARE VOLUNTARY AND MAY BE
CHANGED AT ANY TIME.
INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS. The Funds have the same
service providers. Upon completion of the Consolidation, these service providers
will continue to serve the Funds in the capacities indicated below.
11
<PAGE>
SERVICE PROVIDERS FOR THE FUNDS
-------------------------------
Investment Adviser NationsBanc Advisors,
Inc. ("NBAI")
Investment Sub-Adviser Gartmore Global Partners
("Gartmore")
Distributor Stephens Inc. ("Stephens)
Co-Administrator NBAI
Co-Administrator Stephens
Sub-Administrator The Bank of New York
Custodian The Bank of New York
SERVICE PROVIDERS FOR THE FUNDS
-------------------------------
Transfer Agent First Data Investor
Services Group, Inc.
Sub-Transfer Agent NationsBank, N.A. (for
Primary A and B shares only)
Independent Auditors PricewaterhouseCoopers LLP
Investment Advisory Services. NBAI is the investment adviser for each
Fund. Each Fund pays an advisory fee, computed daily and paid monthly, to NBAI
based on each Fund's average daily net assets. Currently, the maximum advisory
fee rate for the Pacific Growth Fund is 0.90%. The maximum advisory fee rate for
the Emerging Markets Fund is 1.10%. Gartmore is the investment sub-adviser for
each Fund. NBAI pays Gartmore sub-advisory fees, computed daily and paid
monthly, at the maximum annual rate of 0.70% of Pacific Growth Fund's average
daily net assets and 0.85% of Emerging Markets Fund's average daily net assets.
Gartmore is a joint venture structured as a Delaware general partnership between
NB Partner Corp., a wholly owned subsidiary of NationsBank, N.A. and Gartmore
U.S. Limited, an indirect wholly owned subsidiary of Gartmore Investment
Management plc ("Gartmore plc"). National Westminster Bank plc and affiliated
parties own 100% of the equity of Gartmore plc.
Distribution and Shareholder Servicing Arrangements. Shares of the Funds
are distributed by Stephens, a broker-dealer registered under the Securities
Exchange Act of 1934 (the "1934 Act"). Pursuant to the Funds' distribution plans
adopted pursuant to Rule 12b-1 under the Act by certain classes of the Funds,
each Fund may compensate or reimburse Stephens for any activities or expenses
primarily intended to result in the sale of such Fund's shares, including sales
related services provided by banks, broker/dealers or other financial
institutions ("Selling Agents") that have entered into a sales support agreement
with Stephens. Pursuant to the Funds' shareholder servicing plans adopted by
certain classes of the Funds, each Fund may compensate or reimburse
broker/dealers, banks and other financial institutions ("Servicing Agents")
which provide shareholder support services to their customers who own shares of
a Fund. The Company has adopted identical distribution and shareholder servicing
plans for the corresponding classes within both the Pacific Growth Fund and
Emerging Markets Fund as follows.
PRIMARY A SHARES. Primary A Shares of the Funds are not subject to any
distribution or shareholder servicing fees.
PRIMARY B SHARES. The Company has adopted a shareholder administration
plan whereby the Funds may compensate Servicing Agents which provide shareholder
support services to their customers who own Primary B Shares of the Funds.
Pursuant to this shareholder administration plan, the Funds may compensate
Servicing Agents up to 0.60%, on an annual basis, of the net asset value of the
shares held by the customers of such Servicing Agents.
12
<PAGE>
INVESTOR A SHARES. The Funds have adopted a shareholder servicing and
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to each
Fund's Investor A Shares. This shareholder servicing and distribution plan
provides that each Fund may pay Stephens, selling agents that have entered into
a sales support agreement with Stephens, or servicing agents that have entered
into a Shareholder Servicing Agreement with the Funds, up to 0.25% (on an
annualized basis) of the average daily net asset value of the Investor A Shares
of the Funds.
INVESTOR B SHARES AND INVESTOR C SHARES. The Funds have adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Investor B Shares and Investor C Shares of the Funds. Pursuant to these
distribution plans, each Fund may pay Stephens for expenses incurred in
connection with the marketing or distribution of the Fund's shares, including
sales related services provided by selling agents that have entered into a sales
support agreement with Stephens. Payments under these distribution plans will be
calculated daily and paid monthly and may not exceed 0.75% on an annualized
basis of the average daily net asset value of the Investor B Shares and Investor
C Shares of each Fund. The Funds have also adopted shareholder servicing plans
with respect to the Investor B Shares and Investor C Shares of the Funds.
Pursuant to these shareholder servicing plans, each Fund may compensate or
reimburse servicing agents that provide shareholder support services to their
customers who own shares of a Fund. Payments under these shareholder servicing
plans will be calculated daily and paid monthly and may not exceed 0.25% (on an
annual basis) of the average daily net assets of the Investor B Shares and
Investor C Shares of each Fund.
SALES LOADS, SHAREHOLDER TRANSACTIONS AND SERVICES. Primary A Shares and
Primary B Shares of the Funds are offered at net asset value without a front-end
sales load or contingent deferred sales charge. Investor A Shares of the Funds
are offered with a maximum sales load of 5.75% as a percentage of the offering
price. Certain Investor A Shares that are purchased at net asset value are
subject to a maximum deferred sales charge of 1.00% of the lower of the original
purchase price or redemption proceeds. 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 1.00% redemption fee if the Investor A Shares are held
less than 18 months. Investor B Shares of the Funds are subject to a maximum
deferred sales charge of 5.00% of the lower of the original purchase price or
redemption proceeds. Effective January 19, 1999, Investor C Shares of the Funds
are subject to a maximum deferred sales charge of 1.00% of the lower of the
original purchase price or redemption proceeds.
The respective purchase, redemption, exchange, dividend and other
policies and procedures of the classes of Funds are identical.
FEDERAL INCOME TAX CONSEQUENCES. The Applicants intend that the
Consolidation will not qualify as a "reorganization," within the meaning of
Section 368(a) of the Code, and that the Pacific Growth Fund and the Emerging
Markets Fund will each not be a "party to a reorganization," within the meaning
of Section 368(b) of the Code.
Accordingly, the Consolidation of the Pacific Growth Fund into the
Emerging Markets Fund is expected to be a taxable event to the Pacific Growth
Fund and its shareholders with the exception of shareholders who hold shares in
a non-taxable account. Effectively, for federal income tax purposes, the
Consolidation will resemble the transaction where a shareholder in the Pacific
Growth Fund sold his or her shares and purchased new shares in the Emerging
Markets Fund.
In anticipation of the Consolidation, the Pacific Growth Fund expects to
sell a substantial portion of its portfolio securities prior to the Closing. The
proceeds of such sales will be held in temporary investments or reinvested in
assets that qualify to be held by the Emerging Markets Fund. The need for the
Pacific Growth Fund to dispose of assets prior to the Closing may result in its
selling of portfolio securities at a disadvantageous time and could result in
Pacific Growth Fund realizing losses that would not otherwise have been
realized. The gain from such dispositions, if any, will be distributed to the
Pacific Growth Fund's shareholders, and will be taxable to shareholders whose
shares are held in taxable accounts. In addition, shareholders of the Pacific
Growth Fund whose shares are held in taxable (I.E., non-retirement) accounts
will generally recognize a gain or loss, for federal income tax purposes, on the
difference between the fair market value of the Emerging Markets Fund shares
received in the Consolidation and their federal income tax basis in their shares
of the Pacific Growth Fund at Closing. Assuming no
13
<PAGE>
changes in the market value of the Pacific Growth Fund's portfolio securities,
in the absence of the Consolidation, a shareholder would, over time, recognize
tax consequences. The federal income tax basis in shares of the Emerging Markets
Fund received in the exchange by all Pacific Growth Fund shareholders will be
the fair market value of those shares immediately preceding the Closing and the
holding period for such shares will begin the day following the Closing.
Consummation of the Consolidation is subject to the condition that the Company
receive an opinion from Morrison & Foerster LLP confirming the foregoing federal
income tax consequences.
The Company has not sought a tax ruling from the Internal Revenue
Service ("IRS"). The opinion of counsel is not binding on the IRS and does not
preclude the IRS from adopting a contrary position. Shareholders may wish to
consult their own tax advisors concerning the potential tax consequences to
them, including state and local income tax consequences.
In addition, it is possible that the Malaysian Ministry of Finance will
treat the Consolidation as a repatriation of the Pacific Growth Fund's Malaysian
securities, which would result in a repatriation levy payable by the fund
amounting to less than 1% of its aggregate net assets.
BOARD CONSIDERATION. The Company's Board of Directors unanimously voted
to approve the Consolidation Agreement at a meeting held on October 7, 1998. In
reviewing the proposed Consolidation, the Board considered the potential impact
of the Consolidation on each Fund's shareholders, including, the taxable nature
of the Consolidation. In particular, the Board considered the fact that, in
light of the net asset value performance of the Pacific Growth Fund, most
shareholders have a basis in their shares that equals or exceeds the current
value of their shares (and therefore that they would realize, if anything, a
loss rather than a gain upon disposition of those shares). The Board of
Directors (with the advice and assistance of independent counsel) also reviewed,
among other things: (1) the future viability of the Pacific Growth Fund; (2) the
expected cost-savings for the shareholders of the Pacific Growth Fund, as a
result of the Consolidation; (3) the investment objective, policies and
limitations of the Emerging Markets Fund, their compatibility with those of the
Pacific Growth Fund and the relative performance of the Pacific Growth and
Emerging Markets Funds; (4) the terms and conditions of the Consolidation,
including those provisions that were intended to avoid dilution of the interests
of the Pacific Growth Fund's shareholders; (5) the anticipated tax consequences
of the Consolidation for the Pacific Growth Fund and its shareholders; and (6)
the investment advisory and other fees paid by the Emerging Markets Fund, and
the historical and projected expense ratios of the Emerging Markets Fund as
compared with those of the Pacific Growth Fund. The Board considered
corresponding factors on behalf of the Emerging Markets Fund. Based upon its
evaluation of these factors, and in light of their fiduciary duties under
federal and state law, the Company's Board of Directors, including all of the
non-interested members of the Board, has determined that the proposed
Consolidation is in the best interests of the shareholders of each Fund and that
the interests of the shareholders of the respective Funds will not be diluted as
a result of the Consolidation.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE CONSOLIDATION AGREEMENT.
OTHER INFORMATION. The Consolidation may be abandoned at any time before
the Closing upon the mutual consent of both Funds. At any time before or (to the
extent permitted by law) after approval of the agreement by the shareholders of
the Pacific Growth Fund (i) the parties may, by written agreement authorized by
the Company's Board of Directors and with or without the approval of their
shareholders, amend any of the provisions of the Consolidation Agreement and
(ii) either party may waive any default by the other party or the failure to
satisfy any of the conditions to its obligations (the waiver to be in writing
and authorized by the Company's Board of Directors with or without the approval
of such party's shareholders).
III. INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. The Proxy/Prospectus is being furnished in
connection with the solicitation of proxies for the Meeting by the Company's
Board of Directors. It is expected that the solicitation of proxies will be
primarily by mail. Officers and agents of the Company also may solicit proxies
by telephone, telegraph or personal interview. Any third party retained to
assist in the solicitation will be paid by NBAI or its affiliates. Any
shareholder giving a proxy may revoke it at any time before it is exercised (i)
by submitting to the Company a
14
<PAGE>
written notice of revocation, (ii) by submitting to the Company a subsequently
executed proxy or by attending the Meeting and voting in person.
Only shareholders of record at the close of business on February 5,
1999, will be entitled to vote at the Meeting. On that date, the following
number of Pacific Growth Fund shares were outstanding and entitled to be voted.
PACIFIC GROWTH FUND SHARES ENTITLED TO BE VOTED
------------------- ---------------------------
Primary A shares 1,551,054.46
Primary B shares 0.99
Investor A shares 104,266.88
Investor B shares 148,355.56
Investor C shares 3,045.17
Each whole and fractional share 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.
Significant Shareholders. As of February 5, 1999, the officers and
Directors show of the Company as a group owned less than 1% of any of the Funds.
The tables below show the name, address and share ownership of each person known
to the Company to have beneficial or record ownership with respect to 5% or more
of a class of a Fund as of February 5, 1999.
<TABLE>
<CAPTION>
CLASS; AMOUNT PERCENTAGE
NAME AND OF SHARES PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS OWNED; OF CLASS OF FUND POST-CLOSING
- ---- ------- TYPE OF -------- ------- ------------
OWNERSHIP
---------
<S> <C> <C> <C> <C> <C>
Pacific Growth NationsBank of Texas Primary A; 99.74% 85.63% 46.18%
Fund Attn: Tony Farrer 1,547,031.21;
1401 Elm Street record
11th Floor
Dallas, TX 75202
Stephens Inc. Primary B; 100% 0% 0%
Attn: Cindy Cole 0.99; record
111 Center Street
Little Rock, AR
72201
Ron Underwood & Investor A; 12..90% 0.74% 0.40%
David Brown TTEES 13,455.212;
Dallas Heart Group record
401k Plan
11520 N. Central
Expwy #105
Dallas, TX 75243
Walter J. Nott Investor A; 9.64% 0.56% 0.30%
8320 Fulham Ct 10,052.63;
Richmond, VA 23227 record and
beneficial
Helen Goh & Investor A; 5.61% 0.33% 0.18%
Jeffrey M. Kadet 5,898.58;
JTWROS record and
Himonya Garden #9 beneficial
4-14-18 Himonya
Meguro-Ku Tokyo 152
JAPAN
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CLASS; AMOUNT PERCENTAGE
NAME AND OF SHARES PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS OWNED; OF CLASS OF FUND POST-CLOSING
- ---- ------- TYPE OF -------- ------- ------------
OWNERSHIP
---------
<S> <C> <C> <C> <C> <C>
NFSC FEBO Investor B; 5.06% 0.42% 0.22%
# W41-672424 7,499.31;
Trust-Ronald E. record
Mulhollan TTEE
Liberto Employee
Profit Sharing
U/A 10/1/84
621 S. Flores
San Antonio, TX
78204
Stephens Inc. for Investor C; 28.35% 0.05% 0.02%
the exclusive benefit 863.40;
of our customers record
111 Center Street
Little Rock, AR
72201
NFSC FEBO # Investor C; 17.26% 0.03% 0.02%
W14-800589 525.49;
NFSC/FMTC IRA record
F80 Jean M. De Ru
2664 Sharondale Drive
Atlanta, GA 30305
William D. Ratliff Investor C; 17.19% 0.03% 0.02%
III 523.37;
201 Main Street, record and
Suite 2200 beneficial
Ft. Worth, TX 76102
Eric Neil Leiberman Investor C; 9.49% 0.02% 0.01%
and 289.02;
Lauren Beth record
Lieberman JTTEN
6202 Avalon Drive
Bethesda, MD 20816
Paul Messina & Investor C; 7.78% 0.01% 0.01%
Megan 236.96;
Bladen-Blinkoff record
JTWROS
5626 St. Moritz
Bellaire, TX 74401
BNY Cust. FBO Investor C; 6.40% 0.01% 0.01%
Paula H. McSwain 194.84;
SAR/SEP IRA record
11702 Sunnyside Drive
Baytown, TX 77520
BNY Cust. IRA FBO Investor C; 5.48% 0.01% 0.01%
Jennifer R. Newman 166.84; record
377 West Wind Drive
Lilburn, GA 30247
Emerging Markets NationsBank of Texas Primary A; 99.70% 92.25% 54.10%
Fund N.A. 1,812,423.73;
Attn: Tony Farrer record
1401 Elm Street
11th Floor
Dallas, TX
75202-2911
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CLASS; AMOUNT PERCENTAGE
NAME AND OF SHARES PERCENTAGE PERCENTAGE OF FUND
FUND ADDRESS OWNED; OF CLASS OF FUND POST-CLOSING
- ---- ------- TYPE OF -------- ------- ------------
OWNERSHIP
---------
<S> <C> <C> <C> <C> <C>
Stephens Inc. Primary B; 100.00% 0% 0%
Attn: Cindy Cole 0.99; record
111 Center Street
Little Rock, AR
72201
Roberta Kadlec Investor A; 6.21% 0.14% 0.08%
380 Rector Place, 2,813.46;
Apt. 4H record and
New York, NY 10280 beneficial
BNY cust. IRA Investor A; 6.18% 0.14% 0.08%
Rollover FBO 2,803.44;
Steven W. Duff record
1965 Broadway,
Apt. 16B
New York, NY 10023
NFSC FEBO #W60-636843 Investor B; 5.94% 0.28% 0.16%
Marlene 5,515.150;
Manuel Morton record
Ida Morton JWR
4241 Rotherham Ct.
Palm Harbor, FL
34685
Hi-Tech Investor C; 79.76% 0.36% 0.21%
Communications Inc. 7,236.72;
401(K) Plan record
P. O. Box 1569
League City, TX
77574-1569
Stephens Inc. for Investor C; 9.68% 0.04% 0.03%
the exclusive 866.37; record
benefit of our
customers
111 Center Street
Little Rock, AR
72201
NFSC FEBO #W17-648345 Investor C; 6.71% 0.03% 0.02%
NFSC/FMTC IRA 600.74; record
FBO Carroll L.
Terrell
6502 Woodrow Terr.
Richmond, VA 23228
</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.
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 Consolidation Agreement are not received, 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).
17
<PAGE>
A quorum is constituted with respect to the Pacific Growth Fund by the
presence in person or by proxy of the holders of more than 50% of the
outstanding shares of the Pacific Growth 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 Consolidation
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 way as abstentions.
ANNUAL MEETINGS AND SHAREHOLDER MEETINGS. The Company does not presently
intend 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 Fund have the right to call a meeting of shareholders.
SHAREHOLDER APPROVAL. The Consolidation Agreement is being submitted for
approval at the Meeting by the Pacific Growth Fund's shareholders pursuant to
the Company's Articles of Incorporation and By-Laws, and was unanimously
approved by the Company's Board of Directors. The Consolidation Agreement must
be approved by a majority of the Pacific Growth Fund's shares voted at the
meeting.
With respect to the approval of the Consolidation Agreement, the term
"majority of the outstanding shares" of the Pacific Growth Fund means more than
50% of the shares of the Pacific Growth Fund voted at the Meeting. A vote of the
shareholders of the Emerging Markets Fund is not being solicited, since their
approval or consent is not necessary for the Reorganization.
OTHER BUSINESS. The Company's Board of Directors knows of no other
business to be brought before the Meeting. However, if any other matters 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.
IV. OTHER INFORMATION
HOW TO OBTAIN ADDITIONAL INFORMATION ABOUT THE FUNDS. Additional
information about each Fund is included in its most recent prospectus and
statement of additional information. You may obtain a prospectus or statement of
additional information without charge by calling 1-800-321-7854 or by writing
the Company at Nations Fund Portfolios, Inc., c/o Stephens Inc., NationsBank,
One Bank of America Plaza, 33rd Floor, Charlotte, North Carolina 28255.
This Proxy/Prospectus is accompanied by a current prospectus for the
Emerging Markets Fund.
Reports and other information filed by the Company can be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. 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.
The information contained in each Fund's prospectus is incorporated by
reference into this Proxy/Prospectus.
FINANCIAL STATEMENTS. The unaudited financial statements and financial
highlights for the Funds for the six-month period ended September 30, 1998, and
the audited financial statements, financial highlights and the independent
accountants report thereon for the fiscal year ended March 31, 1998, are
incorporated by reference into the Statement of Additional Information related
to this Proxy/Prospectus. The Financial Highlights included therein are
incorporated by reference into this Proxy/Prospectus.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. A discussion by management
of the Funds' performance for their most recent fiscal years can be found at
Appendix III.
SHAREHOLDER INQUIRIES. For additional information call 1-800-652-5096
or write to Nations Fund Portfolios, Inc. at the address 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 BY
TELEFACSIMILE (FRONT AND BACK) AT (704) 388-2641 OR IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
19
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APPENDIX I
AGREEMENT AND PLAN OF
CONSOLIDATION
FOR
NATIONS PACIFIC GROWTH FUND
AND
NATIONS EMERGING MARKETS FUND
OF NATIONS FUND PORTFOLIOS, INC.
February 26, 1999
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This AGREEMENT AND PLAN OF CONSOLIDATION (the "Agreement") is made as of
this 26th day of February, 1999 by Nations Fund Portfolios, Inc. ("Nations
Portfolios"), a Maryland corporation, for itself and on behalf of Nations
Pacific Growth Fund (the "Pacific Growth Fund"), and Nations Emerging Markets
Fund (the "Emerging Markets Fund").
WHEREAS, Nations Portfolios is an open-end management investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that the Fund Assets and Liabilities (as
defined below) of the Pacific Growth Fund be conveyed to and be acquired and
assumed by the Emerging Markets Fund, in exchange for shares of equal U.S.
dollar value of the Emerging Markets Fund which shall thereafter promptly be
distributed to the shareholders of the Pacific Growth Fund in connection with
its liquidation as described in this Agreement (the "Consolidation"); and
WHEREAS, the parties intend that the Consolidation does not qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that the Pacific Growth Fund and the
Emerging Markets Fund will each not be a "party to a reorganization," within the
meaning of Section 368(b) of the Code, with respect to the Consolidation.
NOW, THEREFORE, in accordance with the terms and conditions described
herein, the Pacific Growth Fund and the Emerging Markets Fund shall be
consolidated as follows:
1. Conveyance of Fund Assets and Liabilities of the Pacific Growth Fund.
(a) Except as provided below, at the Effective Time of the
Consolidation (as defined in Section 8) all assets of every kind, and all
interests, rights, privileges and powers of the Pacific Growth Fund (the "Fund
Assets"), subject to all liabilities of the Pacific Growth Fund existing as of
the Effective Time of the Consolidation (the "Liabilities"), shall be
transferred by the Pacific Growth Fund to the Emerging Markets Fund and shall be
accepted and assumed by the Emerging Markets Fund, as more particularly set
forth in this Agreement, such that at and after the Effective Time of the
Consolidation: (i) all Fund Assets of the Pacific Growth Fund shall become the
assets of the Emerging Markets Fund; and (ii) all Liabilities of the Pacific
Growth Fund shall attach to the Emerging Markets Fund, enforceable against the
Emerging Markets Fund to the same extent as if originally incurred by it.
Notwithstanding the foregoing, the Pacific Growth Fund and the Emerging Markets
Fund shall mutually agree upon liabilities (the "Retained Liabilities") as shall
be retained by the Pacific Growth Fund and not transferred, accepted or assumed
by the Emerging Markets Fund pursuant to this Subsection 1(a).
(b) It is understood and agreed that the Fund Assets shall include
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 or exercisable by the Pacific Growth Fund, and any
deferred or prepaid expenses shown as an asset on the Pacific Growth Fund's
books, that the Liabilities of the Pacific Growth Fund shall include all
liabilities, whether known or unknown, accrued or unaccrued, absolute or
contingent, in all cases, existing at the Effective Time of the Consolidation.
(c) At least fifteen (15) business days prior to the Closing Date
(as defined in Section 8), the Pacific Growth Fund will provide to, or cause to
be provided to, the Emerging Markets Fund, a schedule of its securities, other
assets and its known liabilities. It is understood and agreed that the Pacific
Growth Fund may sell any of the securities or other assets shown on such
schedule prior to the Effective Time of the Consolidation but will not, without
the prior approval of the Emerging Markets Fund, acquire any additional
securities other than securities that the Emerging Markets Fund is not permitted
to purchase in accordance with its stated investment objective and policies. At
least ten (10) business days prior to the Closing Date, the Emerging Markets
Fund will advise the Pacific Growth Fund of any investments of the Pacific
Growth Fund shown on such schedule that the Emerging Markets Fund would not be
permitted to hold, pursuant to its stated investment objective and policies or
otherwise. The Pacific Growth Fund, if
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requested by the Emerging Markets Fund, will dispose of any such securities
prior to the Closing Date to the extent practicable and consistent with
applicable legal requirements. In addition, if it is determined that the
investment portfolios of the Pacific Growth Fund and Emerging Markets Fund, when
aggregated, would contain investments exceeding certain percentage limitations
applicable to the Emerging Markets Fund, the Pacific Growth Fund, if requested
by the Emerging Markets Fund, will dispose of a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Effective Time of the Consolidation.
(d) The Fund Assets shall be transferred and conveyed to the
Emerging Markets Fund on the following basis:
(1) In exchange for the transfer of the Fund Assets, the
Emerging Markets Fund shall simultaneously issue to the Pacific Growth
Fund at the Effective Time of the Consolidation full and fractional
Primary A Shares, Primary B Shares, Investor A Shares, Investor B Shares
and Investor C Shares of the Emerging Markets Fund having an aggregate
net asset value equal to the net value of the Fund Assets minus
Liabilities so conveyed and assumed, all determined in accordance with
this Agreement. In this regard, the number of full and fractional shares
of the Emerging Markets Fund delivered to the Pacific Growth Fund shall
be determined by dividing the value of the Fund Assets minus
Liabilities, computed in the manner and as of the time and date set
forth in this Agreement, by the net asset value of one Emerging Markets
Fund Primary A, Primary B, Investor A, Investor B or Investor C Share,
computed in the manner and as of the time and date set forth in this
Agreement.
(2) The net asset value of shares to be delivered by the
Emerging Markets Fund, and the net value of the Fund Assets minus
Liabilities to be conveyed by the Pacific Growth Fund and assumed by the
Emerging Markets Fund, shall, in each case, be determined as of the
Valuation Time as defined in Section 3. The net asset value of Primary A
Shares, Primary B Shares, Investor A Shares, Investor B Shares and
Investor C Shares of the Emerging Markets Fund shall be computed in
accordance with its then current valuation procedures. In determining
the value of the Fund Assets, each security to be included in the Fund
Assets shall be priced in accordance with the Emerging Markets Fund's
then current valuation procedures.
2. Liquidation of the Pacific Growth Fund. At the Effective Time of the
Consolidation, the Pacific Growth Fund shall make a liquidating distribution to
its shareholders as follows: Shareholders of record of the Pacific Growth Fund
shall be credited with full and fractional shares of the respective Primary A
Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C
Shares that are issued by the Emerging Markets Fund in connection with the
Consolidation corresponding to the Pacific Growth Fund shares that are held of
record by the shareholder at the Effective Time of the Consolidation. Each such
shareholder also shall have the right to receive any unpaid dividends or other
distributions which were declared before the Effective Time of the Consolidation
with respect to the Pacific Growth Fund shares that are held of record by the
shareholder at the Effective Time of the Consolidation, and Nations Portfolios
shall record on its books the ownership of the respective Emerging Markets Fund
shares by such shareholders (the "Transferor Record Holders"). All of the issued
and outstanding shares of the Pacific Growth Fund at the Effective Time of the
Consolidation shall be redeemed and canceled on the books of Nations Portfolios
at such time. As soon as reasonably possible after the Effective Time of the
Consolidation, Nations Portfolios shall wind up the affairs of the Pacific
Growth Fund and shall file any final regulatory reports, including but not
limited to any Form N-SAR and Rule 24f-2 filings, with respect to the Pacific
Growth Fund, and also shall take all other steps as are necessary and proper to
effect the termination or declassification of the Pacific Growth Fund in
accordance with all applicable laws. In conjunction with the foregoing, the
Pacific Growth Fund, prior to the winding up of its affairs, shall utilize any
Cash Transfer made pursuant to Subsection 1(d)(1) to repay any and all Retained
Liabilities.
3. Valuation Time. The "Valuation Time" shall be the time as of which
the net asset value of each class of shares of each of the Pacific Growth Fund
and the Emerging Markets Fund is determined
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pursuant to their respective valuation procedures on the Closing Date or such
earlier or later time as may be mutually agreed to in writing by the parties
hereto.
4. Certain Representations, Warranties and Agreements of Nations
Portfolios on behalf of the Pacific Growth Fund. Nations Portfolios, on behalf
of itself and, where appropriate, the Pacific Growth Fund, represents and
warrants to, and agrees with, Nations Portfolios on behalf of the Emerging
Markets Fund as follows, with such representations, warranties and agreements
made on behalf of the Pacific Growth Fund on a several (and not joint, or joint
and several) basis:
(a) Nations Portfolios is a corporation, duly created, validly
existing and in good standing under the laws of the State of Maryland. Nations
Portfolios is registered with the SEC as an open-end management investment
company under the 1940 Act, and such registration is in full force and effect.
(b) Nations Portfolios has the power to own all of its properties
and assets and to consummate the transactions contemplated herein, and has all
necessary federal, state and local authorizations to carry on its business as
now being conducted and to consummate the transactions contemplated by this
Agreement.
(c) This Agreement has been duly authorized by the Board of
Directors of Nations Portfolios on behalf of the Pacific Growth Fund, and
executed and delivered by duly authorized officers of Nations Portfolios, and
represents a valid and binding contract, 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. The
execution and delivery of this Agreement does not, and, subject to the approval
of shareholders referred to in Section 6, the consummation of the transactions
contemplated by this Agreement will not, violate the Articles of Incorporation
or By-Laws of Nations Portfolios or any material agreement or arrangement to
which it is a party or by which it is bound.
(d) The Pacific Growth Fund has elected to qualify and has
qualified as a regulated investment company under Part I of Subchapter M of
Subtitle A, Chapter 1, of the Code, as of and since its first taxable year; has
been a regulated investment company under such Part of 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 for its taxable year
ending upon its liquidation.
(e) Nations Portfolios has valued, and will continue to value, the
portfolio securities and other assets of the Pacific Growth Fund in accordance
with applicable legal requirements.
(f) The proxy materials included within the Registration Statement
on Form N-14 (the "N-14 Registration Statement") from its effective date with
the SEC, through the time of the shareholders meeting referred to in Section 6
and the Effective Time of the Consolidation, insofar as they relate to Nations
Portfolios, (i) shall comply in all material respects with the provisions of the
Securities Exchange Act of 1934 as amended (the "1934 Act") and the 1940 Act,
the rules and regulations thereunder, and state securities laws, and (ii) shall
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 made
therein not misleading.
(g) All of the issued and outstanding shares of the Pacific Growth
Fund have been validly issued and are fully paid and non-assessable, and were
offered for sale and sold in conformity with the registration requirements of
all applicable federal and state securities laws.
(h) Nations Portfolios shall operate the business of the Pacific
Growth Fund in the ordinary course between the date hereof and the Effective
Time of the Consolidation, it being agreed that such ordinary course of business
will include the declaration and payment of customary dividends and
distributions and any other dividends and distributions deemed advisable in
anticipation of the Consolidation. Notwithstanding anything herein to the
contrary, Nations Portfolios may take all appropriate action necessary in order
for Nations Portfolios to receive the opinion provided for in Sections 9(e) and
10(g).
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<PAGE>
(i) At the Effective Time of the Consolidation, the Pacific Growth
Fund will have good and marketable title to the Fund Assets and full right,
power and authority to assign, deliver and otherwise transfer such assets.
(j) At the Effective Time of the Consolidation, all federal and
other tax returns and reports of the Pacific Growth Fund required by law to have
been filed by such time shall have been filed, and all federal and other taxes
shall have been paid so far as due, or provision shall have been made for the
payment thereof and, to the best knowledge of management of Nations Portfolios,
no such return or report shall be currently under audit and no assessment shall
have been asserted with respect to such returns or reports.
5. Certain Representations, Warranties and Agreements of Nations
Portfolios on behalf of the Emerging Markets Fund. Nations Portfolios, on behalf
of itself and where appropriate, the Emerging Markets Fund, represents and
warrants to, and agrees with Nations Portfolios on behalf of the Pacific Growth
Fund as follows, with such representations, warranties and agreements made on
behalf of the Emerging Markets Fund on a several (and not joint, or joint and
several) basis:
(a) Nations Portfolios is a corporation duly created, validly
existing and in good standing under the laws of the State of Maryland. Nations
Portfolios is registered with the SEC as an open-end management investment
company under the 1940 Act and such registration is in full force and effect.
(b) Nations Portfolios has the power to own all of its properties
and assets and to consummate the transactions contemplated herein, and has all
necessary federal, state and local authorizations to carry on its business as
now being conducted and to consummate the transactions contemplated by this
Agreement.
(c) This Agreement has been duly authorized by the Board of
Directors of Nations Portfolios on behalf of the Emerging Markets Fund, and
executed and delivered by duly authorized officers of Nations Portfolios, and
represents a valid and binding contract, 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. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement will not, violate the Articles of
Incorporation or By-Laws of Nations Portfolios or any material agreement or
arrangement to which it is a party or by which it is bound.
(d) The Emerging Markets Fund has elected to qualify and has
qualified as a regulated investment company under Part I of Subchapter M of
Subtitle A, Chapter 1, of the Code, as of and since its first taxable year; has
been a regulated investment company under such Part of 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 for its current
taxable year.
(e) Nations Portfolios has valued, and will continue to value, the
portfolio securities and other assets of the Emerging Markets Fund in accordance
with applicable legal requirements.
(f) The N-14 Registration Statement, including the proxy materials
contained therein, from its effective date with the SEC through the time of the
shareholders meeting referred to in Section 6 and at the Effective Time of the
Consolidation, insofar as it relates to Nations Portfolios, or the Emerging
Markets Fund, or the Primary A Shares, Primary B Shares, Investor A Shares,
Investor B Shares or Investor C Shares of the Emerging Markets Fund to be issued
pursuant thereto (i) shall comply in all material respects with the provisions
of the Securities Act of 1933, as amended, (the "1933 Act"), the 1934 Act and
the 1940 Act, the rules and regulations thereunder, and state securities laws,
and (ii) shall 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 made therein not misleading.
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(g) The shares of the Emerging Markets Fund to be issued and
delivered to the Pacific Growth Fund for the account of the shareholders of the
Pacific Growth Fund, pursuant to the terms hereof, shall have been duly
authorized as of the Effective Time of the Consolidation and, when so issued and
delivered, shall be duly and validly issued, fully paid and non-assessable, and
no shareholder of the Emerging Markets Fund shall have any preemptive right of
subscription or purchase in respect thereto.
(h) All of the issued and outstanding shares of the Emerging
Markets Fund have been validly issued and are fully paid and non-assessable, and
were offered for sale and sold in conformity with the registration requirements
of all applicable federal and state securities laws.
(i) Nations Portfolios shall operate the business of the Emerging
Markets Fund in the ordinary course between the date hereof and the Effective
Time of the Consolidation, except that Nations Portfolios shall complete all
measures in respect of the Emerging Markets Fund prior to the Effective Time of
the Consolidation to ensure that the Consolidation does not qualify as a
"reorganization" within the meaning of Section 368 of the Code, regardless of
whether such measures are in the ordinary course. It is understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and distributions
deemed advisable in anticipation of the Consolidation.
(j) At the Effective Time of the Consolidation, all federal and
other tax returns and reports of the Emerging Markets Fund required by law to
have been filed by such time shall have been filed, and all federal and other
taxes shall have been paid so far as due, or provision shall have been made for
the payment thereof and, to the best knowledge of management of Nations
Portfolios, no such return or report shall be currently under audit and no
assessment shall have been asserted with respect to such returns or reports.
6. Shareholder Action. As soon as practicable after the effective date
of the N-14 Registration Statement Nations Portfolios shall hold a meeting(s) of
the shareholders of the Pacific Growth Fund for the purpose of considering and
voting upon:
(a) approval of this Agreement and the Consolidation contemplated
hereby; and
(b) such other matters as may be determined by the Board of
Directors of Nations Portfolios.
7. Regulatory Filings. As soon as practicable, Nations Portfolios shall
file an N-14 Registration Statement with the SEC, which shall include all proxy
materials required in connection with the Pacific Growth Fund shareholder
approval referenced in Section 6, and, where required, with appropriate state
securities regulatory authorities.
8. Closing Date, Effective Time of the Consolidation. The "Closing Date"
shall be March 31, 1999, or such earlier or later date as may be mutually
agreed in writing by the parties hereto. Delivery of the Fund Assets and the
shares of the Emerging Markets Fund to be issued pursuant to Section 1 and the
liquidation of the Pacific Growth Fund pursuant to Section 2 shall occur on the
day following the Closing Date, whether or not such day is a business day, or on
such other date, and at such place and time, as may be mutually agreed in
writing, by the parties hereto. The date and time at which such actions are
taken are referred to herein as the "Effective Time of the Consolidation." To
the extent any Fund Assets are, for any reason, not transferred at the Effective
Time of the Consolidation, Nations Portfolios shall cause such Fund Assets to be
transferred in accordance with this Agreement at the earliest practicable date
thereafter.
9. Conditions to Nations Portfolios' Obligations on Behalf of the
Pacific Growth Fund. The obligations of Nations Portfolios hereunder shall be
subject to the following conditions precedent:
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(a) This Agreement and the Consolidation shall have been approved
by the Board of Directors of Nations Portfolios and by a majority of the
shareholders of the Pacific Growth Fund in the manner required by applicable law
and this Agreement.
(b) All representations and warranties of Nations Portfolios made
in this Agreement shall be true and correct in all material respects as if made
at and as of the Valuation Time and the Effective Time of the Consolidation.
(c) Nations Portfolios shall have delivered a certificate executed
in its name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory and dated as of the Closing Date,
to the effect that the representations and warranties of the Emerging Markets
Fund made in this Agreement are true and correct at and as of the Valuation Time
and that, to the best of its knowledge, the Fund Assets include only assets
which the Emerging Markets Fund may properly acquire under its investment
objectives, policies and limitations and may otherwise be lawfully acquired by
the Emerging Markets Fund.
(d) Nations Portfolios shall have received an opinion of Morrison &
Foerster LLP, as counsel to Nations Portfolios in form reasonably satisfactory
to Nations Portfolios and dated the Closing Date, substantially to the effect
that (i) Nations Portfolios is a corporation duly established and validly
existing under the laws of the State of Maryland; (ii) the shares of the
Emerging Markets Fund to be delivered to the Pacific Growth Fund as provided for
by this Agreement are duly authorized and upon delivery will be validly issued,
fully paid and non-assessable by Nations Portfolios; (iii) this Agreement has
been duly authorized, executed and delivered by Nations Portfolios, and
represents a legal, valid and binding contract, enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and such counsel
shall express no opinion with respect to the application of equitable principles
in any proceeding whether at law or in equity; (iv) the execution and delivery
of this Agreement did not, and the consummation of the transactions contemplated
by this Agreement will not, violate the Articles of Incorporation or By-Laws of
Nations Portfolios or any material contract known to such counsel to which
Nations Portfolios is a party or by which it is bound; and (v) no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by Nations Portfolios of the transactions
contemplated by this Agreement, except such as have been obtained under the 1933
Act, the 1934 Act, the 1940 Act, the rules and regulations under those Acts and
such as may be required by state securities laws or such as may be required
subsequent to the Effective Time of the Consolidation. Such opinion may rely on
the opinion of other counsel to the extent set forth in such opinion, provided
such other counsel is reasonably acceptable to Nations Portfolios.
(e) Nations Portfolios shall have received an opinion of Morrison &
Foerster LLP, based upon reasonable representations made in certificates
provided by Nations Portfolios, its affiliates and/or principal shareholders of
the Pacific Growth Fund and/or the Emerging Markets Fund, addressed to Nations
Portfolios in a form reasonably satisfactory to them, and dated the Closing
Date, with respect to the matters specified in Subsection 10(g).
(f) Nations Portfolios shall have received (i) a memorandum
addressed to Nations Portfolios, in a form reasonably satisfactory to them,
prepared by Morrison & Foerster LLP, or another person approved by the parties,
concerning the registration of shares to be issued by Nations Portfolios
pursuant to this Agreement under applicable state securities laws or the
exemption from registration under such laws, and (ii) assurance reasonably
satisfactory to it that all permits and other authorizations necessary under
state securities laws to consummate the transactions contemplated by this
Agreement have been obtained.
(g) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending the effectiveness shall have
been instituted, or to the knowledge of Nations Portfolios, contemplated by the
SEC.
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(h) No action, suit or other proceeding shall be threatened or
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 the transactions contemplated herein.
(i) 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.
(j) Nations Portfolios on behalf of the Pacific Growth Fund shall
have performed and complied in all material respects with each of its agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or at the Valuation Time and the Effective Time of the Consolidation.
(k) Nations Portfolios shall have received a duly executed
instrument whereby the Emerging Markets Fund assumes all of the liabilities of
the Pacific Growth Fund (except in respect of the Retained Liabilities to be
retained by the Pacific Growth Fund and not transferred, accepted or assumed by
the Emerging Markets Fund pursuant to Subsection 1(a)).
(l) Nations Portfolios shall have received a letter from
PricewaterhouseCoopers LLP addressed to Nations Portfolios in form reasonably
satisfactory to them, and dated the Closing Date, to the effect that (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; (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; and (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 used in the calculation of any figure expressed numerically
or in dollars or percentages of appearing in the Registration Statement under:
(a) "About the Proposed Consolidation--Pro Forma Capitalization Table As of
September 30, 1998" in the Combined Proxy Statement/Prospectus; (b) "About the
Proposed Consolidation--Comparison of Total Expense Ratios" in the Combined
Proxy Statement/Prospectus; (c) "Appendix II -- Expense Summaries of the Pacific
Growth Fund and the Emerging Markets Fund" 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 Pacific Growth Fund and Emerging Markets Fund or with written
estimates provided by officers of Nations Portfolios having responsibility for
financial and reporting matters, and were found to be mathematically correct.
10. Conditions to Nations Portfolios' Obligations on behalf of the
Emerging Markets Fund. The obligations of Nations Portfolios hereunder shall be
subject to the following conditions precedent:
(a) This Agreement and the Consolidation shall have been approved
by the Board of Directors of Nations Portfolios on behalf of the Emerging
Markets Fund and by a majority of the shareholders of the Pacific Growth Fund in
the manner required by applicable law and this Agreement.
(b) Nations Portfolios shall have delivered to Nations Portfolios a
statement of assets and liabilities of the Pacific Growth Fund, showing the tax
costs of such securities by lot and the holding periods of such securities, as
of the Valuation Time, certified by the Treasurer or Assistant Treasurer of
Nations Portfolios as having been prepared in accordance with generally accepted
accounting principles consistently applied.
(c) Nations Portfolios shall have duly executed and delivered to
Nations Portfolios such bills of sale, assignments, certificates and other
instruments of transfer ("Transfer Documents") as Nations Portfolios may deem
necessary or desirable to transfer all of the Pacific Growth Fund's right, title
and interest in and to the Fund Assets.
I-8
<PAGE>
(d) All representations and warranties of Nations Portfolios made
in this Agreement shall be true and correct in all material respects as if made
at and as of the Valuation Time and the Effective Time of the Consolidation.
(e) Nations Portfolios shall have delivered a certificate executed
in its name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory and dated as of the Closing Date,
to the effect that the representations and warranties of the Pacific Growth Fund
made in this Agreement are true and correct at and as of the Valuation Time.
(f) Nations Portfolios shall have received an opinion of Morrison &
Foerster LLP, as counsel to Nations Portfolios, in a form reasonably
satisfactory to Nations Portfolios and dated the Closing Date, substantially to
the effect that (i) Nations Portfolios is a corporation duly established and
validly existing under the laws of the State of Maryland; (ii) this Agreement
has been duly authorized, executed and delivered by Nations Portfolios and
represents a legal, valid and binding contract, enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and such counsel
shall express no opinion with respect to the application of equitable principles
in any proceeding, whether at law or in equity; (iii) the execution and delivery
of this Agreement did not, and the consummation of the transactions contemplated
by this Agreement will not, violate the Articles of Incorporation or By-Laws of
Nations Portfolios or any material contract known to such counsel to which
Nations Portfolios is a party or by which it is bound; and (iv) no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by Nations Portfolios of the transactions
contemplated by this Agreement, except such as have been obtained under the 1933
Act, the 1934 Act, the 1940 Act, the rules and regulations under those Acts and
such as may be required under the state securities laws or such as may be
required subsequent to the Effective Time of the Consolidation. Such opinion may
rely on the opinion of other counsel to the extent set forth in such opinion,
provided such other counsel is reasonably acceptable to Nations Portfolios.
(g) Nations Portfolios shall have received an opinion of Morrison &
Foerster LLP, based upon reasonable representations made in certificates
provided by Nations Portfolios, its affiliates and/or principal shareholders of
the Pacific Growth Fund and/or the Emerging Markets Fund, addressed to Nations
Portfolios in a form reasonably satisfactory to Nations Portfolios, and dated
the Closing Date, substantially to the effect that, for federal income tax
purposes, the Consolidation will not qualify as a "reorganization," within the
meaning of Section 368(a) of the Code, and the Pacific Growth Fund and the
Emerging Markets Fund will each not be a "party to a reorganization," within the
meaning of Section 368(b) of the Code, with respect to the Consolidation.
(h) The Fund Assets to be transferred to the Emerging Markets Fund
under this Agreement shall include no assets which the Emerging Markets Fund may
not properly acquire pursuant to its investment objectives, policies or
restrictions or may not otherwise lawfully acquire.
(i) The N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of Nations Portfolios, contemplated by the
SEC.
(j) No action, suit or other proceeding shall be threatened or
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 the transactions contemplated herein.
(k) 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.
(l) Nations Portfolios on behalf of the Emerging Markets Fund shall
have performed and complied in all material respects with each of its agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or at the Valuation Time and the Effective Time of the Consolidation.
I-9
<PAGE>
11. Survival of Representations and Warranties. The representations and
warranties of Nations Portfolios on behalf of the Emerging Markets Fund set
forth in this Agreement shall survive the delivery of the Fund Assets to the
Emerging Markets Fund and the issuance of the shares of the Emerging Markets
Fund at the Effective Time of the Consolidation.
12. Termination of Agreement. This Agreement may be terminated by a
party at or, in the case of Subsection 12(c), below, at any time prior to, the
Effective Time of the Consolidation by a vote of a majority of its Board of
Directors as provided below:
(a) By Nations Portfolios on behalf of the Emerging Markets Fund if
the conditions set forth in Section 11 are not satisfied as specified in said
Section;
(b) By Nations Portfolios on behalf of the Pacific Growth Fund if
the conditions set forth in Section 10 are not satisfied as specified in said
Section; and
(c) By mutual written consent of both parties.
13. Governing Law. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the State of Maryland, except to the extent preempted by federal law.
14. Brokerage Fees and Expenses.
(a) Nations Portfolios represents and warrants that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
(b) NationsBanc Advisors, Inc. or its affiliates will be
responsible for the customary expenses related to entering into and carrying out
the provisions of this Agreement, whether or not the transactions contemplated
hereby are consummated.
15. 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 Portfolios, acting on behalf of either the Pacific Growth Fund or
Nations Portfolios, acting on behalf of the Emerging Markets Fund; provided,
however, that following the meeting of the shareholders of the Pacific Growth
Fund, no such amendment may have the effect of changing the provisions for
determining the number of shares of the Emerging Markets Fund to be issued to
the Transferor Record Holders under this Agreement to the detriment of such
Transferor Record Holders, or otherwise materially and adversely affecting the
Pacific Growth Fund, without the Pacific Growth Fund obtaining its shareholders'
further approval.
At any time prior to or (to the fullest extent permitted by law)
after approval of this Agreement by the shareholders of the Pacific Growth Fund
Nations Portfolios, on behalf of either the Pacific Growth Fund, or Nations
Portfolios, on behalf of the Emerging Markets Fund, may waive any breach by
Nations Portfolios, on behalf of either fund, 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).
16. Counterparts
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
I-10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers designated below as of the date first
written above.
NATIONS FUND PORTFOLIOS, INC.
On behalf of the Pacific Growth Fund
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
NATIONS FUND PORTFOLIOS, INC.
On behalf of the Emerging Markets Fund
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
I-11
<PAGE>
APPENDIX II
EXPENSE SUMMARIES OF THE PACIFIC GROWTH FUND
AND EMERGING MARKETS FUND
-----------------------------------------------
The following tables (a) compare the fees and expenses as of December
31, 1998, for each class of the Pacific Growth Fund and the corresponding
classes of the Emerging Markets Fund and (b) show the estimated fees and
expenses for the combined Fund on a PRO FORMA basis after giving effect to the
reorganization. The Funds' total expense ratios reflect limitations that
management has voluntarily put in place as of December 31, 1998. 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.
II-1
<PAGE>
PACIFIC GROWTH FUND-PRIMARY A SHARES
EMERGING MARKETS FUND-PRIMARY A SHARES
<TABLE>
<CAPTION>
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases ... None None None
Maximum Sales Load Imposed on
Reinvested Dividends................... None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds) None None None
Redemption Fees ........................... None None None
Exchange Fees ............................. None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after fee waivers)(1)..... 0.00% 0.31% 0.64%
12b-1 Fees/Shareholder Servicing Fees...... 0.00% 0.00% 0.00%
Other Expenses (after expense reimbursements) 2.00% 1.69% 1.36%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS):(2) 2.00% 2.00% 2.00%
==== ==== ====
</TABLE>
- --------------------
(1) Absent fee waivers, management fees would be 0.90% for the Pacific
Growth Fund and 1.10% for the Emerging Markets Fund and the Combined Fund.
(2) Absent fee waivers and expense reimbursements, total fund operating
expenses would be 3.11% for the Pacific Growth Fund, 2.79% for the Emerging
Markets Fund and 2.46% for the Combined Fund.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ......................... $20 $20 $20
3 years ........................ 63 63 63
5 years ........................ 108 108 108
10 years ....................... 233 233 233
- --------------------
*THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES WHICH
MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURN; ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
THIS EXAMPLE ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE REINVESTED
AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND OPERATING EXPENSES
ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-2
<PAGE>
PACIFIC GROWTH FUND-PRIMARY B SHARES
EMERGING MARKETS FUND-PRIMARY B SHARES
<TABLE>
<CAPTION>
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases ... None None None
Maximum Sales Load Imposed on
Reinvested Dividends................... None None None
Maximum Deferred Sales Load
(as a percentage of redemption proceeds) None None None
Redemption Fees ........................... None None None
Exchange Fees ............................. None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after fee waivers)(1)..... 0.00% 0.31% 0.64%
12b-1 Fees/Shareholder Servicing Fees(2)... 0.50% 0.50% 0.50%
Other Expenses(after expense reimbursements) 2.00% 1.69% 1.36%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS):(3) 2.50% 2.50% 2.50%
==== ==== ====
</TABLE>
- --------------------
(1) Absent fee waivers, management fees would be 0.90% for the Pacific
Growth Fund and 1.10% for the Emerging Markets Fund and the Combined Fund.
(2) Absent fee waivers, distribution and shareholder servicing fees
would be 0.60% for the Pacific Growth Fund, Emerging Markets Fund and the
Combined Fund.
(3) Absent fee waivers and expense reimbursements, total fund operating
expenses would be 3.71% for the Pacific Growth Fund, 3.39% for the Emerging
Markets Fund and 3.06% for the Combined Fund.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ........................ $25 $25 $25
3 years ....................... 78 78 78
5 years ....................... 133 133 133
10 years ...................... 284 284 284
- --------------------
*THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURN; ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
THIS EXAMPLE ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE REINVESTED
AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND OPERATING EXPENSES
ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-3
<PAGE>
PACIFIC GROWTH FUND-INVESTOR A SHARES
EMERGING MARKETS FUND-INVESTOR A SHARES
<TABLE>
<CAPTION>
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases ... 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 Fees ............................. None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after fee waivers)(2)..... 0.00% 0.31% 0.64%
12b-1 Fees/Shareholder Servicing Fees...... 0.25% 0.25% 0.25%
Other Expenses (after expense
reimbursements) ....................... 2.00% 1.69% 1.36%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS):(3) 2.25% 2.25% 2.25%
==== ==== ====
</TABLE>
- --------------------
(1) Certain 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) Absent fee waivers, management fees would be 0.90% for the Pacific
Growth Fund and 1.10% for the Emerging Markets Fund and the Combined Fund.
(3) Absent fee waivers and expense reimbursements, total fund operating
expenses would be 3.36% for the Pacific Growth Fund, 3.04% for the Emerging
Markets Fund and 2.71% for the Combined Fund.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ............................ $79 $79 $79
3 years ........................... 124 124 124
5 years ........................... 171 171 171
10 years .......................... 302 302 302
- --------------------
*THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURN; ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
THIS EXAMPLE ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE REINVESTED
AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND OPERATING EXPENSES
ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-4
<PAGE>
PACIFIC GROWTH FUND-INVESTOR B SHARES
EMERGING MARKETS FUND-INVESTOR B SHARES
<TABLE>
<CAPTION>
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases ... None None None
Maximum Sales Load Imposed on
Reinvested Dividends................... None None None
Maximum Deferred Sales Load
(as a percentage of redemption
proceeds)(1)........................... 5.00% 5.00% 5.00%
Redemption Fees ........................... None None None
Exchange Fees.............................. None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after fee waivers)(2)..... 0.00% 0.31% 0.64%
12b-1 Fees/Shareholder Servicing Fees...... 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursements) ...................... 2.00% 1.69% 1.36%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS):(3) 3.00% 3.00% 3.00%
==== ==== ====
</TABLE>
- --------------------
(1) Investor B Shares purchased prior to January 1, 1996 or after July
31, 1997 are subject to the Deferred Sales Charge as set forth in the applicable
schedule in the prospectus. The Maximum Deferred Sales Load is 5.00% in the
first year after purchase, declining to 1.00% in the sixth year after purchase
and eliminated thereafter.
(2) Absent fee waivers, management fees would be 0.90% for the Pacific
Growth Fund and 1.10% for the Emerging Markets Fund and the Combined Fund.
(3) Absent fee waivers and expense reimbursements, total fund operating
expenses would be 4.11% for the Pacific Growth Fund, 3.79% for the Emerging
Markets Fund and 3.46% for the Combined Fund.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ......................... $80 $80 $80
3 years ........................ 123 123 123
5 years ........................ 178 178 178
10 years ....................... 314 314 314
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) no redemption:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ......................... $30 $30 $30
3 years ........................ 93 93 93
5 years ........................ 158 158 158
10 years ....................... 314 314 314
- --------------------
* THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURN; ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
THIS EXAMPLE ASSUMES THAT ALL DIVIDENDS AND OTHER DISTRIBUTIONS ARE REINVESTED
AND THAT THE PERCENTAGE AMOUNTS LISTED UNDER TOTAL FUND OPERATING EXPENSES
ABOVE REMAIN THE SAME IN THE YEARS SHOWN.
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly.
II-5
<PAGE>
PACIFIC GROWTH FUND-INVESTOR C SHARES
EMERGING MARKETS FUND-INVESTOR C SHARES
<TABLE>
<CAPTION>
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases ... None None None
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 Fees ............................. None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after fee waivers)(2)..... 0.00% 0.31% 0.64%
12b-1 Fees/Shareholder Servicing Fees...... 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursements) 2.00% 1.69% 1.36%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS
AND EXPENSE REIMBURSEMENTS):(3) 3.00% 3.00% 3.00%
==== ==== ====
</TABLE>
- --------------------
(1) Investor C share that are purchased at net asset value are subject
to a Deferred Sales Load if redeemed within one year of purchase.
(2) Absent fee waivers, management fees would be 0.90% for the Pacific
Growth Fund and 1.10% for the Emerging Markets Fund and the Combined Fund.
(3) Absent fee waivers and expense reimbursements, total fund operating
expenses would be 4.11% for the Pacific Growth Fund, 3.79% for the Emerging
Markets Fund and 3.46% for the Combined Fund.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time period:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ............................ $40 $40 $40
3 years ........................... 93 93 93
5 years............................ 158 158 158
10 years .......................... 334 334 334
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% gross annual return and (2) no redemption:
PACIFIC EMERGING COMBINED FUND
GROWTH FUND MARKETS FUND PRO FORMA
----------- ------------ ---------
1 year ............................ $30 $30 $30
3 years ........................... 93 93 93
5 years ........................... 158 158 158
10 years .......................... 334 334 334
- ------------------
*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-6
<PAGE>
APPENDIX III--MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
III-1
<PAGE>
Nations
Pacific Growth
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MS. TEOH SHARES HER VIEWS ON
NATIONS PACIFIC GROWTH FUND'S PERFORMANCE FOR THE
12-MONTH PERIOD ENDED MARCH 31, 1998 AND HER CURRENT
OUTLOOK.
<TABLE>
<S> <C>
PORTFOLIO MANAGER PLEASE DESCRIBE THE FUND'S PHILOSOPHY AND STYLE.
Seok Teoh is Principal The Fund emphasizes growth at a reasonable price in
Portfolio Manager of Nations selecting regions, markets and stocks. By combining active,
Pacific Growth Fund and bottom-up stock selection with risk-controlled country
Portfolio Manager on the Far allocation, we aim to build a portfolio with optimal
East Team of Gartmore Global risk/return characteristics. Local contacts, fundamental
Partners, investment research and seasoned judgment are vital to our investment
sub-adviser to the Fund. process.
INVESTMENT OBJECTIVE WHAT WERE REGIONAL ECONOMIC AND MARKET CONDITIONS LIKE
The Fund seeks long-term DURING THE REPORTING PERIOD?
capital growth by investing During the 12 months ended March 31, 1998, stock markets in
primarily in equity securities the Pacific region (excluding Japan) plunged to levels not
of companies in the Pacific seen since April 1993. At the beginning of the period, the
Basin and the Far East markets of Hong Kong, Korea and Taiwan were buoyant leading
(excluding Japan). up to the transfer of Hong Kong to China on July 1, 1997.
PERFORMANCE REVIEW One day after the handover, however, Thailand devalued its
For the 12-month period ended currency, the baht, as a first step toward a much-needed
March 31, 1998, Nations Pacific economic overhaul. This triggered a wave of currency
Growth Fund Primary A Shares devaluations across Asia -- prompted in part by speculative
provided a total return of attacks on regional currencies -- leading to soaring
(28.35)%. interest rates, a general squeeze on credit, multiple bank
failures, several corporate bankruptcies and plummeting
stock market levels.
In October 1997, Taiwan's central bank reversed an earlier
decision to support its local currency through intervention,
which led to higher interest rates. As a result, Hong Kong,
whose currency is pegged to the U.S. dollar, was also forced
to raise interest rates to defend against currency
speculators. By November 1997, the crisis had spread to
Korea, which joined Indonesia and Thailand in seeking
emergency credit from the International Monetary Fund (IMF)
to prevent debt moratoriums.
Pacific Rim stock markets started to recover during January
1998, with Korea and Thailand posting huge gains, but the
rebound in Korea was short-lived. Indonesia, plagued by food
riots and President Suharto's refusal to cooperate with IMF
reforms, continued to suffer stock market setbacks.
*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>
III-2
<PAGE>
Nations
Pacific Growth
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
THE FUND'S PERFORMANCE WAS The Australian stock market -- which had offered a measure
HELPED BY OUR EARLY MOVE TO AN of stability during the worst of the Pacific Rim market
OVERWEIGHT STANCE IN AUSTRALIA. decline -- began to lose some of its buoyancy toward the end
of the reporting period because of a fall in commodity
stocks and concerns about the effects of the Asian financial
crisis on intraregional trade.
WHAT COUNTRY ALLOCATION DECISIONS CONTRIBUTED THE MOST TO
THE FUND'S PERFORMANCE?
The Fund's performance was helped by our early move to an
overweight stance in Australia, which became a relative
"safe haven" for investors in the Pacific region during the
crisis. Early in the period, the Fund benefited from an
initially overweight exposure to Hong Kong. Our decision to
underweight the Malaysian stock market during the period was
also beneficial.
WHAT COUNTRY ALLOCATION DECISIONS DETRACTED FROM THE FUND'S
PERFORMANCE?
The Fund's underweight position in Taiwan, which
consistently outperformed the benchmark Morgan Stanley
Capital International Combined Far East (ex Japan) Free
Index (MSCI Far East Index)** during the period, was the
biggest detriment to the Fund's performance. While we have
been steadily increasing exposure to the Taiwanese stock
market, access to direct investments for foreign investors
remains limited.
A SUBSTANTIAL WEIGHTING IN DID ANY PARTICULAR SECTOR DECISIONS CONTRIBUTE TO THE FUND'S
FINANCIAL AND UTILITY STOCKS IN PERFORMANCE?
HONG KONG ADDED VALUE TO THE A substantial weighting in financial and utility stocks in
FUND. Hong Kong added value to the Fund, as both sectors sustained
momentum for much of the period. For example, financial
stocks rose 27.2% in U.S. dollar terms during the period,
while the broad blue-chip stocks in Hong Kong fell 1.2%.
Conversely, low exposure to financial stocks in southeast
Asian markets such as Indonesia and Thailand helped the
Fund. In addition, the Fund benefited from its emphasis on
the stocks of export-oriented issuers in Korea, Singapore
and Taiwan.
WHAT ARE SOME EXAMPLES OF STOCKS HELD BY THE FUND THAT
PERFORMED PARTICULARLY WELL?
Among the Fund's best performing stocks were Telstra (an
Australia-based telecommunications company), HSBC Holdings
(Hong Kong's largest commercial bank) and Siliconware
(Taiwan), an electronics firm.***
**The Morgan Stanley Capital International Combined Far East
(ex Japan) Free Index is an unmanaged,
capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for
investment by international investors. It is unavailable for
investment.
***Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
</TABLE>
III-3
<PAGE>
Nations
Pacific Growth
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
WHAT INVESTMENT DECISIONS HINDERED OVERALL FUND PERFORMANCE
DURING THE PERIOD?
Overexposure to mid-capitalization stocks in Malaysia and
Indonesia hurt performance, as did heavy exposure to
financial stocks in Malaysia and Singapore early in the
period. Among individual stocks, Rashid Hussain (Malaysia),
Woodside Petroleum (Australia) and RHB Capital (Malaysia)
had disappointing performance.
WHAT IS YOUR REGIONAL ECONOMIC AND MARKET OUTLOOK FOR THE
YEAR AHEAD?
Developments in Japan will be crucial to the performance of
stock markets throughout Asia because of Japan's importance
as an economic engine for the region. Outside of Japan,
Malaysia continues to be the market that matters most. It
remains a significant part of the benchmark MSCI Far East
Index, and we are wary of its prospects -- particularly in
the banking sector, which we believe is vulnerable to
further trouble.
The health of the Chinese economy will be another key factor
that could help or hinder a medium-term recovery in Asia.
Strong deflationary pressure in China, caused by massive
restructuring plans, could hamper the pace of economic
recovery in Asia during the coming year.
Also important will be the outcome of the standoff between
Indonesian President Suharto and the IMF, which is pressing
for economic reforms and an end to political cronyism. Left
unaddressed, conditions in Indonesia could result in
hyperinflation.
In Hong Kong, the recent budget demonstrated the former
colony's fiscal strength and the government's commitment to
stability in the residential property market.
WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THIS
ENVIRONMENT?
We believe that the property sector in Hong Kong could be
favorable if the outlook for interest rates improves. In
Thailand, we are encouraged by progress in restructuring the
corporate and banking sectors. Otherwise, markets such as
Taiwan, the Philippines and Singapore should continue to
offer opportunities for bargain hunters, as current stock
values are low and longer-term earnings prospects are
positive.
</TABLE>
III-4
<PAGE>
Nations
Pacific Growth
Fund Portfolio Manager Commentary continued ...
<TABLE>
<S> <C>
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
We have already begun to take advantage of current low
prices for selected stocks in Taiwan, the Philippines and
Singapore. In Taiwan, we favor domestic companies and
exporters. The Fund remains underweighted in Hong Kong but
not aggressively so. We will seek to add selectively to the
Fund's Hong Kong property stocks, but only if the
interest-rate outlook is positive. In Thailand, we expect to
add to the Fund's blue-chip stock holdings if this is
justified by the medium-term outlook for profits.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
0.9% Other
1.0% New Zealand
1.3% Indonesia
2.2% South Korea
2.3% Thailand
4.7% Philippines
9.4% Malaysia
10.9% Singapore
11.3% Taiwan
18.5% Australia
37.5% Hong Kong
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 HSBC Holdings plc 6.4%
-----------------------------------------
2 Telstra Corporation Ltd., ADR 5.2%
-----------------------------------------
3 Hutchison Whampoa Ltd. 4.5%
-----------------------------------------
4 Taiwan American Fund Ltd. 4.2%
-----------------------------------------
5 Hang Seng Bank Ltd. 3.7%
-----------------------------------------
6 CLP Holdings Ltd. 3.4%
-----------------------------------------
7 Cheung Kong Holdings Ltd. 3.4%
-----------------------------------------
8 Sun Hung Kai Properties 3.2%
-----------------------------------------
9 Rothmans of Pall Mall 3.1%
-----------------------------------------
10 ASE Test Ltd., GDR 3.0%
-----------------------------------------
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.
III-5
<PAGE>
Nations
Pacific 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 'Pacific Growth 'MSCI Far
(Fiscal Year Covered) Fund $7,517' East Index $7,389'
<S> <C> <C>
June 30 1995 10000 10000
9710 10383
1995 9745 10894
10266 11101
10383 11168
10282 10670
1996 10773 9796
10491 8763
11509 10514
9938 9135
1997 7238 7190
Mar. 31 1998 7517 7389
</TABLE>
Investor B Shares (as of 3/31/98)*
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period 'Pacific Growth 'MSCI Far
(Fiscal Year Covered) Fund $7,097' East Index $7,389'
<S> <C> <C>
June 30 1995 10000 10000
9690 10383
1995 9698 10894
10188 11101
10279 11168
10148 10670
1996 10609 9796
10309 8763
11279 10514
9718 9135
1997 7054 7190
Mar. 31 1998 7097 7389
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
SINCE INCEPTION
(6/30/95 through 3/31/98) (9.86)%
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 Pacific Growth Fund
from the date each class of shares was
first offered. The Morgan Stanley
Capital International Combined Far East
(ex Japan) Free Index ("MSCI Far East
Index") is an unmanaged,
capitalization-weighted index that
tracks 7 countries and represents only
those securities that are available for
investment by international investors.
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*
(6/30/95 through
3/31/98) (10.75)% (11.72)%
</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 6/30/95 6/28/96 6/30/95 6/30/95 6/30/95
NAV CDSC*
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE (28.35)% (28.77)% (28.59)% (29.04)% (32.57)% (28.91)%
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Since Inception (9.86)% (17.22)% (10.12)% (10.75)% (11.72)% (10.53)%
</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.
III-6
<PAGE>
Nations
Emerging Markets
Fund Portfolio Manager Commentary*
IN THE FOLLOWING INTERVIEW, MR. EHRMANN SHARES HIS VIEWS
ON NATIONS EMERGING MARKETS 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.
Philip Ehrmann is Principal The Fund emphasizes growth at a reasonable price in
Portfolio Manager of Nations selecting regions, markets and stocks. By combining active,
Emerging Markets Fund and is bottom-up stock selection with risk-controlled country
the Head of the Emerging allocation, we aim to build a portfolio with optimal
Markets Team for Gartmore risk/return characteristics. Because emerging markets can
Global Partners, investment change rapidly, the ability to move freely between markets
sub-adviser to the Fund. to take advantage of shifting economic conditions is
INVESTMENT OBJECTIVE important to our active management style. Therefore, we
The Fund seeks long-term emphasize larger, more liquid securities.
capital growth by investing WHAT WERE ECONOMIC AND MARKET CONDITIONS LIKE IN THE
primarily in equity securities EMERGING MARKETS ARENA DURING THE REPORTING PERIOD?
of companies in emerging market Without question, the overriding influence on emerging
countries, such as those in markets during the 12 months ended March 31, 1998, was the
Latin America, Eastern Europe, precipitous fall in stock markets across Asia. Although the
the Pacific Basin, the Far storm clouds had been gathering since the beginning of the
East, Africa and India. period -- with deteriorating economic fundamentals putting
PERFORMANCE REVIEW pressure on corporate earnings across the region -- what
For the 12-month period ended became a fully blown Asian currency crisis sparked a global
March 31, 1998, Nations decline in stock values in October 1997, from which
Emerging Markets Fund Primary A non-Asian emerging markets could hardly escape.
Shares provided a total return The Asian crisis, however, did not prevent emerging markets
of (6.39)%. outside the region from rising for the period as a whole --
testimony to the diverse nature of these markets. Latin
American markets came under heavy pressure but recovered
their poise fairly quickly and ended the period 11.2% higher
in U.S. dollar terms as measured by the International
Finance Corporation (IFC) Latin America Index. Mexico's rise
was particularly strong (+25.2% in U.S. dollar terms), while
Brazil (+12.5%) and Argentina (+14.0%) enjoyed reasonably
good returns in U.S. dollar terms.
*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>
III-7
<PAGE>
Nations
Emerging Markets
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
Among emerging European markets, Portugal soared 86.1% and
Hungary gained 46.7% in U.S. dollar terms. Elsewhere, India
registered a gain of 5.1% in U.S. dollar terms. Russia
attracted investor interest and was added to the benchmark
IFC Investables Index in November 1997.**
HOW DID U.S. STOCK MARKET VOLATILITY IN 1997 AFFECT THE
EMERGING MARKETS?
Emerging markets clearly felt the impact of stock market
volatility in the U.S. during the period. Historically, the
correlation between the emerging markets and the U.S. stock
market has been relatively low. For example, over the past
five years, the correlation between the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) and the IFC
Composite was only about 0.4. (The higher the correlation
between the two indexes, the more they would be expected to
rise and fall in lockstep. A perfect correlation would be
1.0.) For the reporting period, however, the correlation
between the IFC Composite and the S&P 500 was unusually
high, at approximately 0.8. This higher correlation was
somewhat of an anomaly, reflecting the extreme effects of
the October 1997 plunge on Wall Street, which sent stock
markets down across the world.+
The Fund gained the most WHAT COUNTRY OR REGIONAL ALLOCATION DECISIONS CONTRIBUTED
benefit from an underweighting THE MOST TO THE FUND'S PERFORMANCE?
in the Far East relative to the The Fund gained the most benefit from an underweighting in
IFC Investables Index. In the Far East relative to the IFC Investables Index. In
particular, our early reduction particular, our early reduction in exposure to Malaysia and
in exposure to Malaysia and lack of exposure to Thailand added relative value, as these
lack of exposure to Thailand markets were among the hardest hit by the Asian financial
added relative value. crisis. At the same time, the Fund's overweight position in
Latin America added value, as did exposure to emerging
European markets such as Hungary, Poland and Portugal.
WHAT OTHER INVESTMENT DECISIONS CONTRIBUTED TO THE FUND'S
PERFORMANCE?
The Fund enjoyed notably strong relative performance in
Israel, primarily due to its investment in Supersol, the
country's leading food retailer; this investment has
recently been sold. In South Africa, the Fund's investment
in Nedcor helped lead to outperformance. In Brazil, the Fund
realized higher returns through investments in such leading
companies as Telebras.++
**The IFC Latin America Index is an unmanaged,
capitalization-weighted index which tracks stocks in
Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. It is unavailable for investment.
+The IFC Composite is used in the computations as opposed to
the IFC Investables Index because of the composite's longer
history. The IFC Composite Index is a
capitalization-weighted index, investing in 32 countries
from the perspective of domestic investors. It is unmanaged
and unavailable for investment. The S&P 500 index is a
market-capitalization-weighted Index that measures the
market value of 400 industrial stocks, 60 transportation and
utility company stocks and 40 financial issues. It is
unmanaged and unavailable for investment.
++Portfolio holdings were current as of March 31, 1998, are
subject to change and may not be representative of current
holdings.
The IFC Investables Index is an unmanaged,
capitalization-weighted index which tracks more than 4,400
stocks in 25 emerging markets in Asia, Latin America,
Eastern Europe, Africa and the Middle East. It is
unavailable for investment.
</TABLE>
III-8
<PAGE>
Nations
Emerging Markets
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
WHAT ARE SOME EXAMPLES OF STOCKS IN THE FUND THAT PERFORMED
PARTICULARLY WELL?
Among the Fund's best performing individual stocks were oil
and gas company Tatneft (Russia), Yapi Kredi Bank (Turkey),
Hellenic Bottling (Greece) and cement company Cimpor
(Portugal).
WHAT INVESTMENT DECISIONS HINDERED OVERALL PORTFOLIO
PERFORMANCE DURING THE PERIOD?
The Fund was underweighted in Turkey, where the stock market
rose impressively during the period. In terms of stock
selection, performance was also hurt by our decision to hold
United Engineers (Malaysia), a cash-rich company that was
effectively forced to acquire a nearly bankrupt construction
company in the wake of the Asian crisis. Other stocks with
disappointing performance for the period included LG
Information & Communications (Korea) and Resorts World
(Malaysia).
WHAT IS YOUR ECONOMIC AND MARKET OUTLOOK FOR THE EMERGING
MARKETS IN THE YEAR AHEAD?
In Latin America, most stock market valuations remain
reasonable. This is particularly true in Brazil, where
cyclical economic conditions are favorable and interest
rates are still high but falling rapidly. Monetary policy
has been tightened in Mexico, which we had expected and
believe to be appropriate. Low oil prices, if they persist,
could restrain output growth in Mexico, but this restraint
is not unwelcome if it causes Mexican authorities to
maintain tight monetary policy.
In Asia, progress will likely be slow. The process of
recapitalizing the Thai, Korean and Indonesian banking
systems is only beginning. Until economic and corporate
fundamentals stabilize, these markets are likely to remain
vulnerable and volatile.
WHAT INVESTMENT OPPORTUNITIES DO YOU ANTICIPATE IN THIS
ENVIRONMENT?
Thailand and Korea are emerging from the Asian crisis with
some credit and may present selective opportunities.
Similarly, Malaysia, which has avoided an external debt
crisis, has announced reforms in the recent budget which, if
implemented, would provide clear evidence of an improving
trend.
In Brazil, confidence has been bolstered by a rapid
reduction in domestic interest rates, which have fallen from
over 40% at the peak of the Asian currency debacle to less
than 30%.
Among European emerging markets, economic and market
fundamentals look positive in Hungary and Poland. In
addition, Greece has now committed itself to fiscal and
monetary discipline that is likely to act as the precursor
to lower interest rates and sustained growth. However, the
Portuguese stock market, having outperformed other markets
in the IFC Investables Index so strongly, could suffer from
profit-taking.
</TABLE>
III-9
<PAGE>
Nations
Emerging Markets
Fund Portfolio Manager Commentary continued...
<TABLE>
<S> <C>
HOW ARE YOU POSITIONING THE FUND TO TAKE ADVANTAGE OF THESE
ANTICIPATED DEVELOPMENTS?
We are likely to maintain the Fund's overweightings in
Hungary, Poland and Latin America. In Asia, we have begun to
reduce the magnitude of the Fund's substantial
underweighting by adding positions for the first time in
almost two years. The Fund's Asian investments, however, are
focused only on the strongest business franchises currently
selling at what we believe to be deeply depressed prices.
</TABLE>
PORTFOLIO BREAKDOWN (AS A % OF NET ASSETS AS OF 3/31/98)
[PIE CHART]
26.6% Other
4.8% Taiwan
3.9% Greece
4.5% Chile
4.6% Malaysia
5.1% India
5.2% Argentina
5.3% Hong Kong
7.0% South Africa
14.4% Mexico
18.6% Brazil
<TABLE>
<C> <S> <C>
TOP TEN HOLDINGS
(AS A % OF NET ASSETS AS OF 3/31/98)
-----------------------------------------
1 Telebras, ADR 5.1%
-----------------------------------------
2 East European Development 3.2%
Fund
-----------------------------------------
3 Petroleo Brasileiros NPV 2.5%
-----------------------------------------
4 Carso Global Telecom, ADR 2.5%
-----------------------------------------
5 Amalgamated Banks of South 2.3%
Africa
-----------------------------------------
6 Compania Vale do Rio Doce, 2.2%
ADR
-----------------------------------------
7 Grupo Carso SA de CV, ADR 2.2%
-----------------------------------------
8 Grupo Televisa SA, GDR 1.9%
-----------------------------------------
9 Formosa Fund, IDR 1.9%
-----------------------------------------
10 CEMIG Companhia, New, ADR 1.9%
-----------------------------------------
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.
III-10
<PAGE>
Nations
Emerging Markets
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
(Fiscal Year Covered) 'Emerging Markets $10,839' 'IFC Investables Index $9,460'
<S> <C> <C>
June 30 1995 10000 10000
9880 9853
1995 9782 9560
10342 10147
10761 10850
10410 10492
1996 10636 10314
11580 11304
12680 12079
12312 10993
1997 10318 8814
Mar. 31 1998 10839 9460
</TABLE>
Investor B Shares (as of 3/31/98)*
Assumes the reinvestment of all distributions.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) 'Emerging Markets $10,252' 'IFC Investables Index $9,460'
<S> <C> <C>
June 30 1995 10000 10000
9850 9853
1995 9730 9560
10260 10147
10650 10850
10280 10492
1996 10471 10314
11377 11304
12433 12079
12040 10993
1997 10069 8814
Mar. 31 1998 10252 9460
</TABLE>
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURN
Primary A Shares
SINCE INCEPTION
(6/30/95 through 3/31/98) 2.97%
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 Emerging Markets Fund
from the date each class of shares was
first offered. The IFC Investables
Index is an unmanaged,
capitalization-weighted index which
tracks more than 4,400 stocks in 25
emerging markets in Asia, Latin
America, Eastern Europe, Africa and the
Middle 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*
(6/30/95 through 3/31/98) 1.97% 0.91%
</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 6/30/95 6/28/96 6/30/95 6/30/95 6/30/95
NAV CDSC*
- -----------------------------------------------------------------------------------------------------------------------------
1 YEAR PERFORMANCE (6.39)% (6.80)% (6.60)% (7.25)% (11.89)% (7.17)%
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Since Inception 2.97% 0.02% 2.74% 1.97% 0.91% 2.19%
</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.
III-11
