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As filed with the Securities and Exchange Commission on December 15, 1995
Registration Nos. 2-81110/811-4293
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 43 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 45 /X/
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
125 W. 55th Street, 11th Floor
New York, NY 10019
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 28, 1995.
This Registration Statement has also been executed by Master Investment
Trust, Series I.
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THIS POST-EFFECTIVE AMENDMENT IS BEING FILED WITH RESPECT TO THE
INTERNATIONAL EQUITY FUND, AS SUCH THE PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION FOR THE OTHER PACIFIC HORIZON FUNDS ARE NOT INCLUDED IN
THIS FILING.
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PACIFIC HORIZON FUNDS, INC.
International Equity Fund
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
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<S> <C>
Part A
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Summary
3. Condensed Financial Information............................ Measuring Performance
4. General Description of Registrant.......................... Description of Shares; Cover
Page; Investment Objective;
Fund Investments; Types of
Investments; Fundamental
Limitations; Other Investment
Practices and Considerations
5. Management of the Fund..................................... The Business of the Fund
5.A. Management's Discussion of
Fund Performance......................................... *
6. Capital Stock and Other
Securities............................................... Description of Shares;
Dividend and Distribution
Policies; Tax Information
7. Purchase of Securities Being
Offered................................................... How to Buy Shares;
Shareholder Services; The
Business of the Fund; Plan
Payments; Measuring
Performance
8. Redemption or Repurchase................................... How to Sell Shares;
Shareholder Services; Plan
Payments
9. Pending Legal Proceedings.................................. *
</TABLE>
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* Item inapplicable or answer negative.
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PROSPECTUS
March __, 1996
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
A series of shares of Pacific Horizon Funds, Inc.
The PACIFIC HORIZON INTERNATIONAL EQUITY FUND (the "Fund") is a diversified
mutual fund whose investment objective is to seek long-term capital growth
primarily through investments in foreign equity securities. The Fund is offered
by Pacific Horizon Funds, Inc. (the "Company"), an open-end, series management
investment company.
UNLIKE MOST OTHER INVESTMENT COMPANIES WHICH INVEST DIRECTLY IN PORTFOLIO
SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL
OF ITS INVESTABLE ASSETS IN A FUND OF AN OPEN-END, MANAGEMENT INVESTMENT COMPANY
(THE "MASTER PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THAT OF THE
FUND. THE FUND WILL INVEST IN THE MASTER PORTFOLIO WITHOUT INCURRING ANY SALES
CHARGES. THE NET ASSET VALUE OF THE FUND WILL RESPOND TO INCREASES AND DECREASES
IN THE VALUE OF THE MASTER PORTFOLIO'S SECURITIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. SEE "OTHER INVESTMENT PRACTICES AND
CONSIDERATIONS--MASTER-FEEDER STRUCTURE" ON PAGE 16 FOR ADDITIONAL INFORMATION
REGARDING THIS STRUCTURE.
This Prospectus describes two classes from which investors may choose. Class A
shares are sold with a front-end sales charge. Class B shares are sold with a
contingent deferred sales charge. Bank of America National Trust and Savings
Association ("Bank of America" or the "investment adviser") serves as the Master
Portfolio's investment adviser. Based in San Francisco, California, Bank of
America and its affiliates have over $50 billion under management, including
over $10 billion in mutual funds.
This Prospectus describes concisely the information about the Fund and the
Company that you should know before investing. Please read it carefully and
retain it for future reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call 800-332-3863. The Statement of Additional Information,
as it may be revised from time to time, is dated March __, 1996 and is
incorporated by reference into this Prospectus.
Fund shares are not bank deposits or obligations of, or guaranteed or endorsed
by, Bank of America or any of its affiliates and are not federally insured by,
guaranteed by, obligations
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of or otherwise supported by the U. S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental agency.
Investment in the Fund involves investment risk, including the possible loss of
principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission in Washington, D.C. under the Securities Act
of 1933.
No person has been authorized to give any information or to make any
representations in connection with the offer of the Fund's shares, other than as
contained in this Prospectus and the Fund's official sales literature.
Therefore, other information and representations must not be relied upon as
having been authorized by the Fund. This Prospectus does not constitute an offer
in any State in which, or to any person to whom, such offering may not lawfully
be made.
<PAGE> 7
CONTENTS
<TABLE>
<S> <C>
EXPENSE SUMMARY.................................................................. 5
FUND INVESTMENTS................................................................. 8
INVESTMENT OBJECTIVE ................................................... 8
TYPES OF INVESTMENTS ................................................... 8
FUNDAMENTAL LIMITATIONS ................................................ 11
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS........................... 11
SHAREHOLDER GUIDE................................................................ 18
HOW TO BUY SHARES....................................................... 18
WHAT IS MY MINIMUM INVESTMENT IN THE FUND?..................... 18
WHAT ALTERNATE SALES ARRANGEMENTS ARE AVAILABLE?............... 19
HOW ARE SHARES PRICED?......................................... 19
HOW DO I DECIDE WHICH CLASS OF SHARES TO BUY?.................. 24
HOW CAN I BUY SHARES?.......................................... 26
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?................... 27
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?.................... 28
HOW TO SELL SHARES...................................................... 28
HOW DO I REDEEM MY SHARES?..................................... 28
WHAT NAV WILL I RECEIVE FOR SHARES I WANT TO SELL?............. 30
WHAT KIND OF PAPERWORK IS INVOLVED IN
SELLING SHARES?............................................... 30
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?.............. 31
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER
I HAVE REDEEMED SHARES?....................................... 31
DIVIDEND AND DISTRIBUTION POLICIES............................................... 32
SHAREHOLDER SERVICES............................................................. 32
CAN I USE THE FUND IN MY RETIREMENT PLAN?............................... 32
CAN I EXCHANGE MY INVESTMENT FROM ONE FUND TO ANOTHER?.................. 33
WHAT IS TELETRADE?...................................................... 34
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS MADE ON A
REGULAR BASIS?....................................................... 35
WHAT IS DOLLAR COST AVERAGING AND HOW CAN I IMPLEMENT IT?............... 35
CAN I ARRANGE PERIODIC WITHDRAWALS?..................................... 36
CAN MY DIVIDENDS FROM THE FUND BE INVESTED
IN OTHER FUNDS?........................................................ 36
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?............................. 36
THE BUSINESS OF THE FUND......................................................... 37
FUND MANAGEMENT......................................................... 37
EXPENSES....................................................... 37
SERVICE PROVIDERS.............................................. 37
TAX INFORMATION.................................................................. 40
MEASURING PERFORMANCE............................................................ 42
DESCRIPTION OF SHARES............................................................ 43
PLAN PAYMENTS.................................................................... 44
</TABLE>
3
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<TABLE>
<CAPTION>
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Distributor: Investment Adviser:
<S> <C>
Concord Financial Group, Inc. Bank of America National Trust and
3435 Stelzer Road Savings Association
Columbus, OH 43219 555 California Street
San Francisco, CA 94104
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</TABLE>
4
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EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund. The Fund offers two classes of shares. Class A shares are
offered at net asset value plus an initial sales charge (see page 19 of the
Prospectus for an explanation of net asset value per share) and are subject to a
shareholder servicing fee. Class B shares are offered at net asset value without
a sales charge but are subject to a contingent deferred sales charge plus
distribution and shareholder servicing fees. Class B shares of the Fund held for
8 years will automatically convert to Class A shares of the Fund.
ANNUAL FUND OPERATING EXPENSES include payments by the Fund and payments by the
Master Portfolio which are allocable to the Fund. Operating expenses include
fees for portfolio management, maintenance of shareholder accounts, general
administration, distribution (in the case of Class B shares only), shareholder
servicing, accounting and other services.
Below is a summary of the shareholder transaction expenses imposed by the Fund
for Class A and Class B shares and its estimated operating expenses (including
the operating expenses of the Master Portfolio which are allocable to the Fund)
for the first twelve months of operations. A hypothetical example based on the
summary is also shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Class B
-------------------------------- ------- -------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None
Sales Load Imposed on Reinvested Dividends None None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None 5.00%
Redemption Fees None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after
expense reimbursements)
Management Fees (after fee waivers)' 0.75% 0.75%
12b-1 and Shareholder Service Fees* 0.25% 1.00%
Other Expenses (after expense reimbursements)+ 0.36% 0.36%
Total Operating Expenses 1.56% 2.31%
</TABLE>
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+ Management intends to waive fees and reimburse certain "Other Expenses" on
behalf of the Fund so that "Total Operating Expenses" for the Fund (other
than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses)
will not exceed 1.56% and 2.31% of the average net assets of the Fund's
Class A and Class B shares, respectively, on an annual basis for the first
twelve months of the Fund's operations. Absent expense reimbursement,
management fees would be .95% of the average net assets, actual "Other
Estimated Expenses" for the Fund's Class A and Class B shares for the
fiscal year ended February 28, 1997 would be 1.20% and 1.20% of average
net assets (annualized), respectively, and actual "Total Operating
Expenses" for the Fund's Class A and Class B shares for the fiscal year
ended February 28, 1997 would be 2.40% and 3.15% of average net assets
(annualized), respectively.
* Includes distribution fees payable at the annual rate of 0.75% of the
average daily net assets of the Fund's Class B shares, and shareholder
service fees payable at the annual rate of 0.25% of the average daily net
assets of the Fund's Class A and Class B shares.
5
<PAGE> 10
EXAMPLE: Assume the annual return is 5% and operating expenses are the
same as those stated above. For every $1,000 you invest, here's how much
you would have paid in total expenses if you closed your account after the
number of years indicated:
<TABLE>
<CAPTION>
After 1 Yr After 3 Yrs
---------- -----------
<S> <C> <C>
Class A shares(1) $60 $ 92
Class B shares
Assuming complete
redemption at
end of period(2) $73 $102
Assuming no redemption $23 $ 72
</TABLE>
(1) Assumes deduction at time of purchase of maximum applicable front-end
sales charge. The total expenses you would have paid would be the same
whether or not you completely redeemed your shares.
(2) Assumes deduction at redemption of maximum applicable contingent
deferred sales charge.
Note: The preceding operating expenses and example should not be considered a
representation of future investment returns and operating expenses. The Fund and
the Master Portfolio are new and the above figures are estimates for the first
twelve months of operations only. Actual investment returns and operating
expenses may be more or less than those shown.
--------------
This expense information is provided to help you understand the expenses you
would bear either directly (as with transaction expenses) or indirectly (as with
annual operating expenses) as a Fund shareholder.
Management fees consist of:
- an investment advisory fee payable at the annual rate of 0.75% of the
Master Portfolio's average daily net assets; and
- an administration fee payable at the annual rate of 0.15% of the
Fund's average daily net assets and 0.05% of the Master Portfolio's
average daily net assets.
Currently, the most restrictive expense limitation limits the Fund's aggregate
annual expenses (including management fees and the Fund's pro rata share of such
expenses of the Master Portfolio) to 2.5% of the first $30 million of the Fund's
average daily net assets, 2% of the next $70 million and 1.5% of the Fund's
remaining average net assets.
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<PAGE> 11
The Board of Directors of the Company believes that the aggregate per share
expenses of the Fund and the Master Portfolio in which the Fund's assets are
invested will be less than or approximately equal to the expenses which the Fund
would incur if the Company retained the services of an investment adviser for
the Fund and the assets of the Fund were invested directly in the type of
securities held by the Master Portfolio. Further, the Directors believe that the
shareholders of the Fund will participate in the ownership of a larger portfolio
of securities than could be achieved directly by the Fund. There can be no
assurance, however, that such will be the case or that any economies of scale
that might occur if other investors acquire shares of the Master Portfolio will
be realized, inasmuch as the Company is not aware of any other potential
investor in the Master Portfolio.
A Distribution Plan payment is made in the amount of 0.75% of the average daily
net assets of the Fund's Class B shares. A shareholder service payment is made
in the amount of 0.25% of the average daily net assets of the Fund's Class A and
Class B shares. Because of the Distribution Plan payment paid by the Fund as
shown in the above table, long-term Class B shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. For a further description of
shareholder transaction expenses and the Fund's operating expenses, see the
sections entitled "Shareholder Guide," "The Business of the Fund" and "Plan
Payments" below.
The alternate sales arrangements permit you to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length of
time you expect to hold the shares and other circumstances. You should determine
whether under your particular circumstances it is more advantageous to incur an
initial sales charge, or to have the entire initial purchase price invested in
the Fund with the investment thereafter being subject to an annual distribution
plan charge and a contingent deferred sales charge upon redemption within the
first six years of investment. See the section entitled "How to Buy Shares"
below.
7
<PAGE> 12
FUND INVESTMENTS
INVESTMENT OBJECTIVE
The Pacific Horizon International Equity Fund seeks long-term capital growth by
investing primarily in foreign equity securities. The Fund may be appropriate
for investors who want to diversify their investments into foreign equity
markets and who are prepared to accept the risks entailed in such investments.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Master Portfolio. The Master Portfolio has the same
investment objective as the Fund.
While the Master Portfolio strives to attain its investment objective, there can
be no assurance that it will be able to do so.
Since the investment characteristics of the Fund will correspond to those of the
Master Portfolio, the following is a discussion of the various investments of
and techniques employed by the Master Portfolio.
TYPES OF INVESTMENTS
IN GENERAL. During normal market conditions, the Master Portfolio will invest at
least 80% of its total assets in equity securities of companies that are
domiciled or have their principal activities in countries outside the United
States. Normally, the Master Portfolio will invest in equity securities of
companies in at least three different foreign countries. The domicile or the
location of the principal activities of a company will be the country under
whose laws the company is organized, in which the principal trading market for
the equity securities issued by the company is located, or in which the company
has over half of its assets or derives over half of its revenues or profits.
Equity securities in which the Master Portfolio may invest consist of common
stocks, preferred stocks, securities convertible into common stocks or preferred
stocks, and warrants to purchase such securities.
The Master Portfolio may invest up to 20% of its total assets (at the time of
purchase) in convertible bonds and debt securities. These debt obligations
include U.S. Government and foreign government securities and corporate debt
securities, including Samurai and Yankee bonds and Euro-bonds. The Master
Portfolio will limit its purchases of debt securities to investment grade
obligations. "Investment grade" debt refers to those securities rated within one
of the four highest ratings categories by Moody's Investors Service, Inc.
("Moody's") or by Standard & Poor's Ratings Group, Division of McGraw Hill
("S&P"), Duff & Phelps Credit Co. ("D&P"), or Fitch Investors Service, Inc.
("Fitch"), or, if unrated, deemed by Bank of America to be of equivalent
quality. Securities rated in the lowest category of investment grade, Baa by
Moody's or BBB by S&P, D&P or Fitch may have speculative characteristics.
In the event that the rating of any security held by the Master Portfolio
falls below the required rating, the Master Portfolio will not be obligated to
dispose of such security and may continue to
8
<PAGE> 13
hold the security if, in the opinion of Bank of America, such investment is
considered appropriate under the circumstances.
The Master Portfolio may also invest, without limitation, in securities of
foreign issuers in the form of American Depository Receipts ("ADRs") or other
similar securities evidencing ownership of underlying securities issued by
foreign issuers. ADRs purchased for the Master Portfolio will be included as
part of the 80% of assets in foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities underlying the
ADRs. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying foreign securities. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets.
During temporary defensive periods when Bank of America believes such a position
is warranted by uncertain or unusual market conditions, the Master Portfolio may
invest without limit in securities issued or guaranteed by the U.S. Government
(and its agencies and instrumentalities), foreign or domestic money market
instruments and investment grade debt securities, or may hold its assets in cash
(U.S. dollars, foreign currencies or multinational currency units).
RISK FACTORS. Although investing in any mutual fund has certain inherent risks,
an investment in the Fund may have even greater risks than investments in most
other types of mutual funds. The Fund is not a complete investment program, and
it may not be appropriate for an investor if he or she cannot bear financially
the loss of at least a significant portion of his or her investment. The Fund's
net asset value per share is subject to rapid and substantial changes because
greater risk is assumed in seeking the Fund's objective.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers carry certain risks not ordinarily associated with
investments in securities of domestic issuers. Such risks include future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Because the Master Portfolio will invest heavily in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will, to the extent the Master Portfolio does not adequately
hedge against such fluctuations, affect the value of securities in the Master
Portfolio so far as U.S. investors are concerned. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets and the regulatory control of the exchanges on which the currencies
trade. These forces are themselves affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors. Costs are incurred in connection with conversions
between various currencies.
9
<PAGE> 14
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to, or as
uniform as, those of U.S.-based companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than U.S.
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S.-based companies. There
is generally less government supervision and regulation of foreign exchanges,
brokers and issuers than there is in the United States. The Master Portfolio
might have greater difficulty taking appropriate legal action in a foreign court
than in a United States court.
The expense ratio of the Master Portfolio can be expected to be higher than that
of funds investing in domestic securities. The costs attributable to investing
abroad are usually higher for several reasons, such as the higher cost of
investment research, higher cost of custody of foreign securities, higher
commissions paid on comparable transactions on foreign markets and additional
costs arising from delays in settlements of transactions involving foreign
securities.
Interest and dividends payable on a Master Portfolio's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax provisions, they may reduce the net return to the Master Portfolios'
shareholders. See "Tax Information."
ADDITIONAL INVESTMENTS. When not invested in the securities described above, the
Master Portfolio may invest in other types of securities subject to the
limitations described previously.
The Master Portfolio may purchase bank obligations including certificates of
deposit and bankers' acceptances issued by domestic or foreign banks or
financial institutions that have total assets of more than $2.5 billion. The
Master Portfolio may also make interest-bearing savings deposits in commercial
banks in amounts not exceeding 5% of its total assets.
Commercial paper rated in the top rating category by S&P, Moody's, D&P or Fitch
and unrated commercial paper determined to be of comparable quality by Bank of
America may also be purchased.
As noted above, the Master Portfolio may purchase obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of some of these agencies and instrumentalities, such as the Small
Business Administration or the Maritime Administration, are backed by the full
faith and credit of the U.S. Government; others, like the Federal National
Mortgage Association, are backed by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, including the
Student Loan Marketing Association, are backed solely by the issuer's credit.
There is no assurance that the U.S. Government would support a U.S.
Government-sponsored entity if it was not required to do so by law.
10
<PAGE> 15
FUNDAMENTAL LIMITATIONS
The investment objective of the Fund and the Master Portfolio may not be changed
without a vote by the holders of a majority of the outstanding shares of the
Fund or of the outstanding interests of the Master Portfolio, respectively.
Policies requiring such a vote to effect a change are known as "fundamental."
Included in the Fund's and the Master Portfolio's fundamental investment
limitations is the restriction that neither the Fund nor the Master Portfolio
may borrow money for the purpose of obtaining investment leverage or issue
senior securities (as defined in the Investment Company Act of 1940), provided
that the Fund and the Master Portfolio may borrow from banks for temporary
purposes and in an amount not exceeding 10% of the value of the total assets of
the Fund or the Master Portfolio; or mortgage, pledge or hypothecate any assets,
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total assets at
the time of such borrowing. This restriction shall not apply to (a) the sale of
portfolio securities accompanied by a simultaneous agreement as to their
repurchase, or (b) transactions in currency, options, futures contracts and
options on futures contracts, or forward commitment transactions.
A complete list of the fundamental investment limitations is set out in full
in the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
OPTIONS. The Master Portfolio may write covered put and call options and
purchase put and call options on U.S. or foreign securities that are traded on
United States and foreign securities exchanges and in over-the-counter markets.
Call options written by the Master Portfolio give the holder the right to buy
the underlying security from the Master Portfolio at a stated exercise price
upon exercising the option at any time prior to its expiration. A call option
written by the Master Portfolio is "covered" if the Master Portfolio owns or has
an absolute right (such as by conversion) to the underlying security covered by
the call. A call option is also covered if the Master Portfolio holds a call on
the same security and in the same principal amount as the call written and the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
if the difference is maintained by the Master Portfolio in cash, government
securities or other high grade debt obligations in a segregated account with its
custodian.
Put options written by the Master Portfolio give the holder the right to sell
the underlying security to the Master Portfolio at a stated exercise price. A
put option written by the Master Portfolio is "covered" if the Master Portfolio
maintains cash or high grade debt obligations with a value equal to the exercise
price in a segregated account with its custodian, or holds a put on the same
security and in the same principal amount as the put written and the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
11
<PAGE> 16
The premium paid by the purchaser of an option will generally reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand, and current interest rates.
The risks of transactions in options on foreign securities exchanges are similar
to the risks of investing in foreign securities. In addition, a foreign exchange
may impose different exercise and settlement terms and procedures and margin
requirements than a U.S. exchange.
The Master Portfolio may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, the Master Portfolio
will reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option plus transaction
costs. The Master Portfolio may purchase call options to hedge against an
increase in the price of securities that the Master Portfolio anticipates
purchasing in the future. The premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by the Master
Portfolio upon exercise of the option. Unless the price of the underlying
security rises sufficiently, the call option may expire worthless to the Master
Portfolio.
The Master Portfolio's options transactions will be limited as follows: a) not
more than 5% of the total assets of the Master Portfolio may be invested in
options; b) the obligations of the Master Portfolio under put options written by
the Master Portfolio may not exceed 50% of the net assets of the Master
Portfolio; and c) the aggregate premiums on all options purchased by the Master
Portfolio may not exceed 25% of the net assets of the Master Portfolio.
The Master Portfolio may buy put and call options on various stock indices. In
contrast to an option on a particular security, an option on a stock index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option.
OPTIONS ON FOREIGN CURRENCIES. The Master Portfolio may purchase and write put
and call options on foreign currencies to increase the Fund's gross income and
for the purpose of protecting against declines in the United States dollar value
of foreign currency-denominated portfolio securities and against increases in
the United States dollar cost of such securities to be acquired. As with other
kinds of options, however, writing an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and the Master
Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. Purchasing an option
on a foreign currency may constitute an effective hedge against fluctuations in
exchange rates although, in the event of rate movements adverse to the Master
Portfolio's position, the Master Portfolio may forfeit the entire amount of the
premium paid plus related transaction costs. Options on foreign currencies
written or purchased by the Master Portfolio may be traded on United States and
foreign exchanges or over-the-counter. There is no specific percentage
limitation on the Master Portfolio's investments in options on foreign
currencies.
STOCK INDEX, INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS.
The Master Portfolio may purchase and sell stock index, interest rate and
foreign currency futures contracts (as well as purchase related options) in an
effort to hedge against changes in the value of securities
12
<PAGE> 17
that the Master Portfolio holds in its portfolio or which it intends to
purchase, or as a substitute for purchasing or selling the underlying security.
Such changes could occur as a result of market conditions or fluctuating
currency exchange rates. These transactions will only be entered into when
deemed appropriate by Bank of America to reduce the risks inherent in the
management of the Master Portfolio.
The Master Portfolio may not purchase or sell a futures contract or purchase a
related option unless immediately after any such transaction the sum of the
aggregate amount of initial margin deposits on its existing futures positions
and the amount of premiums paid for related options does not exceed 5% of the
Master Portfolio's total assets (after taking into account certain technical
adjustments).
More information regarding futures contracts and related options can be found in
Appendix B to the Statement of Additional Information.
POTENTIAL RISKS OF OPTIONS AND FUTURES. The successful use of the foregoing
investment techniques depends on the ability of Bank of America to forecast
interest rate and currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, the Master Portfolio may not
achieve the anticipated benefits of futures contracts or options or may realize
losses and thus be in a worse position than if such strategies had not been
used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to options
on currencies, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the prices of such instruments and movements in the price of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses. The Master Portfolio's ability to dispose of its
positions in futures contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Therefore, no assurance can
be given that the Master Portfolio will be able to utilize these instruments
effectively for the purposes set forth above. In order to prevent leverage in
connection with the purchase of futures contracts or call options thereon by the
Master Portfolio, an amount of cash, cash equivalents or liquid high grade debt
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the custodian. Furthermore, the Master Portfolio's ability to
engage in options and futures transactions may be limited by tax considerations.
REPURCHASE AGREEMENTS. The Master Portfolio may buy securities subject to the
seller's agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Master Portfolio will enter
into repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed creditworthy by Bank of America, under guidelines
approved by the Master Portfolio's Board of Trustees. It is intended that such
agreements will not have maturities longer than 60 days. During the term of any
repurchase agreement, the seller must maintain the value of the securities
subject to the agreement in an amount that is greater than the repurchase price.
Bank of America then continually monitors that value. Nonetheless, should the
seller default on its obligations under the agreement, the Master Portfolio
would be exposed to possible loss due to adverse market action or delays
connected with the
13
<PAGE> 18
disposition of the underlying obligations. Repurchase agreements are considered
to be loans under the Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS. The Master Portfolio may borrow money for
temporary purposes by entering into reverse repurchase agreements. Under these
agreements the Master Portfolio sells portfolio securities to financial
institutions (such as banks and broker-dealers) and agrees to buy them back at
an agreed upon time and price. When the Master Portfolio enters into a reverse
repurchase agreement, it places in a separate custodial account either liquid
assets or other high grade debt securities that have a value equal to or greater
than the repurchase price. The account is then continuously monitored by Bank of
America to make sure that an appropriate value is maintained. Reverse repurchase
agreements involve the risk that the value of portfolio securities the Master
Portfolio relinquishes may decline below the price the Master Portfolio must pay
when the transaction closes. Reverse repurchase agreements are considered to be
borrowings by the Master Portfolio under the 1940 Act. Borrowings may magnify
the potential for gain or loss on amounts invested resulting in an increase in
the speculative character of the Master Portfolio's outstanding shares. The
Master Portfolio will only enter into reverse repurchase agreements to avoid the
need to sell portfolio securities to meet redemption requests during unfavorable
market conditions.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Master
Portfolio may purchase securities on a "when-issued" basis and purchase or sell
securities on a "forward commitment" basis. Additionally, the Master Portfolio
may purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by the Master
Portfolio to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the
Master Portfolio to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in interest rates. Delayed settlement
refers to a transaction in the secondary market that will settle some time in
the future. These transactions involve the risk that the price or yield obtained
may be less favorable than the price or yield available when the delivery takes
place. The Master Portfolio will set aside in a segregated account cash or
liquid securities equal to the amount of any when-issued, forward commitment or
delayed settlement transactions. When-issued purchases, forward commitments and
delayed settlements are not expected to exceed 25% of the Master Portfolio's
total assets under normal circumstances. These transactions will not be entered
into for speculative purposes, but primarily to hedge against anticipated
changes in interest rates.
SECURITIES LENDING. In order to earn additional income, the Master Portfolio may
lend its portfolio securities to financial institutions (such as banks and
brokers) that Bank of America considers to be of good standing. Borrowers of
portfolio securities may not be affiliated directly or indirectly with the
Company or the Master Portfolio. If the financial institution should become
bankrupt, however, the Master Portfolio could experience delays in recovering
its securities. A securities loan will only be made when, in the judgment of
Bank of America, the possible reward from the loan justifies the possible risks.
In addition, such loans will not be made if, as a result, the value of
securities loaned by the Master Portfolio exceeds 30% of its total assets.
Securities loans will be fully collateralized.
14
<PAGE> 19
INVESTMENT COMPANY SECURITIES. The Master Portfolio may acquire shares of open-
and closed-end investment companies, including companies that invest in foreign
issuers, subject to the requirements of applicable securities laws. No more than
10% of the value of the Master Portfolio's total assets will be invested in
securities of other investment companies, with no more than 5% invested in the
securities of any one investment company. In addition, the Master Portfolio may
hold no more than 3% of the outstanding voting stock of any other investment
company. Although these investment companies may have policies that differ from
the Master Portfolio's policies, their management and other types of expenses
will be similar to those borne by the Master Portfolio. When the Master
Portfolio invests in another investment company, it pays a pro rata portion of
that company's expenses. Such expenses are in addition to the expenses the
Master Portfolio pays in connection with its own operations.
ILLIQUID SECURITIES. The Master Portfolio will not invest more than 15% of the
value of its total assets (determined at the time of acquisition) in securities
that are illiquid. If, after the time of acquisition, events cause this limit to
be exceeded, the Master Portfolio will take steps to reduce the aggregate amount
of illiquid securities as soon as is reasonably practicable. The Master
Portfolio intends that investments in securities that are not registered under
the Securities Act of 1933 but may be purchased by institutional buyers under
Rule 144A and for which a liquid trading market exists as determined by the
Board of Trustees or Bank of America (pursuant to guidelines adopted by the
Board), will not be subject to the Master Portfolio's 15% limitation on illiquid
securities.
PORTFOLIO TRANSACTIONS. Investment decisions for the Master Portfolio are made
independently from those for other investment companies and accounts managed by
Bank of America and its affiliated entities. Such other investment companies and
accounts may also invest in the same securities as the Master Portfolio. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Master Portfolio and another investment company or account,
available investments or opportunities for sales will be equitably allocated
pursuant to procedures of Bank of America. In some instances, this investment
procedure may adversely affect the price paid or received by the Master
Portfolio or the size of the position obtained or sold by the Master Portfolio.
From time to time, the Master Portfolio may pay brokerage commissions to an
affiliate of the Fund's distributor on securities acquired by the Master
Portfolio. In allocating purchase and sale orders for investment securities,
Bank of America may consider the sale of Fund shares by broker-dealers and other
financial institutions (including affiliates of Bank of America or the Fund's
distributor to the extent permitted by law), provided it believes the quality of
the transaction and the price to the Master Portfolio are not less favorable
than what they would be with any other qualified firm.
PORTFOLIO TURNOVER. The Master Portfolio's investment practices may result in
portfolio turnover greater than that of other mutual fund portfolios. Turnover
may require payment of brokerage commissions, impose other transaction costs and
could increase substantially the amount of income received by the Master
Portfolio that constitutes taxable capital gains. To the extent capital gains
are realized, distributions from those gains may be ordinary income for federal
tax purposes (see "Tax Information"). The Master Portfolio's portfolio turnover
rate is not expected to exceed 75%,
15
<PAGE> 20
although portfolio turnover will not be a limiting factor in making investment
decisions for the Fund.
MASTER-FEEDER STRUCTURE. The Fund is an open-end investment portfolio that seeks
to achieve its investment objective by investing all of its investable assets in
the Master Portfolio which has the same investment objective. The Fund may
withdraw its investment in the Master Portfolio at any time if the Board of
Directors of the Company determines that it is in the best interest of the Fund
to do so. Upon any such withdrawal, the Board of Directors would consider what
action might be taken, including the investment of all of the assets of the Fund
in another pooled investment entity having the same investment objective as the
Fund or the hiring of an investment adviser to manage the Fund's assets in
accordance with the investment policies described above with respect to the
Master Portfolio. See "Expense Summary," "Fund Investments" and "Fund
Management" for a description of this investment objective and the investment
policies, restrictions, management and expenses of the Fund and the Master
Portfolio.
The Master Portfolio is a separate series of Master Investment Trust, Series I
(the "Master Trust"), which is organized as a business trust under the laws of
Delaware. The Fund and other entities that may invest in the Master Portfolio
from time to time (e.g., other investment companies and commingled trust funds)
will each be liable for all obligations of the Master Portfolio. However, the
risk of the Fund's incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Master Portfolio itself is unable to meet its obligations. Accordingly, the
Company's Board of Directors believes that neither the Fund nor its shareholders
will be adversely affected by reason of the Fund's investing in the Master
Portfolio. As stated above, the investment objective of the Fund and the Master
Portfolio is a fundamental policy and may not be changed, in the case of the
Fund, without the vote of its shareholders or, in the case of the Master
Portfolio, without the vote of its interestholders. Whenever the Fund is
requested to vote on matters pertaining to the investment objective or a
fundamental policy of the Master Portfolio, the Fund will hold a meeting of its
shareholders and will cast its vote in the same proportion as the votes cast by
the Fund's shareholders. The Fund will vote any shares for which it receives no
voting instructions in the same proportion as the shares for which it does
receive voting instructions. As with any mutual fund, other investors in the
Master Portfolio could control the results of voting at the Master Portfolio
level in certain instances (e.g. a change in fundamental policies by the Master
Portfolio which was not approved by the Fund's shareholders). This could result
in the Fund's withdrawal of its investment in the Master Portfolio, and in
increased costs and expenses for the Fund. Further, the withdrawal of other
entities that may from time to time invest in the Master Portfolio could have an
adverse effect on the performance of the Master Portfolio and the Fund, such as
decreased economies of scale and increased per share operating expenses. In
addition, the total withdrawal by another investment company as an investor in
the Master Portfolio will cause the Master Portfolio to terminate automatically
in 120 days unless the Fund and any other investors in the Master Portfolio
unanimously agree to continue the business of the Master Portfolio. If
unanimous agreement is not reached to continue the Master Portfolio, the Board
of Directors of the Company would need to consider alternative arrangements for
the Fund, such as those described above. The policy of the Fund, and other
similar investment companies, to invest their investable assets in trusts such
as the Master Portfolio is a relatively recent development in the mutual fund
16
<PAGE> 21
industry and, consequently, there is a lack of substantial experience with the
operation of this policy.
There may also be other investment companies through which you can invest in the
Master Portfolio which may have higher or lower fees and expenses than those of
the Fund and which may therefore have different performance results than the
Fund. Information concerning whether an investment in the Master Portfolio may
be available through another entity investing in the Master Portfolio may be
obtained by calling 800-332-3863.
17
<PAGE> 22
SHAREHOLDER GUIDE
THE FOLLOWING SECTION WILL PROVIDE YOU WITH ANSWERS
TO SOME OF THE MOST OFTEN-ASKED QUESTIONS REGARDING
BUYING AND SELLING THE FUND'S SHARES AND REGARDING THE FUND'S DIVIDENDS.
HOW TO BUY SHARES
WHAT IS MY MINIMUM INVESTMENT IN THE FUND?
Generally, there is a minimum investment requirement of $500 for initial
purchases and $50 for subsequent purchases, although these amounts may be
altered in certain circumstances as shown below.
INVESTMENT MINIMUMS FOR SPECIFIC TYPES OF ACCOUNTS
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT INVESTMENT
------------------ ---------------------
<S> <C> <C>
REGULAR ACCOUNT $ 500(*) $50
AUTOMATIC INVESTMENT PLAN $ 50 $50
IRAS, SEP-IRAS (ONE PARTICIPANT) $ 500 No minimum
SPOUSAL IRAS(**) $ 250 No minimum
SEP-IRAs $2,500 No minimum
(more than one participant)
</TABLE>
(*) The minimum investment is $100 for purchases made through Bank of America's
trust and agency accounts or a Service Organization (defined below) whose
clients have made aggregate minimum purchases of $1,000,000. The minimum
investment is $200 for BankAmericard holders with an appropriate award
certificate from BankAmeriChoice Program.
(**) A regular IRA must be opened in conjunction with this account.
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<PAGE> 23
WHAT ALTERNATIVE SALES ARRANGEMENTS ARE AVAILABLE?
The Fund issues two classes of shares. Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
A shares bear the expenses of a Shareholder Service Plan and Class B shares bear
the expenses of the Distribution and Services Plan and the deferred sales charge
arrangements and any expenses resulting from such arrangements and have
exclusive voting rights with respect to the distribution and service plan. The
two classes also have different exchange privileges, as described below. The net
income attributable to Class B shares and the dividends payable on Class B
shares will be reduced by the amount of the distribution and services plan fees
attributable to Class B shares and the incremental expenses associated with such
plan.
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon each
class' net asset value per share plus a front-end sales load on Class A shares.
Each class calculates its net asset value ("NAV") as follows:
<TABLE>
<S> <C>
NAV = (Value of Assets Attributable to the Class) - (Liabilities Attributable to the Class)
-------------------------------------------------------------------------------------
Number of Outstanding Shares of the Class
</TABLE>
Net asset value is determined as of the end of regular trading hours on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) on days
the Exchange is open.
The Master Portfolio's investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good faith
by the Master Portfolio pursuant to procedures adopted by the Master Portfolio's
Board of Trustees. Short-term debt securities are valued at amortized cost,
which approximates market value. Trading in foreign securities is generally
completed prior to the end of regular trading on the Exchange. Trading may occur
in foreign securities, however, on Saturdays and U.S. holidays and at other
times when the Exchange is closed. As a result, there may be delays in
reflecting changes in the market values of foreign securities in the calculation
of the net asset value per share of the Master Portfolio on days when net asset
value is not calculated and on which shareholders of the Fund cannot redeem due
to changes in values of securities traded in foreign markets. For further
information about valuing securities, see the Statement of Additional
Information. For price and yield information call (800) 346-2087.
The per share net asset values of Class A and Class B shares will diverge due to
the different distribution and other expenses borne by the classes.
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<PAGE> 24
CLASS A SHARES SALES LOAD. Except as noted below in the paragraph following the
chart, the front-end sales load ("front-end sales load," "sales load" or "sales
charge") for the Class A shares of the Fund begins at 4.50% and may decrease as
the amount you invest increases, as shown in the following chart:
<TABLE>
<CAPTION>
Amount of Transaction As a % of As a % of Dealer's
offering net asset Reallowance
price value as a % of
offering price*
<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.75 3.90 3.35
$250,000 but less than $500,000 2.50 2.56 2.20
$500,000 but less than $750,000 2.00 2.04 1.75
$750,000 but less than $3,000,000 1.00 1.01 0.90
$3,000,000 or more 0.00 0.00 0.00
</TABLE>
*Dealer's reallowance may be changed periodically.
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
CLASS B SHARES CONTINGENT DEFERRED SALES CHARGE. Class B shares are sold at net
asset value per share without the imposition of a sales charge at the time of
purchase. The Fund's distributor compensates broker-dealers that have entered
into a selling agreement with the distributor from its own funds at the time the
shares are purchased. The proceeds of the contingent deferred sales charges and
the ongoing distribution and services plan fees described below are used to
reimburse the Fund's distributor for its expenses, including the compensation of
broker-dealers.
Class B shares that are redeemed within 6 years of purchase are subject to the
contingent deferred sales charge at the rates set forth below, charged as a
percentage of the lesser of the current market value or the cost of the shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. Class B shares will convert to Class A shares on the first
business day of the month following the eighth anniversary of the date of
purchase unless the Class B shares have been exchanged for Pacific Horizon
shares of the Pacific Horizon Prime Fund.
20
<PAGE> 25
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Number of Years (as a percentage of dollar
Elapsed Since Purchase* amount to the charge)
<S> <C>
Less than one......................................... 5.0%
More than one, but less
than two............................................ 4.0%
More than two, but less
than three.......................................... 3.0%
More than three, but less
than four........................................... 3.0%
More than four, but less
than five........................................... 2.0%
More than five, but less
than six............................................ 1.0%
After six years ...................................... None
</TABLE>
- --------------
* The time period during which Pacific Horizon shares of the Pacific Horizon
Prime Fund acquired through an exchange are held is not included when the
amount of the contingent deferred sales charge is calculated.
In determining whether a contingent deferred sales charge is applicable to a
redemption of Class B shares, the calculation will be made in a manner that
results in the lowest possible rate. It will be assumed that the redemption is
made first of amounts representing Class B shares acquired pursuant to the
reinvestment of dividends and distributions; then of amounts representing the
increase in net asset value of your holdings of Class B shares above the total
amount of payments for the purchase of Class B shares during the preceding 6
years; then of amounts representing the cost of Class B shares held beyond the
applicable contingent deferred sales charge period; and finally, of amounts
representing the cost of the Class B shares held for the longest period of time.
As an example, assume that you purchased 100 shares at $10 per share (at a cost
of $1,000), that you have not exchanged for Pacific Horizon shares of the
Pacific Horizon Prime Fund, that in the third year after purchase the net asset
value per share is $12, and that during the three-year period you had acquired
10 additional shares through dividend reinvestment. If at such time you make
your first redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3.00% (the
applicable rate in the third year after purchase).
21
<PAGE> 26
WHEN NO FRONT-END SALES LOAD IS APPLIED. You pay no front-end sales load on the
following types of transactions:
- - reinvestment of dividends or distributions;
- - corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh
accounts) sponsored by the Fund's administrator;
- - employer-sponsored employee pension or retirement plans making direct
investments in the Fund other than 403(b) plans; provided that 403(b) plans
invested in the Fund as of _____ may continue to invest on a no-load basis;
- - any purchase of shares by an investment adviser regulated by federal or state
governmental authority when the investment adviser is purchasing shares for its
own account or for an account for which it is authorized to make investment
decisions (i.e., a discretionary account) other than purchases for 403(b) plans,
provided that investment advisers who have invested 403(b) plans in the Fund on
behalf of existing and new clients as of __________ may continue to invest on a
no-load basis;
- - accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary, provided appropriate notification of such status is given at the time
of investment;
- - any purchase of shares by clients of The Private Bank of America Illinois or
by Private Banking clients of Seattle-First National Bank or by or on behalf of
agency accounts administered by any bank or trust company affiliate of Bank of
America;
- - any purchase of shares through a discount broker-dealer that imposes a
transaction charge with respect to such purchase, provided you were the
beneficial owner of shares of the Fund (or any other fund in the Pacific Horizon
Family of Funds) prior to July 1, 1992, so long as your account remains open on
the Company's books;
- - any purchase of shares, provided you were the beneficial owner of shares of
the Fund (or any other fund in the Pacific Horizon Family of Funds) before April
20, 1987, so long as your account remains open on the Company's books;
- - any purchase of shares, provided you were the beneficial owner of shares of
Bunker Hill Income Securities, Inc. on the date of its reorganization into the
Pacific Horizon Corporate Bond Fund, so long as your account remains open on the
Company's books;
- - any purchase of shares pursuant to the Reinstatement Privilege described
below; and
- - any purchase of shares pursuant to the Directed Distribution Plan described
below.
22
<PAGE> 27
Additionally, some individuals are not required to pay a front-end sales load
when purchasing Fund shares, including:
- - members of the Company's Board of Directors;
- - U.S. - based employees and retirees (including employees who are U.S. citizens
but work abroad and retirees who are U.S. citizens but worked abroad) of Bank of
America or any of its affiliates, and their parents, spouses and minor children,
as well as members of the Board of Directors of Bank of America or any of its
affiliates;
- - registered representatives or full-time employees of broker-dealers having
agreements with the Fund's distributor pertaining to the sale of Fund shares
(and their spouses and minor children) to the extent permitted by such
organizations;
- - former full-time employees (and retirees) of Security Pacific Corporation (or
any of its subsidiaries) and the surviving spouses and minor children of such
employees (and retirees), provided they were the beneficial owner of shares of
the Fund (or any other fund in the Pacific Horizon Family of Funds) prior to
July 1, 1992, so long as their account remains open on the Company's books;
- - Holders of the BankAmericard with an appropriate award certificate from the
BankAmeriChoice Program (initial award only; a sales load will apply to
subsequent purchases).
WHEN NO CONTINGENT DEFERRED SALES CHARGE IS APPLIED. To receive one of the first
three exemptions listed below, you must explain the status of your redemption at
the time you redeem your shares. The contingent deferred sales charge with
respect to Class B shares is not charged on (1) exchanges described under
"Shareholder Services - Can I Exchange My Investment From One Fund to Another?;"
(2) redemptions in connection with minimum required distributions from IRA
accounts due to the shareholders reaching age 70-1/2; (3) redemptions in
connection with a shareholder's death or disability (as defined in the Internal
Revenue Code); and (4) involuntary redemptions as a result of an account's net
asset value remaining below $500 after sixty days' written notice. In addition,
no contingent deferred sales charge is charged on shares acquired through the
reinvestment of dividends or distributions.
RIGHTS OF ACCUMULATION. When buying Class A shares in Pacific Horizon Funds,
your current aggregate investment determines the sales load that you pay. Your
current aggregate investment is the accumulated combination of your immediate
investment along with the shares that you beneficially own in any Pacific
Horizon Fund on which you paid a sales load (including shares that carry no
sales load but were obtained through an exchange and can be traced back to
shares that were acquired with a sales load).
To qualify for a reduced sales load on Class A shares, you or your Service
Organization (which is an institution such as a bank or broker-dealer that has
entered into a selling and/or servicing agreement with the Fund's distributor)
must notify the Fund's transfer agent at the time of investment that a
23
<PAGE> 28
quantity discount is applicable. Use of this service is subject to a check of
appropriate records, after which you will receive the lowest applicable sales
charge. If you want to participate you can so indicate on your Account
Application or make a subsequent written request to the Transfer Agent.
Example: Suppose you beneficially own Class A shares carrying a sales load of
the Fund, the Pacific Horizon California Tax-Exempt Bond Fund, the Pacific
Horizon U.S. Government Securities Fund, the Pacific Horizon Capital Income Fund
and shares of the Company's money market funds that can be traced back to the
purchase of shares carrying a sales load (or any combination thereof) with an
aggregate current value of $90,000. If you subsequently purchase additional
Class A shares carrying a sales load of the Fund with a current value of
$10,000, the sales load applicable to the subsequent purchase would be reduced
to 3.75% of the offering price.
LETTER OF INTENT. You may also obtain a reduced sales charge on Class A shares
by means of a written Letter of Intent, which expresses your non-binding
commitment to invest in the aggregate $100,000 or more in shares of any Pacific
Horizon Fund within a period of 13 months, beginning up to 90 days prior to the
date of the Letter's execution. Class A shares carrying a sales load purchased
during that period count as a credit toward completion of the Letter of Intent.
Any investments you make during the period receive the discounted sales load
based on the full amount of your investment commitment. When your commitment is
fulfilled, an adjustment will be made to reflect any reduced sales load
applicable to shares purchased during the 90-day period prior to the submission
of your Letter of Intent.
While signing a Letter of Intent does not bind you to purchase, or the Company
to sell, the full amount indicated at the sales load in effect at the time of
signing, you must complete the intended purchase to obtain the reduced sales
load. When you sign a Letter of Intent, the Company holds in escrow shares
purchased by you in an amount equal to 5% of the total amount of your
commitment. After you fulfill the terms of the Letter of Intent, the escrow will
be released.
If your aggregate investment exceeds the amount indicated in your Letter of
Intent, you will receive an adjustment which reflects the further reduced sales
load applicable to your excess investment. It will be in the form of additional
shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
If your aggregate investment is less than the amount you committed, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent will
redeem an appropriate number of shares held in escrow to realize the difference.
If you would like to participate, complete the Letter of Intent on your Account
Application. If you have any questions regarding the Letter of Intent, call
800-332-3863. Please read it carefully, as you will be bound by its terms.
24
<PAGE> 29
HOW DO I DECIDE WHICH CLASS OF SHARES TO BUY?
The alternative sales arrangements of the Fund permits you to choose the method
of purchasing shares that is most beneficial given the amount of the purchase,
the length of time you expect to hold the shares and other relevant
circumstances. You should determine whether under your particular circumstances
it is more advantageous to incur an initial sales charge and an ongoing
shareholder service plan fee or to have the entire initial purchase price
invested in the Fund with the investment thereafter being subject to a
contingent deferred sales charge and ongoing distribution and services plan
fees.
As an illustration, investors who qualify for a significantly reduced sales
load, as described above, might elect the initial sales charge alternative
(Class A shares) because similar sales charge reductions are not available for
purchases under the contingent deferred sales charge alternative (Class B
shares). Moreover, Class A shares would not be subject to ongoing distribution
and services plan fees, as described below. However, because initial sales
charges are deducted at the time of purchase, such investors who pay an initial
sales charge would not have all their funds invested initially. The Company will
not accept any order for Class B shares from an investor who is eligible to
purchase Class A shares without a sales load.
Investors not qualifying for a reduced initial sales charge who expect to
maintain their investment in the Fund for an extended period of time might also
elect the initial sales charge alternative because over time the accumulated
continuing distribution and services plan fees related to Class B shares may
exceed the initial sales charge and ongoing shareholder service fees related to
Class A shares. However, such investors must weigh this consideration against
the fact that not all their funds will be invested initially. Furthermore, the
ongoing distribution and services plan fees may be offset to the extent any
return is realized on the additional funds initially invested under the
contingent deferred sales charge alternative.
Certain investors might determine it to be more advantageous to have all their
funds invested initially in Class B shares, although subject to continuing
distribution and services plan fees, and to a contingent deferred sales charge
for a 6-year period of time.
25
<PAGE> 30
HOW CAN I BUY SHARES?
The chart below provides more information regarding some of the different
methods for investing in the Fund.
TO BUY SHARES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE FUND'S TRANSFER AGENT)
<S> <C>
Contact them directly Contact them directly
for instructions. for instructions.
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
THROUGH THE DISTRIBUTOR
(IF YOU ARE OR WILL BE THE SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
<S> <C> <C>
BY MAIL Complete Account Mail all subsequent
Application and mail investments to:
it with a check
(payable to Pacific Pacific Horizon Funds,
Horizon International Inc.
Equity Fund) to the File No. 54634
address on the Account Los Angeles, CA 90074-
Application. 4634
- ------------------------------------------------------------------------------------------------------------
IN PERSON Deliver Account Deliver your payment
Application and your directly to the address
BISYS Fund Services Ohio, payment directly to on the left.
Inc. the address on the
3435 Stelzer Road left.
Columbus, OH 43219 -
3035
- ------------------------------------------------------------------------------------------------------------
BY WIRE Initial purchases of Contact the Fund's
shares into a new transfer agent at 800-
account may not be 346-2087 for wiring
made by wire. instructions.
Instruct your bank
to transmit
immediately
available funds for
purchase of Fund
shares in your name.
Be sure to include
your name and your
Fund account number.
Consult your bank for information on remitting
funds by wire and any associated bank charges.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 31
TO BUY SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
BY TELETRADE TeleTrade Privileges Purchases may be
(a service permitting may not be used to made in the minimum
transfers of money from make an initial amount of $500 and the
your checking, NOW or bank purchase. maximum amount of
money market account) $50,000 per transaction
as soon as appropriate
information regarding
your bank account has
been established on your
Fund account. This
information may be
provided on the Account
Application or in a
signature guaranteed
letter of instruction to
the Transfer Agent.
Signature guarantees are
discussed under "How to
Sell Shares."
Call 800-346-2087 to make
your purchase.
You should refer to the "Shareholder Services" section for
additional important information about the TeleTrade Privilege.
</TABLE>
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC INVESTMENTS
AND EXCHANGES, TO INVEST IN YOUR FUND ACCOUNT.
PLEASE REFER TO THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR
MORE INFORMATION.
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?
Your shares will be purchased at the Fund's public offering price calculated at
the next close of regular trading on the Exchange (currently 4:00 p.m. Eastern
time) after your purchase order is received in proper form by the Fund's
transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer Agent"), at its
Columbus office.
If you purchase shares through Bank of America, your broker or another Service
Organization, the entity involved is responsible for transmitting your order and
required funds to the Transfer Agent on a timely basis in accordance with the
procedures in this Prospectus. Share purchases (and redemptions) executed
through Bank of America or a Service Organization are executed only on days on
which the particular institution and the Fund are open for business. Purchase
orders received by a Service Organization in proper form by 4:00 p.m. Eastern
time on a business day will be effected at the public offering price calculated
at 4:00 p.m. Eastern time on that day, if the Service Organization transmits
your order to the Transfer Agent by the end of its business day. Except as
provided in the following two sentences, if the order is not received in proper
form by a Service Organization by 4:00 p.m. Eastern time or not received by the
Transfer Agent by the close of its business day, the order will be based upon
the next determined purchase price. The Company may from time to time in its
sole discretion appoint
27
<PAGE> 32
one or more entities as the Fund's agent to receive irrevocable purchase and
redemption orders and to transmit them on a net basis to the Transfer Agent. In
these instances orders received by the entity by 4:00 p.m. Eastern time on a
business day will be effected as of 4:00 p.m. Eastern time that day if the order
is actually received by the Transfer Agent not later than the next business
morning accompanied by payment in federal funds.
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?
You must specify at the time of investment whether you are purchasing Class A or
Class B shares.
Federal regulations require you to provide a certified taxpayer identification
number upon opening or reopening an account.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. Please remember that the Company
reserves the right to reject any purchase order.
You should note that Bank of America, Service Organizations and registered
investment advisers may charge a separate fee or transaction charge to their
clients for providing them with administrative services related to their
investment in Fund shares. These fees could constitute a substantial portion of
smaller accounts and may not be in an investor's best interest. Bank of America
and Service Organizations may also impose minimum customer account and other
requirements in addition to those imposed by the Fund. If you purchase or redeem
shares directly from the Fund, you may do so without incurring any charges other
than those described in this Prospectus.
HOW TO SELL SHARES
HOW DO I REDEEM MY SHARES?
Pacific Horizon Funds, Inc. makes it easy to sell, or "redeem," shares. The Fund
imposes no charge when you redeem shares. The value of the shares you redeem may
be more or less than your cost, depending on the Fund's current net asset value.
If you purchased your shares through an account at Bank of America, your Broker
or another Service Organization, you may redeem all or part of your shares in
accordance with the instructions pertaining to that account. If you are also the
shareholder of record on the Company's books, you may redeem shares in
accordance with the procedures described in the chart below as well as those of
your account. To use the redemption methods described below, you must arrange
with Bank of America or your Service Organization for delivery of the required
application(s) to the Transfer Agent.
28
<PAGE> 33
TO SELL SHARES
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE TRANSFER AGENT)
Contact them directly for instructions.
THROUGH THE DISTRIBUTOR
(IF YOU ARE A SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
<TABLE>
<S> <C>
BY MAIL
Pacific Horizon Send a signed, written request (each owner,
International including each joint owner, must sign) to the
Equity Fund Transfer Agent.
c/o Pacific Horizon
Funds, Inc., P.O.
Box 80221, Los
Angeles, California
90080 - 9909
- --------------------------------------------------------------------------------
IN PERSON
BISYS Fund Deliver your signed, written request (each
Services Ohio, Inc. owner, including each joint owner, must sign)
3435 Stelzer Road to the address on the left.
Columbus, OH
43219 - 3035
- --------------------------------------------------------------------------------
BY WIRE As soon as appropriate information regarding
your bank account has been established on your
Fund account, you may write, telephone or
telegraph redemption requests to the Transfer
Agent, and redemption proceeds will be wired
in federal funds to the commercial bank you
have specified. Information regarding your
bank account may be provided on the Account
Application or in a signature guaranteed
letter of instruction to the Transfer Agent.
Signature guarantee requirements are discussed
in the section entitled "What Kind Of
Paperwork Is Involved In Selling Shares?".
Redemption proceeds will normally be wired the
business day after your request and any other
necessary documents have been received by the
Transfer Agent.
Wire Privileges apply automatically unless you
indicate on the Account Application or in a
subsequent written notice to the Transfer
Agent that you do not wish to have them.
Requests must be for at least $1,000 and may
be subject to limits on frequency and amount.
Wire Privileges may be modified or suspended
at any time, and are not available for shares
issued in certificate form.
Contact your bank for information on any
charges imposed by the bank in connection with
receipt of redemptions by wire.
</TABLE>
29
<PAGE> 34
TO SELL SHARES
<TABLE>
<S> <C>
BY TELETRADE You may redeem Fund shares (minimum of $500
(a service and maximum of $50,000 per transaction) by
permitting telephone after appropriate information
transfers of money regarding your bank account has been
to your checking, established on your Fund account. This
NOW or bank money information may be provided on the Account
market account) Application or in a signature guaranteed
letter of instruction to the Transfer Agent.
Signature guarantee requirements are discussed
in the section entitled "What Kind Of
Paperwork Is Involved In Selling Shares?".
Redemption orders may be placed by calling
800-346-2087.
TeleTrade Privileges apply automatically
unless you indicate on the Account Application
or in a subsequent written notice to the
Transfer Agent that you do not wish to have
them.
You should refer to the "Shareholder Services"
section for additional important information
about the TeleTrade Privilege.
</TABLE>
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
AUTOMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER TO
THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE INFORMATION.
WHAT NAV WILL I RECEIVE FOR SHARES I WANT TO SELL?
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Transfer Agent at its Columbus
office. Although the Fund itself imposes no charge when Class A shares are
redeemed, if you purchase shares through Bank of America or a Service
Organization, they may charge a fee for providing certain services in connection
with investments in Fund shares.
When you redeem your Class B shares within 6 years of purchase (or longer if
your shares have been exchanged for Pacific Horizon shares of the Pacific
Horizon Prime Fund), you may be subject to a contingent deferred sales charge as
described above.
The Company reserves the right to redeem accounts (other than IRA and
non-working spousal IRA accounts) involuntarily if, after sixty days' written
notice, the account's net asset value remains below a $500 minimum balance. The
contingent deferred sales charge will not be imposed upon such involuntary
redemptions.
30
<PAGE> 35
WHAT KIND OF PAPERWORK IS INVOLVED IN SELLING SHARES?
Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming
Class A or Class B shares. If you own both Class A and Class B shares of the
Fund, Class A shares will be redeemed first unless you request otherwise.
Certain types of redemption requests will need to include a signature guarantee.
Signature guarantees must accompany redemption requests for (i) an amount in
excess of $50,000 per day, (ii) any amount if the redemption proceeds are to be
sent somewhere other than the address of record on the Company's books, or (iii)
an amount of $50,000 or less if the address of record has not been on the
Company's books for sixty days.
You may obtain a signature guarantee from: (i) a bank which is a member of the
FDIC; (ii) a trust company; (iii) a member firm of a national securities
exchange; or (iv) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." The Transfer Agent will not
accept guarantees from notaries public.
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?
The Company will make payment for all shares redeemed after the Transfer Agent
receives a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. If the shares to be redeemed have been
purchased by check or by TeleTrade, the Company will, upon the clearance of the
purchase check or TeleTrade payment, mail the redemption proceeds within seven
business days. This does not apply to situations where the Fund receives payment
in cash or immediately available funds for the purchase of shares.
Bank of America and the Service Organizations are responsible for transmitting
redemption orders and crediting their customers' accounts with redemption
proceeds on a timely basis.
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER I HAVE REDEEMED SHARES?
You may reinvest all or any portion of your redemption proceeds in shares of the
Fund , in shares of the same class of the Fund out of which you redeemed, in
like shares of another Fund in the Pacific Horizon Family of Funds or in like
shares of any investment portfolio of Time Horizon Funds (a "Time Horizon
Fund"), an open-end investment company managed by Bank of America, within 90
days of your redemption trade date without paying a sales load. Upon such a
reinvestment, the Fund's distributor will credit to your account any contingent
deferred sales charge imposed on any redeemed Class B shares or any Pacific
Horizon shares of the Pacific Horizon Prime Fund. Shares so reinvested will be
purchased at a price equal to the net asset value next determined after the
Transfer Agent receives a reinstatement request and payment in proper form.
31
<PAGE> 36
If you wish to use this Privilege, you must submit a written reinstatement
request to the Transfer Agent stating that you are eligible to use the
Privilege. The reinstatement request and payment must be received within 90 days
of the trade date of the redemption. Currently, there are no restrictions on the
number of times you may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
DIVIDEND AND DISTRIBUTION POLICIES
Shareholders of the Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments in the Master Portfolio which are allocable to the Fund. The Fund's
net income and net realized capital gains (if any) are distributed at least
annually. Distributions are paid within five business days after the end of the
year.
You will automatically receive dividends and capital gain distributions in
additional shares of the same class of shares of the Fund for which the dividend
was declared without a sales load unless you: (i) elect in writing to receive
payment in cash; or (ii) elect to participate in the Directed Distribution Plan
described in the section entitled "Can My Dividends From A Fund Be Invested In
Other Funds?"
To elect to receive payment in cash, or to revoke such election, you must do so
in writing to the Transfer Agent, at P.O. Box 80221, Los Angeles, California
90080-9909. The election or revocation will become effective with respect to
dividends paid after it is received by the Transfer Agent.
SHAREHOLDER SERVICES
PACIFIC HORIZON FUNDS, INC. PROVIDES A VARIETY OF WAYS TO MAKE MANAGING YOUR
INVESTMENTS MORE CONVENIENT.
Some or all of the following services and privileges as well as others described
in this Prospectus may not be available for, or may have different conditions
imposed on them than as described in this Prospectus with respect to, certain
clients of Bank of America and particular Service Organizations. Consult these
entities for more information.
32
<PAGE> 37
CAN I USE THE FUND IN MY RETIREMENT PLAN?
The Company makes available Individual Retirement Accounts ("IRAs"), including
IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and IRA
"Rollover Accounts."
YOUR INVESTMENTS GROW TAX DEFERRED UNTIL WITHDRAWAL AT RETIREMENT AND IN MANY
CASES THE INITIAL INVESTMENT IS TAX DEDUCTIBLE.
The contingent deferred sales charge with respect to Class B shares will not be
charged on redemptions in connection with minimum required distributions from an
IRA due to the shareholders' having reached age 70-1/2. For details, contact the
Fund's distributor at 800- 332-3863. Investors should also read the IRA
Disclosure Statement and the Bank Custodial Agreement for further details on
eligibility, service fees and tax implications, and should consult their tax
advisers.
CAN I EXCHANGE MY INVESTMENT FROM ONE
FUND TO ANOTHER?
As a shareholder, you have the privilege of exchanging your shares for: shares
of another Pacific Horizon Fund , or like shares of any Time Horizon Fund,
provided that such other shares may be legally sold in your state of residence.
Specifically, Class A shares may be exchanged for other Class A shares and Class
B shares may be exchanged for other Class B shares. NO ADDITIONAL SALES LOAD
WILL BE INCURRED WHEN EXCHANGING CLASS A SHARES PURCHASED WITH A SALES LOAD FOR
CLASS A SHARES OF ANOTHER LOAD FUND OF THE COMPANY OR TIME HORIZON FUNDS. CLASS
A AND CLASS B SHARES MAY BE EXCHANGED FOR OTHER CLASS A AND CLASS B SHARES,
RESPECTIVELY, OR FOR PACIFIC HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND
WITHOUT THE PAYMENT OF ANY CONTINGENT DEFERRED SALES CHARGE AT THE TIME THE
EXCHANGE IS MADE. IN ADDITION, PACIFIC HORIZON SHARES OF THE PACIFIC HORIZON
PRIME FUND THAT WERE ACQUIRED THROUGH AN EXCHANGE OF CLASS B SHARES, MAY BE
EXCHANGED FOR CLASS B SHARES WITHOUT THE PAYMENT OF ANY CONTINGENT DEFERRED
SALES CHARGE AT THE TIME THE EXCHANGE IS MADE. IN DETERMINING THE HOLDING PERIOD
FOR CALCULATING THE CONTINGENT DEFERRED SALES CHARGE PAYABLE UPON REDEMPTION OF
CLASS B SHARES, THE HOLDING PERIOD OF THE SHARES ORIGINALLY HELD WILL BE ADDED
TO THE HOLDING PERIOD OF THE SHARES ACQUIRED THROUGH THE EXCHANGE UNLESS THE
SHARES ACQUIRED THROUGH THE EXCHANGE ARE PACIFIC HORIZON SHARES OF THE PACIFIC
HORIZON PRIME FUND. THE TIME PERIOD DURING WHICH PACIFIC HORIZON SHARES OF THE
PACIFIC HORIZON PRIME FUND ACQUIRED THROUGH AN EXCHANGE ARE HELD IS NOT INCLUDED
WHEN THE AMOUNT OF THE CONTINGENT DEFERRED SALES CHARGE IS CALCULATED.
An investment in the Fund automatically entitles you to use this Privilege,
unless you indicate on the Account Application or in a subsequent letter to the
Transfer Agent that you do not wish to use this Privilege.
33
<PAGE> 38
Fund shares being exchanged must have a current value of at least $500 and are
subject to the minimum initial investment requirements of the particular fund
into which the exchange is being made. You may obtain prospectuses regarding the
funds into which you wish to make an exchange from your Service Organization or
the Fund's distributor.
You may provide exchange instructions by telephone by calling the Transfer Agent
at 800-346- 2087. (See the section below regarding TeleTrade for a description
of the Company's policy regarding responsibility for telephone instructions.)
You may also send exchange instructions in writing by following directions set
forth previously under "How to Sell Shares."
If you would like more information on making an exchange, please read the
Statement of Additional Information and consult your Service Organization or the
Fund's distributor.
The Fund reserves the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice of
any material modification to or termination of the Exchange Privilege will be
given to shareholders except where notice is not required under the regulations
of the Securities and Exchange Commission.
WHAT IS TELETRADE?
TELETRADE IS A SERVICE WHICH ALLOWS YOU TO AUTHORIZE ELECTRONIC TRANSFERS OF
MONEY TO PURCHASE SHARES IN OR REDEEM SHARES FROM AN ESTABLISHED FUND ACCOUNT.
THE SERVICE MAY BE USED LIKE AN "ELECTRONIC CHECK" TO MOVE MONEY BETWEEN AN
ACCOUNT AT A FINANCIAL INSTITUTION AND A FUND ACCOUNT WITH A SINGLE TELEPHONE
CALL.
Purchase and redemption proceeds with respect to TeleTrade transactions will be
transferred between your Fund account and the checking, NOW or bank money market
account designated by you. Only an account maintained at a domestic financial
institution that is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the public offering price next
determined after the Transfer Agent receives payment for the transaction.
Redemption proceeds will be on deposit in your account at your financial
institution generally two business days after the redemption request is received
by the Transfer Agent. You may also request receipt of your redemption proceeds
by check, which will be payable to the registered owners of your Fund account
and will be sent only to the address of record.
You should note that the Transfer Agent may act upon a telephone redemption
request (including a telephone wire redemption request) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Neither the Company nor any of its service
contractors will be liable for any loss or expense in acting upon telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable. If you should experience difficulty in
contacting the Transfer Agent to place telephone redemptions (including
34
<PAGE> 39
telephone wire redemptions), for example because of unusual market activity,
you are urged to consider redeeming your shares by mail or in person.
The Company may modify the TeleTrade Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS
MADE ON A REGULAR BASIS?
YOU MAY ARRANGE, THROUGH THE AUTOMATIC INVESTMENT PROGRAM, FOR SYSTEMATIC
INVESTMENTS IN YOUR FUND ACCOUNT IN AMOUNTS OF $50 OR MORE BY DIRECTLY DEBITING
YOUR ACCOUNT AT YOUR FINANCIAL INSTITUTION. At your option, your checking, NOW
or bank money market account designated by you will be debited in the specified
amount, and Fund shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only accounts maintained at a
domestic financial institution which permits automatic withdrawals and is an
Automated Clearing House member are eligible. The Automatic Investment Program
is one means by which you may use Dollar Cost Averaging in making investments.
WHAT IS DOLLAR COST AVERAGING
AND HOW CAN I IMPLEMENT IT?
DOLLAR COST AVERAGING INVOLVES INVESTING A FIXED DOLLAR AMOUNT AT REGULAR
PREDETERMINED INTERVALS. BECAUSE MORE SHARES ARE BOUGHT DURING PERIODS WITH
LOWER SHARE PRICES AND FEWER SHARES ARE BOUGHT WHEN THE PRICE IS HIGHER, YOUR
AVERAGE COST PER SHARE MAY BE REDUCED. You may also implement Dollar Cost
Averaging on your own initiative or through other entities.
In order to be effective, Dollar Cost Averaging should be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while you may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if you ultimately redeem
your shares at a price that is lower than their purchase price.
To establish an Automatic Investment Account that uses the Dollar Cost Averaging
method, check the appropriate box and supply the necessary information on the
Account Application or in a subsequent written request to the Transfer Agent.
You may cancel this Privilege or change the amount of purchase at any time by
mailing written notification to the Transfer Agent.
35
<PAGE> 40
Notification will be effective three business days following receipt. The Fund
may modify or terminate this Privilege at any time or charge a service fee,
although no such fee currently is contemplated.
CAN I ARRANGE PERIODIC WITHDRAWALS?
IF YOU ARE A SHAREHOLDER WITH A FUND ACCOUNT VALUED AT $5,000 OR MORE, YOU MAY
WITHDRAW AMOUNTS IN MULTIPLES OF $50 FROM YOUR ACCOUNT ON A MONTHLY, QUARTERLY,
SEMI-ANNUAL OR ANNUAL BASIS THROUGH THE AUTOMATIC WITHDRAWAL PLAN.
At your option, monthly, quarterly, semi-annual and annual withdrawals will be
made on either the first or fifteenth day of the particular month selected. To
participate in this Plan, check the appropriate box and supply the necessary
information on the Account Application or in a subsequent signature guaranteed
written request to the Transfer Agent. Purchases of additional shares
concurrently with withdrawals are ordinarily not advantageous because of the
Fund's sales load. Use of this Plan may also be disadvantageous for Class B
shares due to the potential need to pay a contingent deferred sales charge.
CAN MY DIVIDENDS FROM THE FUND BE INVESTED
IN OTHER FUNDS?
You may elect to have your dividends, capital gains distributions, or both
("distribution proceeds") received from a non-retirement Fund account
automatically invested in shares of any other investment portfolio of the
Company, or in like shares of any Time Horizon Fund, provided such shares are
held in a non-retirement account. To participate in this program, known as the
Directed Distribution Plan, check the appropriate box and supply the necessary
information on the Account Application or subsequently send a written request to
the Transfer Agent. Participants in the Directed Distribution Plan are subject
to the minimum initial investment requirements of the particular fund involved.
Investments will be made at a price equal to the net asset value of the
purchased shares next determined after receipt of the distribution proceeds by
the Transfer Agent.
There are no subsequent investment requirements for accounts to which
distribution proceeds are directed nor are service fees currently charged for
effecting these transactions.
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
YOU MAY PURCHASE FUND SHARES BY HAVING PAYMENTS AUTOMATICALLY DEPOSITED INTO
YOUR FUND ACCOUNT (MINIMUM OF $50 AND MAXIMUM OF $50,000 PER TRANSACTION) IF YOU
RECEIVE A FEDERAL SALARY, SOCIAL SECURITY OR CERTAIN VETERAN'S, MILITARY OR
OTHER PAYMENTS FROM THE
36
<PAGE> 41
FEDERAL GOVERNMENT. Subject to these limitations, you may deposit as much of
your payments as you wish.
For instructions on how to enroll in this Direct Deposit Program, call the
Transfer Agent at 800- 346-2087.
Note: Death or legal incapacity will terminate participation in the Program. You
may also choose at any time to terminate your participation by notifying the
appropriate federal agency in writing. Further, the Fund may terminate your
participation after serving 30 days' notice.
THE BUSINESS OF THE FUND
FUND MANAGEMENT
The business affairs of the Pacific Horizon Funds, Inc. are managed under the
general supervision of its Board of Directors. Information about the Directors
and Officers of the Company and about the Trustees and Officers of the Master
Trust is included in the Statement of Additional Information under "Management."
EXPENSES
Operating expenses borne by the Fund and the Master Portfolio include taxes,
fees and expenses of the directors, trustees and officers, administration,
custodial and transfer agency fees, certain insurance premiums, outside auditing
and legal expenses, cost of shareholder/interestholder reports and meetings and
any extraordinary expenses. Fund expenses also include Securities and Exchange
Commission fees, state securities qualification fees, cost of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, and certain shareholder
servicing fees. Portfolio expenses include investment advisory fees. Except as
noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services and the Fund and Master
Portfolio bear the expenses incurred in their operations.
SERVICE PROVIDERS
INVESTMENT ADVISER
Bank of America serves as Investment Adviser of the Master Portfolio. Bank of
America is a subsidiary of BankAmerica Corporation, a registered bank holding
company. Its principal offices are located at 555 California Street, San
Francisco, California 94104.
37
<PAGE> 42
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking, business
credit and thrift offices in major U.S. cities and branches, corporate offices
and representative offices in 37 countries.
In its advisory agreement, Bank of America has agreed to manage the Master
Portfolio's investments and to be responsible for, place orders for, and make
decisions with respect to, all purchases and sales of the Master Portfolio's
securities. The advisory agreement also provides that Bank of America may, in
its discretion, provide advisory services through its own employees or employees
of one or more of its affiliates that are under the common control of Bank of
America's parent, BankAmerica Corporation, provided such employees are under the
management of Bank of America. Bank of America may also employ a sub-adviser
provided that Bank of America remains fully responsible to the Master Portfolio
for the acts and omissions of the sub-adviser.
E. Keith Wirtz is the lead manager of the Master Portfolio, and Jeanne Howard
and Bernard H. Taylor co-manage and are primarily responsible for the day-to-day
investment activities of the Master Portfolio. Mr. Wirtz is a senior vice
president and chief investment officer of Bank of America, his employer since
1992. Previously, he was trust investment manager with Security Pacific Bank for
a ten year period. Mr. Wirtz is a Chartered Financial Analyst. Ms. Howard joined
Bank of America in 1992 and has been a co-manager and portfolio manager of Bank
of America's International Equity Common Trust Fund since its inception in 1993.
Mr. Taylor joined Bank of America in 1994 as Regional Investment Manager for the
European Investment Group in London. Prior to joining Bank of America, he
managed client assets for BSI-Thornhill for four years, was European Fund
Manager for Hill Samuel Investment Management Group for two years and had
investment research and analysis responsibilities for Mercantile and General
Reinsurance Company for three years.
For the services provided and expenses assumed under the advisory agreement,
Bank of America is entitled to receive a fee at the annual rate of 0.75% of the
Master Portfolio's average daily net assets. This fee may be higher than that
paid by other investment companies but is comparable to fees paid by other
investment companies with similar investment objectives and policies.
This amount may be reduced pursuant to undertakings by Bank of America. (See the
information below under "Fee Waivers"). In addition, Bank of America, and its
affiliates may be entitled to fees under the Shareholder Service Plan and the
Distribution and Services Plan as described under "Plan Payments" below, and may
receive fees charged directly to their accounts in connection with investments
in Fund shares.
ADMINISTRATOR
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<PAGE> 43
Concord Holding Corporation ("Concord") serves as Administrator of the Fund and
the Master Portfolio. Concord is an indirect, wholly-owned subsidiary of The
BISYS Group, Inc. Its offices are located at 3435 Stelzer Road, Columbus, Ohio
43219.
Under its administration agreements with the Company and the Master Portfolio,
Concord has agreed to: pay the costs of maintaining the offices of the Company
and the Master Portfolio; provide a facility to receive purchase and redemption
orders; provide statistical and research data, data processing services, and
clerical services; coordinate the preparation of reports to shareholders of the
Fund, interestholders of the Master Portfolio and the Securities and Exchange
Commission; prepare tax returns; maintain the registration or qualification of
the Fund's shares for sale under state securities laws; maintain books and
records of the Fund and the Master Portfolio; calculate the net asset value of
the Fund and the Master Portfolio and dividends and capital gains distributions
to shareholders; serve as dividend disbursing agent for the Master Portfolio;
and generally assist in all aspects of the operations of the Fund and the Master
Portfolio.
For its services as administrator, Concord is entitled to receive an
administration fee from the Fund at the annual rate of 0.15% of the Fund's
average daily net assets and an administration fee from the Master Portfolio at
the annual rate of 0.05% of the Master Portfolio's average daily net assets.
These amounts may be reduced pursuant to undertakings by Concord. (See the
information below under "Fee Waivers").
Pursuant to the authority granted in its administration agreements, Concord has
entered into an agreement with PFPC, Inc. ("PFPC") under which PFPC, and an
off-shore affiliate of PFPC, perform certain of the services listed above, e.g.,
calculating the net asset value of the Fund and the Master Portfolio,
calculating dividends and capital gains distributions to shareholders, and
maintaining the books and records of the Fund and the Master Portfolio. The Fund
and the Master Portfolio bear all fees and expenses charged by PFPC for these
services.
DISTRIBUTOR
The Fund's shares are sold on a continuous basis by Concord Financial Group,
Inc. (the "Distributor"). The Distributor is an indirect wholly-owned subsidiary
of The BISYS Group, Inc. and is located at 3435 Stelzer Road, Columbus, Ohio
43219.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, N.A., Broad and Chestnut Streets, Philadelphia, Pennsylvania, 19101
serves as the Custodian of the Fund and the Master Portfolio. BISYS Fund
Services Ohio, Inc. is the transfer and dividend disbursing agent of the Fund
and is located at 3435 Stelzer Road, Columbus, Ohio 43219.
39
<PAGE> 44
FEE WAIVERS
Except as noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services, and the Fund and Master
Portfolio bear the expenses incurred in their operations. Expenses can be
reduced by voluntary fee waivers and expense reimbursements by Bank of America
and other service providers as well as by certain expense limitations imposed by
state securities regulators. Periodically, during the course of the Fund's
fiscal year, Bank of America, Concord and/or the Distributor may prospectively
choose not to receive fee payments and/or may assume certain Fund or Master
Portfolio expenses as a result of competitive pressures and in order to preserve
and protect the business and reputation of Concord and Bank of America. However,
the service providers retain the ability to discontinue such fee waivers and/or
waivers and expense reimbursements at any time.
TAX INFORMATION
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING
THE FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
MADE TO YOU. YOU SHOULD SAVE YOU ACCOUNT STATEMENTS BECAUSE THEY
CONTAIN INFORMATION YOU WILL NEED TO CALCULATE YOUR CAPITAL GAINS OR
LOSSES UPON YOUR ULTIMATE SALE OR EXCHANGE OF SHARES IN THE FUND.
As with any investment, you should consider the tax implications of an
investment in the Fund. The following is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Consult your tax adviser with specific reference to your own tax situation.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (the "Code") for the current taxable year. As a result of
this qualification, the Fund generally is not required to pay federal income
taxes to the extent its earnings are distributed in accordance with the Code.
The Fund intends to qualify for this special tax treatment as long as it is in
the best interest of its shareholders. It is expected that the Master Portfolio
will not be subject to federal income taxes. The Master Portfolio intends to
qualify as a partnership (or other pass-through entity) for federal income tax
purposes. As such, the Master Portfolio is not subject to tax and the Fund will
be treated for federal tax purposes as recognizing its pro rata share of the
Master Portfolio's income and deductions and owning its pro rata share of the
Master Portfolio's assets. The Fund's status as a regulated investment company
is dependent on, among other things, the Master Portfolio's continued
qualification as a partnership (or other pass-through entity) for federal income
tax purposes.
40
<PAGE> 45
Distributions (whether received in cash or additional shares) derived from
ordinary income and/or the excess of net short-term capital gains over net
long-term capital loss are taxable to you as ordinary income. It is not
anticipated that any such distribution from the Fund will qualify for the
dividends received deduction allowed to corporations.
Any distribution you receive comprised of the excess of net long-term capital
gains over net short-term capital losses ("capital gain dividend") will be taxed
as a long-term capital gain no matter how long you have held Fund shares. Such
dividends are not eligible for the dividends received deduction allowed to
corporations.
A distribution paid to you by the Fund in January of a particular year will be
deemed for tax purposes to have been received by you on December 31 of the
preceding year, if the dividend is declared and payable to shareholders of
record on a specified date in October, November or December of that preceding
year.
If you are considering buying shares of the Fund on or just before the record
date of a dividend, you should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable to
you.
You may realize a taxable capital gain (or loss) upon redemption or exchange of
Fund shares, depending upon the tax basis of your shares and their price at the
time of such redemption or exchange. If you hold Fund shares for six months or
less and during that time receive a capital gains dividend on those shares, any
loss on the sale or exchange of those shares will be treated as a long-term
capital loss to the extent of the capital gain dividend.
Generally, you may include sales loads incurred in the purchase of Fund shares
in your tax basis when determining your gain (or loss) on a redemption or
exchange of these shares. However, if you exchange such shares for shares of
another investment portfolio of the Company within 90 days of the purchase and
are able to reduce the sales load on the new shares through the Exchange
Privilege, the reduction may not be included in the tax basis of your exchanged
shares for the purpose of calculating your gain or loss from the exchange. It
may be included in the tax basis of the new shares, subject to the same
limitations.
Certain interest income and dividends earned by the Master Portfolio from
foreign securities is expected to be subject to foreign withholding taxes or
other taxes. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. The Fund may make this
election. As a consequence, the amount of these foreign taxes paid by the Master
Portfolio will be included in the income of the Fund's shareholders pro rata (in
addition to taxable distributions actually received by them), and each
shareholder will be entitled either (a) to credit his proportionate amount of
such taxes against his U.S. federal income tax liabilities, or (b) if he
itemizes his deductions, to deduct such proportionate amounts from his U.S.
income.
41
<PAGE> 46
Certain realized gains or losses on the sale or retirement of foreign bonds held
by the Master Portfolio, to the extent attributable to fluctuations in currency
or exchange rates, as well as other gains or losses attributable to exchange
rate fluctuations, are typically treated as ordinary income or loss. Such income
or loss may increase or decrease (or possibly eliminate) income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, income available for distribution is decreased or
eliminated, all or a portion of the dividends declared by the Fund may be
treated for federal income tax purposes as a return of capital, or, in some
circumstances, as capital gains. Generally, your tax basis in your Fund shares
will be reduced to the extent that an amount distributed to you is treated as a
return of capital.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of the dividends paid to any investor (i) who has provided either
an incorrect Social Security Number or Taxpayer Identification Number or no
number at all, (ii) who is subject to withholding by the Internal Revenue
Service for failure properly to include on this return payments of interest or
dividends, or (iii) who has failed to certify to the Fund, when required to do
so, that he is not subject to backup withholding or that he is an "exempt
recipient."
State and Local Taxes
You should consult your tax adviser regarding state and local tax consequences
which may differ from the federal tax consequences described above.
MEASURING PERFORMANCE
THE FUND'S PERFORMANCE MAY BE QUOTED IN TERMS OF AVERAGE
ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN. PERFORMANCE
INFORMATION IS HISTORICAL AND IS NOT INTENDED TO INDICATE FUTURE RESULTS.
Average annual total return reflects the average annual percentage change in
value of an investment in the Fund over the period being measured, while
aggregate total return reflects the total percentage change in value over the
period being measured.
Periodically, the Fund's total return (calculated on an average annual total
return and/or an aggregate total return basis for various periods) may be quoted
in advertisements or in communications to shareholders. Both methods of
calculating total return assume dividends and capital gains distributions made
by the Fund during the period are reinvested in Fund shares, and include the
maximum front-end sales charge for Class A shares and the applicable contingent
deferred sales charge for Class B shares. The Fund may also advertise total
return data without reflecting the sales load imposed on the purchase of Fund
shares in accordance with the rules
42
<PAGE> 47
of the Securities and Exchange Commission. Quotations that do not reflect the
sales load will, of course, be higher than quotations that do reflect sales
loads.
The Fund may compare its total return to that of other mutual funds with similar
investment objectives and to stock and other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor mutual fund performance. For example, the Fund's total return may
be compared to the Consumer Price Index or to data prepared by: Lipper
Analytical Services, Inc.; the Europe, Asia and Far East Index ("EAFE");
Mutual Fund Forecaster; Morningstar; Micropal; Wiesenberger Investment Companies
Services; or CDA Investment Technologies, Inc. Total return data as reported in
national financial publications such as Money, Forbes, Barron's, The Wall Street
Journal and The New York Times, or in local or regional publications, may also
be used in comparing Fund performance. The Fund's total return also may be
compared to indices such as: the Dow Jones Industrial Average; the Financial
Times World Stock Index; the Lipper International Fund Index; the Standard &
Poor's 500 Stock Index; the Wilshire 5000 Equity Indexes; or the Consumer
Price Index. (A complete listing of the indices, rankings and publications
discussed above is contained in the Statement of Additional Information.)
Since the Fund's performance will fluctuate, it should not be compared with bank
deposits, savings accounts and similar investments that often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments in a portfolio, portfolio
maturity, operating expenses and market conditions. Not included in the Fund's
calculations of total return are fees charged by Bank of America and Service
Organizations directly to their customer accounts in connection with investments
in the Fund (e.g. account maintenance fees, compensating balance requirements or
fees based upon account transactions, assets or income).
DESCRIPTION OF SHARES
THE COMPANY IS A MARYLAND CORPORATION THAT WAS ORGANIZED ON OCTOBER 27, 1982.
ABOUT THE COMPANY
THE COMPANY'S CHARTER AUTHORIZES THE BOARD OF DIRECTORS TO ISSUE UP TO TWO
HUNDRED BILLION FULL AND FRACTIONAL SHARES OF CAPITAL STOCK ($.001 PAR VALUE PER
SHARE) AND TO CLASSIFY AND RECLASSIFY ANY AUTHORIZED AND UNISSUED SHARES INTO
ONE OR MORE CLASSES OF SHARES.
The Board of Directors has authorized the issuance of 40 million shares of Class
T Common Stock (the "Class A shares") and 60 million shares of Class T--Special
Series 3 Common Stock (the "Class B shares"), representing interests in the
Fund; and additional classes of shares representing interests in other
investment portfolios of the Company. The Board of Directors
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<PAGE> 48
may similarly classify or reclassify any class of shares (including unissued
Class T Common Stock or Class T--Special Series 3 Common Stock) into one or more
series. For more information about the Company's other portfolios, contact the
Company at the telephone number listed on the inside cover page.
Shares representing interests in the Fund are entitled to participate in the
dividends and distributions declared by the Board of Directors and in the net
distributable assets of the Fund on liquidation. Fund shares have no preemptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, Fund
shares will be fully paid and non-assessable.
VOTING RIGHTS
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND FRACTIONAL
VOTES FOR FRACTIONAL SHARES HELD. Fund shares have cumulative voting rights to
the extent that may be required by applicable law. Additionally, shareholders
will vote in the aggregate and not by class or series, except as required by law
(or when permitted by the Board of Directors). Only Class A shares will vote on
matters relating solely to Class A Shares and only Class B shares will vote on
matters (such as the distribution plan described below) relating solely to Class
B shares. The Fund does not presently intend to hold annual meetings of
shareholders to elect directors or for other business unless and until such time
as less than a majority of the directors holding office has been elected by the
shareholders. At that time, the directors then in office will call a
shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a shareholder
meeting to consider the removal of one or more directors. Such meetings will be
held when requested by the shareholders of 10% or more of the Company's
outstanding shares of common stock. The Fund will assist in shareholder
communications in such matters to the extent required by law and the Company's
undertaking with the Securities and Exchange Commission.
PLAN PAYMENTS
THE COMPANY HAS ADOPTED A SHAREHOLDER SERVICE PLAN
(THE "PLAN") FOR CLASS A SHARES AND A DISTRIBUTION
AND SERVICES PLAN (THE "RULE 12B-1 PLAN") FOR CLASS B SHARES.
The Company has adopted a Shareholder Service Plan for Class A shares, under
which the Class A shares of the Fund reimburse the Distributor for shareholder
servicing fees the Distributor pays to Service Organizations. The Company has
also adopted a Distribution and Services Plan pursuant to Rule 12b-1 under the
1940 Act, under which the Class B shares of the Fund reimburse the Distributor
for services rendered and costs incurred in connection with distribution of the
Class B shares and for shareholder servicing fees the Distributor pays to
Service Organizations.
SHAREHOLDER SERVICE PLAN
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<PAGE> 49
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of Fund shares,
such as: establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
Under the Plan, payments by the Fund for shareholder servicing expenses may not
exceed 0.25% (annualized) of the Fund's average daily net assets. Excluded from
this calculation, however, are all shares acquired via a transfer of assets from
trust and agency accounts at Bank of America. This amount may be reduced
pursuant to undertakings by the Distributor.
If in any month the Distributor is due more monies than are immediately payable
because of the percentage limitation described above, the unpaid amount is
"carried forward" from month to month while the Plan is in effect until such
time when it may be paid. However, any "carried forward" amounts will not be
payable beyond the fiscal year during which the amounts are accrued. No
interest, carrying or other finance charge is borne by the Fund with respect to
the amount "carried forward."
Banks may act as Service Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Service Organization, its shareholder clients would be permitted to remain
Company shareholders and alternative means for continuing the servicing of such
shareholders would be sought. In such event, changes in the operation of the
Company might occur and a shareholder serviced by such bank might no longer be
able to avail itself of the automatic investment or other services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
DISTRIBUTION AND SERVICES PLAN
Under the Rule 12b-1 Plan, the Fund pays the Distributor for distribution
expenses primarily intended to result in the sale of the Fund's Class B shares
and for shareholder servicing expenses. Such distribution expenses include
expenses incurred in connection with advertising and marketing the Fund's Class
B shares; payments to Service Organizations for assistance in connection with
the distribution of Class B shares; and expenses incurred in connection with
preparing, printing and distributing prospectuses for the Fund (except those
used for regulatory purposes, for solicitation or distribution to existing or
potential Class A shareholders or for distribution to existing Class B
shareholders of the Fund) and in implementing and operating the Rule 12b-1 Plan.
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for the provision of support services with respect to the
beneficial owners of Class B shares, such as establishing and maintaining
accounts and records relating to their clients who invest in Class B shares,
assisting clients in processing exchange and redemption requests and in changing
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<PAGE> 50
dividend options and account descriptions and responding to client inquiries
concerning their investments.
Under the Rule 12b-1 Plan, payments by the Fund for distribution expenses may
not exceed 0.75% (annualized) of the average daily net assets of the Fund's
Class B shares and payments for shareholder servicing expenses may not exceed
0.25% (annualized) of the average daily net assets of the Fund's Class B shares.
These amounts may be reduced pursuant to undertakings by the Distributor.
Payments for distribution expenses under the Rule 12b-1 Plan are subject to Rule
12b-1 under the 1940 Act.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and Concord) that they are or will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
--------------
46
<PAGE> 51
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
INTERNATIONAL EQUITY FUND
MARCH __, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE COMPANY ............................................................. 2
INVESTMENT OBJECTIVE AND POLICIES ....................................... 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .......................... 18
ADDITIONAL INFORMATION CONCERNING TAXES ................................. 25
MANAGEMENT .............................................................. 29
GENERAL INFORMATION ..................................................... 52
APPENDIX A .............................................................. A-1
APPENDIX B .............................................................. B-1
</TABLE>
This Statement of Additional Information applies to the Class A and Class
B shares of the Pacific Horizon International Equity Fund (the "Fund") of the
Company. This Statement of Additional Information is meant to be read in
conjunction with the Prospectus dated March __, 1996 , as it may from time to
time be revised (the "Prospectus"), which describes the Fund. This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. Because this Statement of Additional Information is not itself a
prospectus, no investment in either Class A or Class B shares of the Fund should
be made solely upon the information contained herein. Copies of the Prospectus
may be obtained by calling Concord Financial Group, Inc. at 800-332-3863.
Capitalized terms used but not defined herein have the same meaning as in the
Prospectus.
<PAGE> 52
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland corporation.
The Fund seeks to achieve its investment objective by investing substantially
all of its assets in a diversified investment portfolio of an open-end,
management investment company (the "Master Portfolio") having the same
investment objective as that of the Fund.
The Company also offers other investment portfolios which are described in
separate Prospectuses and Statements of Additional Information. For information
concerning these other portfolios contact the Distributor at the telephone
number stated on the cover page of this Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus for the Fund describes the investment objective of the Fund
and the Master Portfolio. Since the investment characteristics of the Fund will
correspond to those of the Master Portfolio, the following is a discussion of
the various investments of and techniques employed by the Master Portfolio. The
following information supplements and should be read in conjunction with the
description of the investment objective and policies for the Master Portfolio in
the Prospectus for the Fund.
PORTFOLIO TRANSACTIONS
The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities at the time of acquisition were one year or less. Portfolio turnover
may vary greatly from year to year as well as within a particular year, and may
also be affected by cash requirements for redemptions of shares and by
requirements which enable the Company to receive certain favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions.
Subject to the general control of the Master Portfolio's Board of
Trustees, Bank of America National Trust and Savings Association ("Bank of
America" or the "investment adviser") is responsible for, makes decisions with
respect to and places orders for all purchases and sales of portfolio securities
for the Master Portfolio. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price includes
an undisclosed commission or mark-up. The cost of securities
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<PAGE> 53
purchased by the Master Portfolio from underwriters generally includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers, it
is the Master Portfolio's policy to seek the best overall terms available. The
Investment Advisory Agreement between the Master Portfolio and Bank of America
provides that, in assessing the best overall terms available for any
transaction, Bank of America shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Investment Advisory Agreement authorizes Bank
of America, subject to the approval of the Board of Trustees of the Master
Portfolio, to cause the Master Portfolio to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same transaction, provided
that such commission is deemed reasonable in terms of either that particular
transaction or the overall responsibilities of Bank of America to the Fund,
Company or Master Portfolio. Brokerage and research services may include: (1)
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities and the availability of securities or
purchasers or sellers of securities; and (2) analyses and reports concerning
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts.
It is possible that certain of the brokerage and research services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the Master
Portfolio may be the primary beneficiary of the brokerage or research services
received as a result of portfolio transactions effected for such other accounts
or investment companies.
Brokerage and research services so received are in addition to and not in
lieu of services required to be performed by Bank of America and do not reduce
the advisory fee payable to Bank of America. Such services may be useful to Bank
of America in serving both the Company, the Master Portfolio and other clients
and, conversely, services obtained by the placement of business of other clients
may be useful to Bank of America in carrying out its obligations to the Company
and the Master Portfolio. In connection with its investment management services
with respect to the Master Portfolio, Bank of America will not acquire
certificates of deposit or other securities issued by it or its affiliates, and
will give no preference to certificates of
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<PAGE> 54
deposit or other securities issued by Service Organizations. In addition,
portfolio securities in general will be purchased from and sold to affiliates of
the Company, the Master Portfolio, Bank of America, the Distributor and their
affiliates acting as principal, underwriter, syndicate member, market-maker,
dealer, broker or in any similar capacity, provided such purchase, sale or
dealing is permitted under the Investment Company Act of 1940 (the "1940 Act")
and the rules thereunder.
The Master Portfolio may participate, if and when practicable, in bidding
for the purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Master
Portfolio will engage in this practice only when Bank of America, in its sole
discretion, subject to guidelines adopted by the Board of Trustees of the Master
Portfolio, believes such practice to be in the interest of the Master Portfolio.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased on behalf of the Master Portfolio with those
to be sold or purchased for other investment companies or common trust funds in
order to obtain best execution.
The Company is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the Investment Company Act of 1940)
or their parents held by the Company as of the close of its most recent fiscal
year. As of February 28, 1995: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Goldman, Sachs & Co . in the principal
amount of $95,000,000 ; Repurchase Agreement with Merrill Lynch Government
Securities, Inc. in the principal amount of $95,000,000; (b) the Prime Fund held
the following securities , Merrill Lynch & Co. , Inc., commercial paper in the
principal amount of $100,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $120,000,000; Morgan Stanley Group, Inc.
, Daily Variable Rate Master Note in the principal amount of $120,000,000 ; Bear
Stearns Co., Inc., Series B, Monthly Variable Rate Note in the principal amount
of $100,000,000; Repurchase Agreement with Goldman, Sachs & Co. in the principal
amount of $120,000,000; (c) the Government Fund held the following securities,
Repurchase Agreement with Goldman , Sachs & Co. in the principal amount of
$40,000,000 ; Repurchase Agreement with Merrill Lynch Government Securities ,
Inc. in the principal amount of $40,000,000; and (d) the Prime Value Fund held
the following securities , Merrill Lynch & Co., Inc., commercial paper in the
principal amount of $7,000,000; Goldman, Sachs Group L.P., Daily Variable Rate
Master Note in the principal amount of $7,000,000; Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $8,000,000;
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<PAGE> 55
Repurchase Agreement with Goldman, Sachs & Co. in the principal amount of
$8,000,000.
Merrill Lynch & Co. , Inc., Goldman , Sachs & Co., Bear Stearns Co., Inc.,
Morgan Stanley & Co. Incorporated, Shearson Lehman Brothers, Inc., Dean Witter
Reynolds, Inc. and Paine Webber are considered to be regular brokers and dealers
of the Company.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
The following discussion supplements the description of such investments
in the Prospectus.
Bank Certificates of Deposit, Bankers' Acceptances and Interest-Bearing
Savings Deposits. Certificates of deposit, bankers' acceptances and
interest-bearing savings deposits are eligible investments for the Master
Portfolio, as described in the Fund's Prospectus. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return. Bankers' Acceptances
are negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Certificates of Deposit and Banker's Acceptances
may only be purchased from domestic or foreign banks and financial institutions
having total assets at the time of purchase in excess of $2.5 billion.
Interest-bearing savings deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.
Instruments issued by foreign banks or financial institutions may be
subject to investment risks that are different in some respects than the risks
associated with instruments issued by those U.S. domestic issuers. Such risks
include future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry
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is dependent largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations.
Commercial Paper and Short-Term Notes. The investment policies of the
Master Portfolio permit investment in commercial paper and short-term notes.
Commercial paper consists of unsecured promissory notes issued by corporations.
Except as noted below with respect to variable and floating rate instruments,
issues of commercial paper and short-term notes will normally have maturities of
less than 9 months and fixed rates of return, although such instruments may have
maturities of up to one year.
Convertible Securities. Convertible securities entitle the holder to
receive interest paid or accrued on debt until the convertible securities mature
or are redeemed, converted or exchanged. Prior to conversion, convertible
securities have characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher yields than
those of common stock of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock, although the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
In selecting convertible securities for the Master Portfolio, the
investment adviser will consider, among other factors, its evaluation of the
creditworthiness of the issuers of the securities; the interest or dividend
income generated by the securities; the potential for capital appreciation of
the securities and the underlying stocks; the prices of the securities relative
to other comparable securities and to the underlying stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; diversification of the Master Portfolio as to issuers; and whether
the securities are rated by Moody's Investors Service, Inc. ("Moody's"), or
Standard & Poor's Ratings Group, Division of McGraw Hill ("S&P"), Duff & Phelps
Credit Co. ("D&P")
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or Fitch Investors Service, Inc. ("Fitch") and, if so, the ratings assigned.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and their conversion value (their worth, at market value, if
converted into the underlying stock). The investment value of convertible
securities is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline,
and by the credit standing of the issuer and other factors. The conversion value
of convertible securities is determined by the market price of the underlying
stock. If the conversion value is low relative to the investment value, the
price of the convertible securities is governed principally by their investment
value. To the extent the market price of the underlying stock approaches or
exceeds the conversion price, the price of the convertible securities will be
increasingly influenced by their conversion value. In addition, convertible
securities generally sell at a premium over their conversion value determined by
the extent to which investors place value on the right to acquire the underlying
stock while holding fixed income securities.
Repurchase Agreements. The Master Portfolio is permitted to enter into
repurchase agreements with respect to its portfolio securities. Pursuant to such
agreements, the Master Portfolio acquires securities from financial institutions
such as banks and broker-dealers as are deemed to be creditworthy subject to the
seller's agreement to repurchase and the agreement of the Master Portfolio to
resell such securities at a mutually agreed upon date and price. Although
securities subject to a repurchase agreement may bear maturities exceeding ten
years, the Master Portfolio intends to only enter into repurchase agreements
having maturities not exceeding 60 days. The Master Portfolio is not permitted
to enter into repurchase agreements with Bank of America or its affiliates, and
will give no preference to repurchase agreements with Service Organizations. The
repurchase price generally equals the price paid by the Master Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the custodian or sub-custodian of the
Master Portfolio or in the Federal Reserve/Treasury Book-Entry System. The
seller under a repurchase agreement will be required to deliver instruments the
value of which is 102% of the repurchase price (excluding accrued interest),
provided that notwithstanding such requirement, the adviser shall require that
the value of the collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a default, shall be equal to or
greater than the resale price
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(including interest) provided in the agreement. If the seller defaulted on its
repurchase obligation, the Master Portfolio would suffer a loss because of
adverse market action or to the extent that the proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
Bankruptcy or insolvency of such a defaulting seller may cause the Master
Portfolio's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans by the Master Portfolio under
the 1940 Act.
U.S. Government Obligations. The Master Portfolio is permitted to make
investments in U.S. Government obligations. Such obligations include Treasury
bills, certificates of indebtedness, notes and bonds, and issues of such
entities as the Government National Mortgage Association, Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, and the Student Loan Marketing Association. Treasury bills
have maturities of one year or less, Treasury notes have maturities of one to
ten years and Treasury bonds generally have maturities of more than ten years.
Some of these obligations, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government sponsored instrumentalities if it is not obligated to do so
by law.
Variable and Floating Rate Instruments. The Master Portfolio may acquire
variable and floating rate instruments. Such instruments are frequently not
rated by credit rating agencies. However, in determining the creditworthiness of
unrated variable and floating rate instruments and their eligibility for
purchase by the Master Portfolio, Bank of America will consider the earning
power, cash flow and other liquidity ratios of the issuers of such instruments
(which include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. An active secondary market
may not exist with respect to particular variable or floating rate instruments
purchased by the Master Portfolio. The absence of such an active secondary
market could make it difficult to dispose of a variable or
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floating rate instrument in the event the issuer of the instrument defaulted on
its payment obligation or during periods that the Master Portfolio is not
entitled to exercise its demand rights, and the Master Portfolio could, for
these or other reasons, suffer a loss to the extent of the default. Investments
in illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have active trading markets) are
subject to the Master Portfolio's 15% limitation on illiquid securities.
Variable and floating rate instruments may be secured by bank letters of credit.
Other Investment Companies. The Master Portfolio may acquire shares of
open- and closed-end investment companies. The 1940 Act prohibits the Master
Portfolio from investing more than 5% of the value of its total assets in any
one investment company, or more than 10% of the value of its total assets in
investment companies as a group, and also restricts its investment in any
investment company to 3% of the outstanding voting stock of such investment
company. In addition, no more than 10% of the outstanding voting stock of any
one investment company may be owned in the aggregate by the Master Portfolio and
any other investment company advised by Bank of America. Investment in other
investment companies will involve payment of the Master Portfolio's (and in turn
the Fund's) pro rata share of advisory and administration fees charged by such
fund, in addition to those paid by the Master Portfolio (and in turn the Fund).
Reverse Repurchase Agreements. As described in the Prospectus, the Master
Portfolio is permitted to borrow funds for temporary purposes by entering into
reverse repurchase agreements with such financial institutions as banks and
broker-dealers in accordance with the investment limitations described therein.
Whenever the Master Portfolio enters into a reverse repurchase agreement, it
will place in a segregated account maintained with its custodian liquid assets
such as cash, U.S. Government securities or other liquid high grade debt
securities having a value equal to the repurchase price (including accrued
interest) and Bank of America will subsequently continuously monitor the account
for maintenance of such equivalent value. The Master Portfolio intends to enter
into reverse repurchase agreements to avoid otherwise having to sell securities
during unfavorable market conditions in order to meet redemptions. Reverse
repurchase agreements are considered to be borrowings by the Master Portfolio
under the 1940 Act.
Options Trading. The Master Portfolio may under certain circumstances
engage in options trading. Such options may relate to U.S. and foreign
securities or to various stock indices. In addition, the Master Portfolio may
acquire options relating to foreign currencies in order to hedge against changes
in exchange rates. Such options may be traded on U.S. exchanges,
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over-the-counter, and on foreign exchanges to the extent permitted by law.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security, index or currency increases or decreases, the option
buyer's risk is limited to the amount of the original premium paid for the
purchase of the option. However, options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. A listed call option for a particular
security or amount of currency gives the purchaser of the option the right to
buy from a clearing corporation, and a writer has the obligation to sell to the
clearing corporation the underlying security or currency amount at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security or currency. The premium paid to the writer is
in consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation , the underlying security or amount of currency at the stated
exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security or currency. In contrast to an
option on a particular security, an option on a stock index provides the holder
with the right to make or receive a cash settlement upon exercise of the option.
The amount of this settlement will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple. Furthermore, it is the
position of the staff of the Securities and Exchange Commission (the "SEC") that
over-the-counter options are illiquid. To the extent that the Master Portfolio
invests in options that are illiquid (including over-the-counter options), such
investment will be subject to the Master Portfolio's limitations on illiquid
securities.
The Master Portfolio will continue to receive interest or dividend income
on the securities underlying such puts until they are exercised by the Master
Portfolio. Any losses realized by the Master Portfolio in connection with its
purchase of put options will be limited to the premiums paid by the Master
Portfolio for the options plus any transaction costs. A gain or loss may be
wholly or partially offset by a change in the value of the underlying security
which the Master Portfolio owns.
The Master Portfolio is permitted to write call options if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Master Portfolio owns the security underlying the call or has an absolute
and immediate
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right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by its custodian) upon conversion or
exchange of other securities held by it. For a call option on an index, the
option is covered if the Master Portfolio maintains with its custodian cash or
cash equivalents equal to the contract value. A call option is also covered if
the Master Portfolio holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the difference is maintained by the Master
Portfolio in cash or cash equivalents in a segregated account with its
custodian.
The principal reason for writing call options on a securities portfolio is
the attempt to realize, through the receipt of premiums, a greater current
return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
If the Master Portfolio desires to sell a particular security
from its portfolio on which it has written an option, the Master Portfolio will
seek to effect a closing purchase transaction prior to, or concurrently with,
the sale of the security. In order to close out a covered call option position,
the Master Portfolio will enter into a "closing purchase transaction" - the
purchase of a call option on a security or stock index with the same exercise
price and expiration date as the call option which it previously wrote on the
same security or index.
When the Master Portfolio purchases a put or call option, the
premium paid by it is recorded as an asset of the Master Portfolio. When the
Master Portfolio writes an option, an amount equal to the net premium (the
premium less the commission) received by the Master Portfolio is included in the
liability section of the statement of assets and liabilities as a deferred
credit. The amount of this asset or deferred credit will be subsequently
marked-to-market to reflect the current value of the option purchased or
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option purchased by the Master Portfolio expires unexercised,
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the Master Portfolio realizes a loss equal to the premium paid. If the Master
Portfolio enters into a closing sale transaction on an option purchased by it,
the Master Portfolio will realize a gain if the premium received by it on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less. Moreover, because increases in the market price of an option
will generally reflect (although not necessarily in direct proportion) increases
in the market price of the underlying security any loss resulting from a closing
purchase transaction is likely to be offset in whole or in part by appreciation
of the underlying security owned by the Master Portfolio. If an option written
by the Master Portfolio expires on the stipulated expiration date or if the
Master Portfolio enters into a closing purchase transaction, it will realize a
gain (or loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option written by the Master Portfolio is
exercised, the proceeds of the sale will be increased by the net premium
originally received and the Master Portfolio will realize a gain or loss.
As noted previously, there are several risks associated with transactions
in options on securities, currencies and indices. For example, there are
significant differences between the securities, currencies and options markets
that could result in an imperfect correlation between these markets, causing a
given transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, whether traded over-the-counter or on a national
securities exchange ("Exchange") may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an Exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an Exchange; the facilities of an Exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or one or more Exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-
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conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
Foreign Investments. In considering whether to invest in the securities of
a foreign company, Bank of America considers such factors as the characteristics
of the particular company, differences between economic trends and the
performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located.
The Master Portfolio may purchase debt obligations issued or guaranteed by
governments (including states, provinces or municipalities) of countries other
than the United States, or by their agencies, authorities or instrumentalities,
or by supranational entities organized or supported by several national
governments, such as the International Bank for Reconstruction and Development
(the "World Bank"), the Inter-American Development Bank, the Asian Development
Bank and the European Investment Bank. The Master Portfolio also may purchase
debt obligations of foreign corporations or financial institutions, such as
Yankee bonds (dollar-denominated bonds sold in the United States by non-U.S.
issuers), Samurai bonds (yen-denominated bonds sold in Japan by non-Japanese
issuers and Euro bonds (bonds not issued in the country (and possibly currency
of the country) of the issuer). The Master Portfolio's investments will be
allocated among securities denominated in the currencies of a number of foreign
countries and, within each such country, among different types of debt
securities. The percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with
Bank of America's assessment of the Country's gross domestic product, purchasing
power parity and market capitalizations the relationship of a country's currency
to the United States dollar. Fundamental economic strength, credit quality and
interest rate trends will be the principal factors considered by Bank of America
in determining whether to increase or decrease the emphasis placed upon a
particular type of security within the Master Portfolio.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on U.S. exchanges, although the Master Portfolio
endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
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Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of the Master Portfolio is uninvested and
no return is earned thereon. The inability of the Master Portfolio to make
intended security purchases due to settlement problems could cause the Master
Portfolio to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses to
the Master Portfolio due to subsequent declines in value of the portfolio
securities, or, if the Master Portfolio has entered into a contract to sell the
securities, could result in possible liability to the purchaser. Individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
When-Issued Securities, Forward Commitments and Delayed Settlements. The
Master Portfolio may purchase securities on a "when-issued," " forward
commitment " or " delayed settlement " basis. When the Master Portfolio agrees
to purchase securities on a when-issued, forward commitment or delayed
settlement basis, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, the Master Portfolio may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the
commitment. It may be expected that the net assets of the Master Portfolio will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. The Master Portfolio
does not intend to engage in these transactions for speculative purposes but
primarily in order to hedge against anticipated changes in interest rates.
Because the Master Portfolio will set aside cash or liquid portfolio securities
to satisfy its purchase commitments in the manner described, its liquidity and
the ability of the investment adviser to manage it may be affected in the event
the forward commitments, commitments to purchase when-issued securities and
delayed settlements ever exceeded 25% of the value of the Master Portfolio's
assets.
The Master Portfolio will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Master Portfolio may dispose of or renegotiate a commitment after it is
entered into, and may sell securities it has committed to
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purchase before those securities are delivered to the Master Portfolio on the
settlement date. In these cases the Master Portfolio may realize a taxable
capital gain or loss.
When the Master Portfolio engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Master Portfolio's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
The market value of the securities underlying a when- issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Master Portfolio starting on the day the
Master Portfolio agrees to purchase the securities. The Master Portfolio does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date.
Securities Lending. The Master Portfolio may lend securities as described
in the Fund's Prospectus. Such loans will be secured by cash or securities of
the U.S. Government and its agencies and instrumentalities. The collateral must
be at all times equal to at least the market value of the securities loaned. The
Master Portfolio will continue to receive interest or dividends on the
securities it loans, and will also earn interest on the investment of any cash
collateral. Cash collateral may be invested in short-term U.S. Government
securities, U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights, or rights to consent, attendant to securities loaned pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Master Portfolio if a material event affecting the
investment is to occur.
Illiquid Securities. It is possible that unregistered securities purchased
by the Master Portfolio in reliance upon Rule 144A under the Securities Act of
1933 could have the effect of increasing the level of the Master Portfolio's,
and correspondingly the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities.
OTHER INVESTMENT LIMITATIONS
The Prospectus for the Fund sets forth certain fundamental policies that
may not be changed with respect to the Fund or the Master Portfolio without the
affirmative vote of the holders of the majority of the Fund's outstanding shares
or the
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Master Portfolio's outstanding interests (as defined below under "General
Information - Miscellaneous"). The following is a list of additional fundamental
policies and may not be changed with respect to the Fund or the Master Portfolio
without such a vote.
NEITHER THE FUND NOR THE MASTER PORTFOLIO MAY:
1. Purchase securities (except securities issued by the U.S. Government,
its agencies or instrumentalities) if, as a result more than 5% of its total
assets will be invested in the securities of any one issuer, except that up to
25% of its total assets may be invested without regard to this 5% limitation;
provided that all of the assets of the Fund may be invested in the Master
Portfolio or another investment company.
2. Underwrite the securities of other issuers, provided that all of the
assets of the Fund may be invested in the Master Portfolio or another investment
company.
3. Purchase or sell real estate, except that the Master Portfolio may, to
the extent appropriate to its investment objective, invest in securities and
instruments guaranteed by agencies or instrumentalities of the U.S. Government
and securities issued by companies which invest in real estate or interests
therein.
4. Purchase securities on margin (except for such short-term credits as
may be necessary for the clearance of transactions), make short sales of
securities or maintain a short position. For this purpose, the deposit or
payment by the Master Portfolio for initial or maintenance margin in connection
with futures contracts is not considered to be the purchase or sale of a
security on margin.
5. Write or sell puts, calls, straddles, spreads or combinations thereof,
except that it may engage in options transactions.
6. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs, except that: (a) it may, to
the extent appropriate to its investment objective, invest in securities issued
by companies which purchase or sell commodities or commodity contracts or which
invest in such programs; and (b) it may purchase and sell futures contracts and
options on futures contracts.
7. Purchase securities of other investment companies to the extent
prohibited by the 1940 Act.
8. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of such
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purchase to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided, however,
that (a) there is no limitation with respect to investments in obligations
issued or guaranteed by the federal government and its agencies and
instrumentalities; (b) each utility (such as gas, gas transmission, electric and
telephone service) will be considered a single industry for purposes of this
policy; and (c) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of their parents.
9. Purchase securities of any issuer if as a result it would own more
than 10% of the voting securities of such issuer; provided that all of the
assets of the Fund may be invested in the Master Portfolio or another investment
company.
10. Borrow money for the purpose of obtaining investment leverage or issue
senior securities (as defined in the 1940 Act), provided that the Fund and the
Master Portfolio may borrow from banks for temporary purposes and in an amount
not exceeding 10% of the value of the total assets of the Fund or the Master
Portfolio; or mortgage, pledge or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of such
borrowing. This restriction shall not apply to (a) the sale of portfolio
securities accompanied by a simultaneous agreement as to their repurchase, or
(b) transactions in currency, options, futures contracts and optio ns on futures
contracts, or forward commitment transactions.
11. Make loans, except investments in debt securities, repurchase
agreements and securities loans.
* * *
In order to permit the sale of the Fund's shares in certain states, the
Company may make commitments more restrictive than the investment policies and
limitations described above.
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
For the purposes of Investment Limitation 8 above and in accordance with
the current views of the staff of the SEC and as a matter of non-fundamental
policy that may be changed without a vote of shareholders, the Master Portfolio
and Fund treat all supranational organizations as a single industry and
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each foreign government (and all of its agencies) as a separate industry.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares, and how such shares
are priced, is included in the Prospectus. The net asset value per share of the
Master Portfolio is determined at the same time and on the same days as the net
asset value per share of the Fund is determined. The net asset value of the Fund
is equal to the Fund's pro rata share of the total investments and other assets
of the Master Portfolio, less any liabilities with respect to the Fund,
including the Fund's pro rata share of the Master Portfolio's liabilities.
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the last reported sale price or (if none is available) the mean
between the current quoted bid and asked prices provided by investment dealers.
Other securities and assets for which market quotations are not readily
available are valued at their fair value using methods determined under the
supervision of the Board of Trustees of the Master Portfolio. Debt securities
with remaining maturities of 60 days or less are valued on an amortized cost
basis unless the Board determines that such basis does not represent fair value
at the time. Under this method such securities are valued initially at cost on
the date of purchase or, in the case of securities purchased with more than 60
days to maturity, are valued at their market or fair value each day until the
61st day prior to maturity. Thereafter, absent unusual circumstances, a constant
proportionate amortization of any discount or premium is assumed until maturity
of the security.
A pricing service may be used to value certain portfolio securities where
the prices provided are believed to reflect the fair value of such securities.
In valuing securities the pricing service would normally take into consideration
such factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations for normal institutional-sized trading units of debt
securities and would not rely on quoted prices. The methods used by the pricing
service and the valuations so established will be utilized under the general
supervision of the Board. Valuation of options is described above under
"Investment Objectives and Policies - Options Trading."
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<PAGE> 69
SUPPLEMENTARY PURCHASE INFORMATION
For the purpose of applying the Right of Accumulation or Letter of Intent
privileges available to certain shareholders as described in the Prospectus, the
scale of sales loads applies to purchases made by any "purchaser," which term
includes an individual and/or spouse purchasing securities for his, her or their
own account or for the account of any minor children; or a trustee or other
fiduciary account (including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Internal
Revenue Code) although more than one beneficiary is involved; or "a qualified
group" which has been in existence for more than six months and has not been
organized for the purpose of buying redeemable securities of a registered
investment company at a discount, provided that the purchases are made through a
central administrator or a single dealer, or by other means which result in
economy of sales effort or expense. A "qualified group" must have more than 10
members, must be available to arrange for group meetings between representatives
of the Fund and the members, and must be able to arrange for mailings to members
at reduced or no cost to the Distributor. The value of shares eligible for the
Right of Accumulation privilege may also be used as a credit toward completion
of the Letter of Intent privilege. Such shares will be valued at their offering
price prevailing on the date of submission of the Letter of Intent.
Distributions on shares held in escrow pursuant to the Letter of Intent
privilege will be credited to the shareholder, but such shares are not eligible
for the Fund's Exchange Privilege.
The computation of the hypothetical offering price per share of Class A
shares subject to a front-end sales charge for the Fund based on the value of
the Fund's net assets at inception and the Fund's Class A shares outstanding on
such date is as follows:
International Equity Fund
<TABLE>
<S> <C>
Net Assets ......................................................... $10.00
Outstanding Shares ................................................. 1
Net Asset Value Per Share .......................................... $10.00
Sales Charge 4.50 percent of offering price (4.71 percent of net
asset value per share) ............................................. $ 0.47
Offering Price to Public ........................................... $10.47
</TABLE>
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<PAGE> 70
SUPPLEMENTARY REDEMPTION INFORMATION
Shares in the Fund for which orders for wire redemption are received on a
business day before the close of regular trading hours on the New York Stock
Exchange (currently 4:00 p.m. Eastern time) will be redeemed as of the close of
regular trading hours on such Exchange and the proceeds of redemption (less any
applicable contingent deferred sales charge on Class B shares) will normally be
wired in federal funds on the next business day to the commercial bank specified
by the investor on the Account Application (or other bank of record on the
investor's file with the Transfer Agent). To qualify to use the wire redemption
privilege, the payment for Fund shares must be drawn on, and redemption proceeds
paid to, the same bank and account as designated on the Account Application (or
other bank of record as described above). If the proceeds of a particular
redemption are to be wired to another bank, the request must be in writing and
signature guaranteed. Shares for which orders for wire redemption are received
after the close of regular trading hours on the New York Stock Exchange or on a
non-business day will be redeemed as of the close of trading on such Exchange on
the next day on which shares of the Fund are priced and the proceeds (less any
applicable contingent deferred sales charge on Class B shares) will normally be
wired in federal funds on the next business day thereafter. Redemption proceeds
(less any applicable contingent deferred sales charge on Class B shares) will be
wired to a correspondent member bank if the investor's designated bank is not a
member of the Federal Reserve System. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account. Proceeds of less than $1,000
will be mailed to the investor's address.
To change the commercial bank or account designated to receive redemption
proceeds, a written request must be sent to the Company, c/o Pacific Horizon
Funds, Inc., P.O. Box 80221, Los Angeles, California 90080-9909. Such request
must be signed by each shareholder, with each signature guaranteed as described
in the Fund's Prospectus. Guarantees must be signed by an authorized signatory
and "signature guaranteed" must appear with the signature. The Transfer Agent
may request further documentation from corporations, executors, administrators,
trustees or guardians, and will accept other suitable verification arrangements
from foreign investors, such as consular verification.
SUPPLEMENTARY PURCHASE AND REDEMPTION INFORMATION
In General. As described in the Prospectus, both Class A and Class B Fund
shares may be purchased directly by the public, by clients of Bank of America
through their qualified
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<PAGE> 71
trust and agency accounts, or by clients of securities dealers, financial
institutions (including banks) and other industry professionals, such as
investment advisers, accountants and estate planning firms that have entered
into service and/or selling agreements with the Distributor. (The Distributor,
such institutions and professionals are collectively referred to as "Service
Organizations.") Bank of America and Service Organizations may impose minimum
customer account and other requirements in addition to those imposed by the Fund
and described in the Prospectus. Purchase orders will be effected only on
business days.
Class A shares in the Fund are sold with a sales load. Class B shares
are sold without a front-end sales load, but are subject to a contingent
deferred sales charge and an ongoing distribution and shareholder servicing fee.
Service Organizations may be paid by the Distributor at the Company's expense
for shareholder services. Depending on the terms of the particular account, Bank
of America, its affiliates, and Service Organizations also may charge their
customers fees for automatic investment, redemption and other services provided.
Such fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income.
Bank of America or the particular Service Organization is responsible for
providing information concerning these services and any charges to any customer
who must authorize the purchase of Fund shares prior to such purchase.
Persons wishing to purchase Company shares through their accounts at Bank
of America or a Service Organization should contact such entity directly for
appropriate instructions.
Initial purchases of shares into a new account may not be made by wire.
However, persons wishing to make a subsequent purchase of Company shares into an
already existing account by wire should telephone the Transfer Agent at (800)
346-2087. The investor's bank must be instructed to wire federal funds to the
Transfer Agent, referring in the wire to the particular Fund in which such
investment is to be made; the investor's portfolio account number; and the
investor's name.
The Transfer Agent may charge a fee to act as Custodian for IRAs, payment
of which could require the liquidation of shares. Class B shares liquidated by
the Transfer Agent as fees for custodial services to IRA accounts will not be
subject to the contingent deferred sales charge. All fees charged are described
in the appropriate form. Shares may be purchased in connection with these plans
only by direct remittance to the Transfer Agent. Purchases for IRA accounts will
be effective only when payments received by the Transfer Agent are converted
into federal funds. Purchases for these plans may not be made in advance of
receipt of funds.
-21-
<PAGE> 72
For processing redemptions, the Transfer Agent may request further
documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the TeleTrade
Privilege, any request for a wire redemption will be effected as a TeleTrade
transaction through the Automated Clearing House (ACH) system unless more prompt
transmittal is specifically requested. Redemption proceeds of a TeleTrade
transaction will be on deposit in the investor's account at the ACH member bank
normally two business days after receipt of the redemption request.
Exchange Privilege. Shareholders in the Pacific Horizon Family of Funds
have an exchange privilege whereby they may exchange all or part of their shares
for like shares of another investment portfolio in the Pacific Horizon Family of
Funds or for like shares of an investment portfolio of Time Horizon Funds. In
addition, shareholders of the Fund may exchange Class B shares for Pacific
Horizon Shares of the Pacific Horizon Prime Fund without the payment of any
contingent deferred sales charge at the time the exchange is made. By use of the
exchange privilege, the investor authorizes the Transfer Agent to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself or herself to be the investor and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding. The exchange privilege may be modified or terminated at any time upon
notice to shareholders. For federal income tax purposes, exchange transactions
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares exchanged is more or less than his
basis in such shares at the time of the transaction.
Exchange transactions described in Paragraphs A, B, C, D and E below will
be made on the basis of the relative net asset values per share of the
investment portfolios involved in the transaction.
A. Class A shares of any investment portfolio purchased with a sales load, as
well as additional shares acquired through reinvestment of dividends or
distributions on such shares, may be exchanged without a sales load for
other Class A shares of any other investment portfolio in the Pacific
Horizon Family of Funds or for like shares of Time Horizon Funds.
B. Class B shares acquired pursuant to an exchange transaction will continue
to be subject to a contingent deferred sales charge. However, Class B
shares that
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<PAGE> 73
have been acquired through an exchange of Class B shares may be exchanged
for other Class B shares or for like shares of Time Horizon Funds without
the payment of a contingent deferred sales charge at the time of exchange.
In determining the holding period for calculating the contingent deferred
sales charge payable on redemption of Class B shares, the holding period
of the shares originally held will be added to the holding period of the
shares acquired through exchange.
C. Class B shares may be exchanged for Pacific Horizon shares of the Pacific
Horizon Prime Fund ("Prime Shares") without paying a contingent deferred
sales charge. At the time of such an exchange, a shareholder's holding
period for calculating the contingent deferred sales charge payable on
redemption of Class B shares will cease to accumulate. If the shareholder
subsequently exchanges the shares back into Class B shares, the holding
period accumulation on the shares will resume as of the time when the
exchange was made into the Prime Shares. In the event that a shareholder
wishes to redeem Prime Shares acquired by exchange for Class B shares, the
contingent deferred sales charge applicable to the accumulated Class B
share holding period prior to the exchange into the Prime Shares will be
charged.
D. Class A or B shares of any investment portfolio in the Pacific Horizon
Family of Funds or Time Horizon Funds acquired by a previous exchange
transaction involving shares on which a sales load has directly or
indirectly been paid (e.g. Class A shares purchased with a sales load or
issued in connection with an exchange transaction involving Class A shares
that had been purchased with a sales load), as well as additional shares
acquired through reinvestment of dividends or distributions on such
shares, may be redeemed and the proceeds used to purchase without a sales
load Class A or B shares, as the case may be, of any other investment
portfolio within 90 days of your redemption trade date. To accomplish an
exchange transaction under the provisions of this Paragraph, investors
must notify the Transfer Agent of their prior ownership of shares and
their account number.
E. Class A shares of any investment portfolio in the Pacific Horizon Family
of Funds may be exchanged without a sales load for shares of any other
investment portfolio in the Family that is offered without a sales load.
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<PAGE> 74
F. Class A shares of any investment portfolio in the Pacific Horizon Family
of Funds purchased without a sales load may be exchanged without a sales
load for Class A shares in any other portfolio where the investor involved
maintained an account in the Pacific Horizon Family of Funds before April
20, 1987 or was the beneficial owner of shares of Bunker Hill Income
Securities, Inc. on the date of its reorganization into the Pacific
Horizon Corporate Bond Fund.
Except as stated above, a sales load will be imposed when Class A shares
of any investment portfolio in the Pacific Horizon Family of Funds that were
purchased or otherwise acquired without a sales load are exchanged for Class A
shares of another investment portfolio in the Pacific Horizon Family or for like
shares of Time Horizon Funds which are sold with a sales load.
Exchange requests received on a business day prior to the time shares of
the investment portfolios involved in the request are priced will be processed
on the date of receipt. "Processing" a request means that shares in the
investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined coincident to or after the time of redemption. Exchange requests
received on a business day after the time shares of the investment portfolios
involved in the request are priced will be processed on the next business day in
the manner described above.
Miscellaneous. Certificates for shares will not be issued.
Depending on the terms of the customer account at Bank of America or a
Service Organization, certain purchasers may arrange with the Company's
custodian for sub-accounting services paid by the Company without direct charge
to the purchaser.
A "business day" for purposes of processing share purchases and
redemptions received by the Transfer Agent at its Columbus office is a day on
which the New York Stock Exchange is open for trading. In 1996, the holidays on
which the New York Stock Exchange is closed are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Company may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and
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<PAGE> 75
holiday closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to require a
shareholder to redeem involuntarily shares in a Fund if the balance held of
record by the shareholder drops below $500 and such shareholder does not
increase such balance to $500 or more upon 60 days' notice. The contingent
deferred sales charge with respect to Class B shares is not charged on
involuntary redemptions. The Company will not require a shareholder to redeem
shares of the Fund if the balance held of record by the shareholder is less than
$500 solely because of a decline in the net asset value of the Fund's shares.
The Company may also redeem shares involuntarily if such redemption is
appropriate to carry out the Company's responsibilities under the 1940 Act.
If the Company's Board of Directors determines that conditions exist which
make payment of redemption proceeds wholly in cash unwise or undesirable, the
Company may make payment wholly or partly in securities or other property. In
such an event, a shareholder would incur transaction costs in selling the
securities or other property. The Company has committed that it will pay all
redemption requests by a shareholder of record in cash, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the net asset value at the beginning of such period.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL
The Fund will be treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
"regulated investment company." By following this policy, the Fund expects to
eliminate or reduce to a nominal amount the federal income taxes to which it may
be subject. If for any taxable year the Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates (without any
deduction for distributions to shareholders). In such event, the Fund's dividend
distributions to shareholders would be taxable as ordinary income to the extent
of the current and accumulated earnings and profits of the Fund and would be
eligible for the dividends received deduction in the case of corporate
shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that the Fund distribute
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<PAGE> 76
to its shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt income net of certain
deductions for each taxable year. In general, the Fund's investment company
taxable income will be its taxable income, including dividends, interest, and
short-term capital gains (the excess of net short-term capital gain over net
long-term capital loss), subject to certain adjustments and excluding the excess
of net long-term capital gain for the taxable year over the net short-term
capital loss for such year (if any). The Fund will be taxed on its undistributed
investment company taxable income, if any. As stated, the Fund intends to
distribute at least 90% of its investment company taxable income for each
taxable year. To the extent such income is distributed by the Fund (whether in
cash or additional shares) it will be taxable to shareholders as ordinary
income.
The Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the 1940 Act); (2) options, futures and forward
contracts, other than those on foreign currencies; and (3) foreign currencies
(and options, futures and forward contracts on foreign currencies) that are not
directly related to the Fund's principal business of investing in stock and
securities (and options and futures with respect to stocks and securities) (the
"Short-Short test"). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. See Appendix B -- "Accounting and Tax Treatment" -- for a general
discussion of the federal tax treatment of futures contracts, related options
thereon and other financial instruments, including their treatment under the
Short-Short test.
Any distribution of the excess of net long-term capital gains over net
short-term capital losses is taxable to shareholders as long-term capital gains,
regardless of how long
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<PAGE> 77
the shareholder has held Fund shares and whether such gains are received in cash
or additional Fund shares. The Fund will designate such a distribution as a
capital gain dividend in a written notice mailed to shareholders after the close
of the Fund's taxable year. It should be noted that, upon the sale or exchange
of Fund shares, if the shareholder has not held such shares for more than six
months, any loss on the sale or exchange of those shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to those shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains are
taxable at a maximum nominal rate of 28%. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum nominal rate of 35% (or
at a maximum effective marginal rate of 39% in the case of corporations having
taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
The Company will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders (i) who have failed to provide a correct tax identification number
in the manner required, (ii) who are subject to withholding by the Internal
Revenue Service for failure to properly include on their return payments of
taxable interest or dividends or (iii) who have failed to certify to the Company
either that they are subject to backup withholding when required to do so or
that they are "exempt recipients."
Appendix B - "Accounting and Tax Treatment" - contains a discussion of the
tax treatment of certain foreign currency contracts and of certain transactions
denominated in, or determined by reference to, currencies other than the U.S.
dollar.
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<PAGE> 78
TAXATION OF THE MASTER PORTFOLIO
Management of the Master Portfolio intends for the Master Portfolio to be
treated as a partnership (or, in the event that the Fund is the sole investor in
the Master Portfolio, as an agent or nominee) rather than as a regulated
investment company or a corporation under the Code. Under the rules applicable
to a partnership (or an agent of nominee) under the Code, any interest,
dividends, gains and losses of the Master Portfolio will be deemed to have been
"passed through" to its investors regardless of whether any amounts are actually
distributed by the Master Portfolio.
Each investor in the Master Portfolio will be taxed on its share (as
determined in accordance with the governing instruments of the Master Portfolio)
of the Master Portfolio's ordinary income and capital gains in determining its
income tax liability. The determination of such share will be made in accordance
with the Code and regulations promulgated thereunder. It is intended that the
Master Portfolio's assets, income and distributions will be managed in such a
way that an investor in the Master Portfolio will be able to satisfy the
requirements of Sub-chapter M of the Code, assuming that the investor invested
all of its assets in the Master Portfolio.
OTHER INFORMATION
Depending upon the extent of activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities.
Income distributions may be taxable to shareholders under state or local
law as dividend income even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations or U.S. government obligations
which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.
The foregoing discussion is based on tax laws and regulations which are in
effect on the date of this Statement of Additional Information. Such laws and
regulations may be changed by legislative or administrative action. This
discussion is only a summary of some of the important tax considerations
generally affecting purchasers of Fund shares. No attempt is made to present a
detailed explanation of the federal income tax treatment of the Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of Fund shares should consult
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<PAGE> 79
their tax advisers with specific reference to their own tax situation.
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
The directors and officers of the Company, their addresses, ages, and
principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
Thomas M. Collins .......... 61 Director Of Counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Trustee, Master
Investment Trust, Series
I and Master Investment
Trust, Series II (since
1993); former Director,
Bunker Hill Income
Securities, Inc.
(registered investment
company), through 1991.
Douglas B. Fletcher ........ 70 Vice Chairman of Chairman of the Board and
Fletcher Capital Advisors the Board Chief Executive Officer,
Incorporated Fletcher Capital
4 Upper Newport Plaza Advisors, Incorporated
Suite 100 (registered investment
Newport Beach, CA 92660-2629 adviser) 1991 to date;
Partner, Newport Partners
(private venture capital
firm), 1981 to date;
Chairman of the Board and
Chief Executive Officer,
First Pacific Advisors,
Inc. (registered
investment adviser)and
seven investment
companies under its
management, prior to
1983; former Allied
Member, New York Stock
Exchange; Chairman of the
Board of FPA Paramount
Fund, Inc. through 1984;
Director, TIS
</TABLE>
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<PAGE> 80
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
Mortgage Investment
Company (real estate
investment trust);
Trustee and former Vice
Chairman of the Board,
Claremont McKenna
College; Chartered
Financial Analyst.
Robert E. Greeley .......... 62 Director Chairman, Page Mill Asset
Page Mill Asset Management Management (a private
433 California Street investment company) since
Suite 900 1991; Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from 1979
to 1991; Trustee, Master
Investment Trust, Series
I and Master Investment
Trust, Series II (since
1993); Director, Morgan
Grenfell Small Cap Fund
(since 1986), former
Director, Bunker Hill
Income Securities, Inc.
(since 1989) (registered
investment companies);
former Trustee,
SunAmerica Fund Group)
(previously Equitec
Siebel Fund Group) from
1984 to 1992.
Kermit O. Hanson ........... 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to
Seattle, WA 98177 date, Executive Director,
1977 to 1988, Pacific Rim
Bankers Program (a
non-profit educational
institution); Dean
Emeritus, 1981 to date,
Dean, 1964-81, Graduate
School and School of
Business Administration,
University of Washing-
ton; Director, Wash-
ington Federal Sav-
</TABLE>
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<PAGE> 81
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
ings & Loan Association;
Trustee, Seafirst
Retirement Funds
(registered investment
company).
Cornelius J. Pings* ........ 66 Chairman of President, Association of
Association of American the Board American Universities,
Universities and President February 1993 to date;
One Dupont Circle Provost, 1982 to January,
Suite 730 1993, Senior Vice
Washington, DC 20036 President for Academic
Affairs, 1981 to January,
1993, University of
Southern California;
Trustee, Master
Investment Trust, Series
I and Master Investment
Trust, Series II (since
1995).
Kenneth L. Trefftzs ........ 83 Director Private Investor; Former
11131 Briarcliff Drive Distinguished Emeritus
San Diego, CA 92131-1329 Professor of Finance and
Chairman of the
Department of Finance and
Business Economics of the
Graduate School of
Business of the
University of Southern
California; former
Director, Metro Goldwyn
Mayer, Inc.; Director,
Fremont General
Corporation (insurance
and financial services
holding company);
Director, Source Capital,
Inc. (closed-end
investment company);
Director of three
open-end investment
companies managed by
First Pacific Advisors,
Inc.; Former Chairman of
the Board of Directors
(or
</TABLE>
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<PAGE> 82
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
Trustees) of nineteen
investment companies
managed by American
Capital Asset Management,
Inc.
Richard E. Stierwalt ....... 40 Executive Vice Chairman of the Board and
125 W. 55th Street President Chief Executive Officer,
New York, NY 10019 July 1993 to date; prior
thereto Senior Director,
Managing Director and
Chief Executive Officer
of the Administrator and
Distributor, February
1987 to July 1993;
President, Master
Investment Trust, Series
I, Master Investment
Trust, Series II and
Seafirst Retirement Funds
(since 1993); First Vice
President, Trust
Operation Administration,
Security Pacific National
Bank, 1983- 1987.
William B. Blundin ......... 57 Executive Vice Vice Chairman, July 1993
125 W. 55th Street President to date; prior thereto
New York, NY 10019 Director and President of
the Administrator and
Distributor, February
1987 to July 1993;
Executive Vice President,
Master Investment Trust,
Series II and Seafirst
Retirement Funds (since
1993); Senior Vice
President, Shearson
Lehman Brothers,
1978-1987.
Irimga McKay ............... 35 Vice President Senior Vice President,
1230 Columbia Street July 1993 to date; prior
5th Floor thereto First Vice
San Diego, CA 92101 President of the
Administrator and
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
Distributor, November
1988 to July 1993; Vice
President, Master
Investment Trust, Series
II and Seafirst
Retirement Funds (since
1993); Regional Vice
President, Continental
Equities, June 1987 to
November 1988; Assistant
Wholesaler, VMS Realty
Partners (a real estate
limited partnership), May
1986 to June 1987.
W. Eugene Spurbeck ......... 39 Assistant Vice Manager of Client
BISYS Fund Services President Services of the
515 Figueroa Street Administrator (1993 to
Suite 335 date); Assistant Vice
Los Angeles, CA 92037 President, Master
Investment Trust, Series
II; Vice President,
Seafirst Retirement Funds
(since 1995); Vice
President of Retail
Lending Operations Banc
One (1989 to 1993).
Martin R. Dean ............. 31 Treasurer Manager of Fund
3435 Stelzer Road Accounting of BISYS Fund
Columbus, OH 43219 Services, May 1994 to
Present; Treasurer,
Master Investment Trust,
Series II and Seafirst
Retirement Funds (since
1995); Senior Manager at
KPMG Peat Marwick
previously 1990-1994.
W. Bruce McConnel, III ..... 52 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath. Secretary, Master
Building, Suite 1100 Investment Trust, Series
Philadelphia, PA 19107 I, Master Investment
Trust, Series II and
</TABLE>
-33-
<PAGE> 84
<TABLE>
<CAPTION>
Position
Name and Address Age with Company Principal Occupations
- ---------------- --- ------------ ---------------------
<S> <C> <C> <C>
Seafirst Retirement Funds
(since 1993).
George O. Martinez ......... 35 Assistant Senior Vice President and
3435 Stelzer Road Secretary Director of Legal and
Columbus, OH 43219 Compliance Services of
the Administrator, since
April 1995; Assistant
Secretary, Master
Investment Trust, Series
II and Seafirst
Retirement Funds; prior
thereto, Vice President
and Associate General
Counsel, Alliance Capital
Management, L.P.
</TABLE>
- --------------
Mr. Pings is an "interested director" of the Company as defined in the
1940 Act.
The Audit Committee of the Board is comprised of all directors and is
chaired by Dr. Trefftzs. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000 plus $1,000
for each day that a director participates in all or a part of a Board meeting;
the President receives an additional $20,000 per annum for his services as
President; Mr. Collins, in consideration of his years of service as President
and Chairman of the Board, receives an additional $40,000 per annum in severance
until February 28, 1997; each member of a Committee of the Board is entitled to
receive $1,000 for each Committee meeting he participates in (whether or not
held on the same day as a Board meeting); and each Chairman of a Committee of
the Board shall be entitled to receive an annual retainer of $1,000 for his
services as Chairman of the Committee. The Funds, and each other fund of the
Company, pays its proportionate share of these amounts based on relative net
asset values.
For the fiscal year ended February 28, 1995, the Company paid or accrued
for the account of its directors as a group for services in all capacities a
total of $334,168; none of this amount was allocated to the Fund. Each director
is also reimbursed for out-of-pocket expenses incurred as a director.
-34-
<PAGE> 85
Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives legal fees
as counsel to the Company. As of the date of this Statement of Additional
Information, the directors and officers of the Company, as a group, own less
than 1% of the outstanding shares of each of the Company's investment
portfolios.
Under a retirement plan approved by the Board, including a majority of its
directors who are not "interested persons" of the Company, effective March 1,
1995, a director who dies or resigns after five years of service is entitled to
receive ten annual payments each equal to the greater of: (i) 50% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 50% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. A director
who dies or resigns after nine years of service is entitled to receive ten
annual payments each equal to the greater of: (i) 100% of the annual director's
retainer that was payable by the Company during the year of his/her death or
resignation, or (ii) 100% of the annual director's retainer then in effect for
directors of the Company during the year of such payment. Further, the amount
payable each year to a director who dies or resigns is increased by $1,000 for
each year of service that the director served as Chairman of the Board.
Years of service for purposes of calculating the benefit described above
are based upon service as a director or Chairman after February 28, 1994.
Retirement benefits in which a director has become vested may not be reduced by
later Board action.
In lieu of receiving ten annual payments, a director may elect to receive
substantially equivalent benefits through a single-sum cash payment of the
present value of such benefits paid by the Company within 45 days of the death
or resignation of the director. The present value of such benefits is to be
calculated (i) based on the retainer that was payable by the Company during the
year of the director's death or resignation (and not on any retainer payable to
directors thereafter), and (ii) using the interest rate in effect as of the date
of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
-35-
<PAGE> 86
In addition to the foregoing, the Board of Directors may, in its
discretion and in recognition of a director's period of service before March 1,
1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter).
The obligation of the Company to pay benefits to a former director is
neither secured nor funded by the Company but is binding upon its successors in
interest. The payment of such benefits under the retirement plan has no priority
or preference over the lawful claims of the Company's creditors or shareholders,
and the right to receive such payments is not assignable or transferable by a
director (or former director) other than by will, by the laws of descent and
distribution, or by the director's written designation of a beneficiary.
TRUSTEES AND OFFICERS OF MASTER INVESTMENT TRUST, SERIES I
The trustees and officers of Master Investment Trust, Series I, (the
"Master Trust") a Delaware business trust of which the Master Portfolio is a
series, their addresses, ages and principal occupation during the past five
years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age the Master Trust Principal Occupations
- ---------------- --- ---------------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 61 Chairman of the See "Directors and
McDermott & Trayner Board Officers of the Company."
255 South Lake Avenue,
Suite 410
Pasadena, CA 91101
Michael Austin 59 Trustee Chartered Accountant;
Victoria House Trustee, Master
Nelson Quay Investment Trust, Series
Governor's Harbour II (since 1993); Retired
British West Indies Partner, KPMG Peat
Marwick LLP.
Robert E. Greeley 62 Trustee See "Directors and
Page Mill Asset Management Officers of the Company."
433 California Street
Suite 900
San Francisco, CA 94104
</TABLE>
-36-
<PAGE> 87
<TABLE>
<CAPTION>
Position with
Name and Address Age the Master Trust Principal Occupations
- ---------------- --- ---------------- ---------------------
<S> <C> <C> <C>
Robert A. Nathane* 70 Trustee Retired President, Laird
1200 Shenandoah Drive East Norton Trust Company,
Seattle, WA 98112 Chairman of the Board of
Advisors, Phoenix Venture
Funds; Trustee, Seafirst
Retirement Funds (since
July 1993); Trustee,
Master Investment Trust,
Series II (since 1993);
former Trustee, First
Funds of America
(registered investment
companies); former
Supervisor, Collective
Investment Trust for
Seafirst Retirement
Accounts (collective
investment funds).
Cornelius J. Pings 66 Trustee See "Directors and
Association of Officers of the
American Universities Company."
One Dupont Circle
Suite 730
Washington, DC 20036
Richard E. Stierwalt 40 President See "Directors and
125 West 55th Street Officers of the
11th Floor Company."
New York, NY 10019
Adrian J. Waters 32 Executive Vice Managing Director of
ITT House President and Concord Management
23 Earlsfort Terrace Treasurer (Ireland) Limited since
Dublin 2, Ireland May 1993;Manager in
Investment Company
Industry Services Group,
Price Waterhouse, 1989 -
1993; Member of Oliver
Freaney & Co./Spicer &
Oppenheim Chartered
Accountants, 1986- 1989.
W. Bruce McConnel, III 52 Secretary See "Directors and
Philadelphia National Bank
</TABLE>
-37-
<PAGE> 88
<TABLE>
<CAPTION>
Position with
Name and Address Age the Master Trust Principal Occupations
- ---------------- --- ---------------- ---------------------
<S> <C> <C> <C>
Building, Suite 1100 Officers of the Company."
1345 Chestnut Street
Philadelphia, PA 19107
</TABLE>
- --------------
* Mr. Nathane is an "interested trustee" of the Master Trust as defined in
the 1940 Act.
Each trustee receives an aggregate annual fee of $1,500 plus $500 per
meeting attended and $250 per day for each full day devoted to travel in
connection with each meeting attended, for his services as trustee of the Master
Trust. Each trustee is also reimbursed for out-of-pocket expenses incurred as a
trustee. The trustee's fees and reimbursements are allocated among all of the
Master Trust's portfolios based on their relative net asset values. For its
fiscal year ended February 28, 1995, the Master Trust paid or accrued for the
account of its trustees as a group for services in all capacities a total of
$30,221; none of this amount was allocated to the Master Portfolio.
The following chart provides certain information as of February 28, 1995
about the fees received by directors of the Company as directors and/or officers
of the Company and as directors and/or trustees of the Fund Complex:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX*
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $100,000 $0 $0 $110,000
President and
Chairman of the
Board+
- ----------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $ 57,500 $0 $0 $ 57,500
Vice Chairman of
the Board
- ----------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley** $ 57,500 $0 $0 $ 65,781
Director
- ----------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $ 57,500 $0 $0 $ 63,500
Director
- ----------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $ 57,500 $0 $0 $ 57,500
Director
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE> 89
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED AS BENEFITS COMPLEX*
NAME OF PERSON/ FROM THE PART OF FUND UPON PAID TO
POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth L. Trefftzs $57,500 $0 $0 $57,500
Director
============================================================================================================================
</TABLE>
- --------------
* The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Investment Trust, Series I and Master Investment Trust, Series II.
** Mr. Greeley became a director of the Company on April 25, 1994.
+ Mr. Collins was President and Chairman of the Board of the Company until
August 31, 1995.
-39-
<PAGE> 90
INVESTMENT ADVISER
Bank of America is the successor by merger to Security Pacific National
Bank ("Security Pacific"), which previously served as investment adviser to the
other investment portfolios of the Company since the commencement of its
operations. As described in the Prospectus, the Fund has not retained the
services of an investment adviser since it seeks to achieve its investment
objective by investing all of its assets in the Master Portfolio. In the
Investment Advisory Agreement with the Master Trust, Bank of America has agreed
to provide investment advisory services as described in the Prospectus. Bank of
America has also agreed to pay all expenses incurred by it in connection with
its activities under its agreement other than the cost of securities, including
brokerage commissions, if any, purchased for the Master Portfolio. In rendering
its advisory services, Bank of America may utilize Bank officers from one or
more of the departments of the Bank which are authorized to exercise the
fiduciary powers of Bank of America with respect to the investment of trust
assets. In some cases, these officers may also serve as officers, and utilize
the facilities, of wholly owned subsidiaries and other affiliates of Bank of
America or its parent corporation. In addition, the agreement also provides that
Bank of America may, in its discretion, provide advisory services through its
own employees or employees of one or more of its affiliates that are under the
common control of Bank of America's parent, BankAmerica Corporation; provided
such employees are under the management of Bank of America.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement for the Master Portfolio, the Master Trust has agreed to pay
Bank of America fees, accrued daily and payable monthly, at the annual rate of
0.75% of the average daily net assets of the Master Portfolio. The fees payable
to Bank of America are not subject to reduction as the value of the Master
Portfolio's net assets increases. From time to time, Bank of America may waive
fees or reimburse the Company or the Master Portfolio for expenses voluntarily
or as required by certain state securities laws. If total expenses borne by the
Fund in any fiscal year exceed the expense limitations imposed by applicable
state securities regulations, Bank of America will reimburse the Company and the
Master Trust the amount of such excess to the extent required by such
regulations in proportion to the fees otherwise payable to them for such year.
As of the date of this Statement of Additional Information, the most restrictive
expense limitation that may be applicable to the Company limits aggregate
annual expenses with respect to the Fund (including management and advisory fees
and the Fund's pro-rata share of such expenses of the Master Portfolio but
excluding interest, taxes, brokerage commissions, and certain other expenses) to
2-1/2% of the first $30 million of its average daily net assets, 2% of the next
$70 million, and 1-
-40-
<PAGE> 91
1/2% of its remaining average daily net assets. During the course of the
Company's fiscal year, Bank of America or the Administrator may assume certain
expenses and/or not receive payment of fees of the Fund or Master Portfolio,
while retaining the ability to be reimbursed by the Fund or Master Portfolio for
such amounts prior to the end of the fiscal year. This will have the effect of
increasing yield to investors at the time such fees are not received or amounts
are assumed and decreasing yield when such fees or amounts are reimbursed.
The Investment Advisory Agreement for the Master Portfolio provides that
Bank of America shall not be liable for any error of judgment or mistake of law
or for any loss suffered in connection with the performance of the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
The Glass-Steagall Act, among other things, prohibits banks from engaging
in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System v. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies.
Bank of America believes that if the question were properly presented, a
court should hold that Bank of America may perform the services for the Master
Portfolio contemplated by the Investment Advisory Agreement, the Prospectus, and
this Statement
-41-
<PAGE> 92
of Additional Information without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. It should be noted, however, that there
have been no cases deciding whether a national bank may perform services
comparable to those performed by Bank of America and that future changes in
either federal or state statutes and regulations relating to permissible
activities of banks or trust companies and their subsidiaries or affiliates, as
well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent Bank of America from
continuing to perform such services for the Master Portfolio or from continuing
to purchase Fund shares for the accounts of its customers.
For a discussion of the Glass Steagall Act in connection with the
Company's Shareholder Service Plan and Distribution and Shareholder Service
Plan, see "Plan Payments" in the Fund's Prospectus.
On the other hand, as described herein, the Fund is currently distributed
by Concord Financial Group, Inc. Concord Holding Corporation, its parent, either
directly or through its off-shore subsidiary, provides the Master Portfolio and
the Fund with administrative services. If current restrictions under the
Glass-Steagall Act preventing a bank from sponsoring, organizing, controlling,
or distributing shares of an investment company were relaxed, the Company and
the Master Trust expect that Bank of America would consider the possibility of
offering to perform some or all of the services now provided by Concord Holding
Corporation or Concord Financial Group, Inc. From time to time, legislation
modifying such restriction has been introduced in Congress which, if enacted,
would permit a bank holding company to establish a non-bank subsidiary having
the authority to organize, sponsor and distribute shares of an investment
company. If this or similar legislation were enacted, the Company and the Master
Trust expect that Bank of America's parent bank holding company would consider
the possibility of one of its non-bank subsidiaries offering to perform some or
all of the services now provided by Concord Holding Corporation or Concord
Financial Group, Inc. It is not possible, of course, to predict whether or in
what form such legislation might be enacted or the terms upon which Bank of
America or such a non-bank affiliate might offer to provide services for
consideration by the Company's Board of Directors or the Master Trust's Board of
Trustees.
ADMINISTRATOR
Concord Holding Corporation (the "Administrator"), with offices at 125 W.
55th Street, New York, New York 10019 and 3435 Stelzer Road, Columbus, Ohio
43219 is an indirect, wholly owned subsidiary of The BISYS Group, Inc. The
Administrator also serves as administrator to several other investment
companies.
-42-
<PAGE> 93
The Administrator (and/or its off-shore affiliate), provides
administrative services to the Company and the Master Portfolio as described in
the Fund's Prospectus pursuant to separate administration agreements for the
Company and the Master Trust. The Master Portfolio's administration agreement
will continue in effect until October 31, 1996, and thereafter for successive
periods of one year, provided that such continuance is specifically approved
at least annually (a) by a vote of a majority of those members of the Board of
Trustees of the Master Trust who are not parties to the administration agreement
or "interested persons" of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Board of Trustees of
the Master Trust or by vote of a "majority of the outstanding voting securities"
of the Master Portfolio. The Master Portfolio's administration agreement is
terminable at any time without penalty by the Master Portfolio's Board of
Trustees or by a vote of a majority of the Master Portfolio's outstanding
interests upon 60 days' notice to the Administrator, or by the Administrator
upon 90 days' notice to the Master Portfolio. The Fund's administration
agreement will continue in effect until October 31, 1996 and thereafter will be
extended for successive periods of one year, provided that each such extension
is specifically approved (a) by vote of a majority of those members of the
Company's Board of Directors who are not interested persons of any party to the
agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (b) the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund. The agreement is terminable at
any time without penalty by the Company's Board of Directors or by a vote of a
majority of the Fund's outstanding securities upon 60 days' notice to the
Administrator, or by the Administrator upon 90 days' notice to the Company.
The Company has agreed to pay the Administrator a fee for its services as
Administrator, accrued daily and payable monthly, at the annual rate of .15% of
the average daily net assets of the Fund. Similarly, the Master Portfolio has
agreed to pay the Administrator a fee for its services, accrued daily and
payable monthly, at the annual rate of .05% of the average daily net assets of
the Master Portfolio. The fees payable to the Administrator are not subject to
reduction as the value of the Fund's and the Master Portfolio's net assets
increases. From time to time, the Administrator may waive fees or reimburse the
Master Portfolio or the Fund for expenses, either voluntarily or as required by
certain state securities laws.
The Administrator will bear all expenses in connection with the
performance of its services under the administration agreements with the
exception of the fees charged by PFPC, Inc. ("PFPC") for certain fund accounting
services which are borne by the Fund and the Master Portfolio. Expenses borne by
the Fund
-43-
<PAGE> 94
and/or Master Portfolio include taxes, interest, brokerage fees and commissions,
if any, fees of Board members who are not officers, directors, partners,
employees or holders of 5% or more of the outstanding voting securities of Bank
of America or the Administrator or any of their affiliates, SEC fees and state
securities qualification fees, advisory fees, administration fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining corporate
existence, costs attributable to investor services, including without limitation
telephone and personnel expenses, costs of preparing and printing prospectuses
and Statements of Additional Information for regulatory purposes, cost of
shareholders' reports and corporate meetings and any extraordinary expenses.
Certain distribution and shareholder servicing fees in connection with the
Company's shares are also paid by the Company. See "Distributor and Plan
Payments."
The administration agreements provide that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Company or the Master Portfolio in connection with the performance of the
administration agreements, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties or from the reckless
disregard by it of its obligations and duties thereunder.
Bank of America has received an option entitling it to purchase
approximately 4% of the Administrator's authorized common stock on or before
December 31, 1998.
DISTRIBUTOR AND PLAN PAYMENTS
Concord Financial Group, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Administrator, acts as distributor of the shares of the
Company. Shares are sold on a continuous basis by the Distributor. The
Distributor has agreed to use its best efforts to solicit orders for the sale of
the Company's shares although it is not obliged to sell any particular amount of
shares. The distribution agreement shall continue in effect until October 31,
1996. Thereafter, if not terminated, the distribution agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a vote of a majority of those
members of the Board of Directors of the Company who are not parties to the
distribution agreement or "interested persons" of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Board of Directors of the Company or by vote of a "majority of the outstanding
voting securities" of the Fund as to which the distribution agreement is
effective; provided, however, that the distribution agreement may be terminated
by the Company
-44-
<PAGE> 95
at any time, without the payment of any penalty, by vote of a majority of the
entire Board of Directors of the Company or by a vote of a "majority of the
outstanding voting securities" of the Fund on 60 days' written notice to the
Distributor, or by the Distributor at any time, without the payment of any
penalty, on 90 days' written notice to the Company. The agreement will
automatically and immediately terminate in the event of its "assignment."
THE SHAREHOLDER SERVICE PLAN
The Distributor is entitled to payment by the Company for certain
shareholder servicing expenses, in addition to the sales loads on Class A shares
described above and in the Prospectus, under the Shareholder Service Plan (the
"Plan") adopted by the Company for its Class A shares. Under the Plan for Class
A shares, the Company pays the Distributor, with respect to the Fund, for (a)
non-distribution shareholder services provided by the Distributor to Service
Organizations and/or the beneficial owners of Fund shares, including, but not
limited to shareholder servicing provided by the Distributor at facilities
dedicated for Company use, provided such shareholder servicing is not
duplicative of the servicing otherwise provided on behalf of the Fund, and (b)
fees paid to Service Organizations (which may include the Distributor itself)
for the provision of support service to the shareholders for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship ("Clients").
Support services provided by Service Organizations may include, among
other things: (i) establishing and maintaining accounts and records relating to
Clients that invest in Fund shares; (ii) processing dividend and distribution
payments from the Fund on behalf of Clients; (iii) providing information
periodically to Clients regarding their positions in shares; (iv) arranging for
bank wires; (v) responding to Client inquiries concerning their investments in
Fund shares; (vi) providing the information to the Fund necessary for accounting
or subaccounting; (vii) if required by law, forwarding shareholder
communications from the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Clients; (viii) assisting in processing exchange and redemption requests from
Clients; (ix) assisting Clients in changing dividend options, account
designations and addresses; and (x) providing such other similar services.
The Shareholder Service Plan provides that the Distributor is entitled to
receive payments for expenses on a monthly basis, at an annual rate not
exceeding 0.25% of the average daily net assets of the Class A shares of the
Fund during
-45-
<PAGE> 96
such month for shareholder servicing expenses. The calculation of a Fund's
average daily net assets for these purposes does not include assets held in
accounts opened via a transfer of assets from trust and agency accounts of Bank
of America. Further, payments made out of or charged against the assets of the
Fund must be in payment for expenses incurred on behalf of the Fund.
If in any month the Distributor expends or is due more monies than can be
immediately paid due to the percentage limitation described above, the unpaid
amount is carried forward from month to month while the Plan is in effect until
such time, if ever, when it can be paid in accordance with such percentage
limitations. Conversely, if in any month the Distributor does not expend the
entire amount then available under the Plan, and assuming that no unpaid amounts
have been carried forward and remain unpaid, then the amount not expended will
be a credit to be drawn upon by the Distributor to permit future payment.
However, any unpaid amounts or credits due under the Plan may not be "carried
forward" beyond the end of the fiscal year in which such amounts or credits due
are accrued.
Payments for shareholder service expenses under the Shareholder Service
Plan are not subject to Rule 12b-1 (the "Rule") under the 1940 Act. Pursuant to
the Shareholder Service Plan, the Distributor provides that a report of the
amounts expended under the Plan, and the purposes for which such expenditures
were incurred, will be made to the Board of Directors for its review at least
quarterly. In addition, the Plan provides that the selection and nomination of
the directors of the Company who are not "interested persons" of the Company
have been committed to the discretion of the directors who are neither
"interested persons" (as defined in the 1940 Act of the Company, nor have any
direct or indirect financial interest in the operation of the Shareholder
Service Plan (or related servicing agreements) (the "Non-Interested Plan
Directors").
The Company's Board of Directors has concluded that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders. The Plan is
subject to annual reapproval by a majority of the Non-Interested Plan Directors
and is terminable at any time with respect to the Fund by a vote of a majority
of such Directors or by vote of the holders of a majority of the Class A shares
of the Fund. Any agreement entered into pursuant to the Plan with a Service
Organization is terminable with respect to the Fund without penalty, at any
time, by vote of a majority of the Non-Interested Plan Directors, by vote of the
holders of a majority of the Class A shares of the Fund, by the Distributor or
by the Service Organization. Each agreement will also terminate automatically in
the event of its assignment.
-46-
<PAGE> 97
The Company understands that Bank of America and/or some Service
Organizations may charge their clients a direct fee for administrative and
shareholder services in connection with the holding of Fund shares. These fees
would be in addition to any amounts which might be received under the Plans.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
The Distribution and Services Plan. The Distributor is also entitled to
payment from the Company for distribution and service fees pursuant to the
Distribution and Services Plan (the "12b-1 Plan") adopted on behalf of the Class
B shares. Under the 12b-1 Plan, the Company may pay the Distributor for: (a)
direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing Class B shares; (b) expenses incurred in connection
with preparing, printing, mailing, and distributing or publishing advertisements
and sales literature for Class B shares; expenses incurred in connection with
printing and mailing Prospectuses and Statements of Additional Information to
other than current Class B shareholders; (c) periodic payments or commissions to
one or more securities dealers, brokers, financial institutions or other
industry professionals, such as investment advisors, accountants, and estate
planning firms (severally, "a Distribution Organization") with respect to a
Fund's Class B shares beneficially owned by customers for whom the Distribution
Organization is the Distribution Organization of record or holder of record of
such Class B shares; (d) the direct or indirect cost of financing the payments
or expenses included in (a) and (c) above; or (e) for such other services as may
be construed, by any court or governmental agency or commission, including the
SEC, to constitute distribution services under the 1940 Act or rules and
regulations thereunder.
Pursuant to the 12b-1 Plan, the Company may also pay securities dealers,
brokers, financial institutions or other industry professionals, such as
investment advisors, accountants, and estate planning firms (severally, a
"Service Organization") for administrative support services provided with
respect to its Clients' Class B shares. Administrative services provided may
include some or all of the following: (i) processing dividend and distribution
payments from a Fund on behalf of its Clients; (ii) providing information
periodically to its Clients showing their positions in Class B shares; (iii)
arranging for bank wires; (iv) responding to routine Client inquiries concerning
their investment in Class B shares; (v) providing the information to the Fund
necessary for accounting or sub-accounting; (vi) if required by law, forwarding
shareholder communications from a Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to its Clients; (vii) aggregating and processing purchase, exchange,
and redemption requests from its Clients and placing net purchase, exchange, and
redemption orders for its
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Clients; (viii) providing Clients with a service that invests the assets of
their accounts in Class B shares pursuant to specific or pre-authorized
instructions; (ix) establishing and maintaining accounts and records relating to
Clients that invest in Class B shares; (x) assisting Clients in changing
dividend options, account designations and addresses; or (xi) other similar
services if requested by the Company.
The 12b-1 Plan for Class B shares provides that the Distributor is
entitled to receive payments on a monthly basis at an annual rate not exceeding
1.00% of the average daily net assets during such month of the outstanding Class
B shares to which such 12b-1 Plan relates. Not more than 0.25% of such net
assets will be used to compensate Service Organizations for personal services
provided to Class B shareholders and/or the maintenance of such shareholders'
accounts and not more than 0.75% of such net assets will be used for promotional
and other primary distribution activities.
Payments made out of or charged against the assets of a particular class
of shares of a particular Fund must be in payment for expenses incurred on
behalf of that class.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of /Company/ shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a written report of the amounts expended under the 12b-1 Plan, and
the purposes for which such expenditures were incurred, will be given to the
Board of Directors for its review at least quarterly. In addition, the Plan
provides that it may not be amended to increase materially the costs which a
Fund may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval and that other material amendments of the 12b-1 Plan must be approved
by a majority of the Board of Directors, and by a majority of the directors who
are neither "interested persons" (as defined in the 1940 Act) of the Company nor
have any direct or indirect financial interest in the operation of the 12b-1
Plan, or in any agreements entered into in connection with the 12b-1 Plan, by
vote cast in person at a meeting called for the purpose of considering such
amendments (the "Non-Interested Plan Directors"). The selection and nomination
of the directors of the Company who are not "interested persons" of the Company
have been committed to the discretion of the Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Fund and its Class B
shareholders. The 12b-1 Plan is subject
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to annual reapproval by a majority of the Company's Board of Directors,
including a majority of the Non-Interested Plan Directors and is terminable
without penalty at any time with respect to the Fund by a vote of a majority of
the Non-Interested Plan Directors or by vote of the holders of a majority of the
outstanding Class B shares of the Fund. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to the
Fund without penalty, at any time, by vote of a majority of the Non-Interested
Plan Directors, by vote of the holders of a majority of the outstanding Class B
shares of the Fund, or by the Service Organization. The agreement will also
terminate automatically in the event of its assignment.
YIELD AND TOTAL RETURN
From time to time, the yield and the total return of the Fund may be
quoted in and compared to other mutual funds with similar investment objectives
in advertisements, shareholder reports or other communications to shareholders.
The Fund may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or retirement planning), investment management techniques, policies or
investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Fund), as well as the views of the Master Portfolio's investment adviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment
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vehicles, including but not limited to stocks, bonds, Treasury bills and shares
of the Fund. In addition, advertisements or shareholder communications may
include a discussion of certain attributes or benefits to be derived by an
investment in the Fund. Such advertisements or communications may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, the
Fund may reprint articles (or excerpts) written regarding the Fund and provide
them to prospective shareholders. Performance information with respect to the
Fund is generally available by calling (800) 346-2087.
Yield Calculations. The yield for the respective share class of the Fund
is calculated by dividing the net investment income per share (as described
below) earned by the Fund during a 30-day (or one month) period by the maximum
offering price per share (including the maximum front-end sales charge of a
Class A share) on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Fund's net investment income per share earned during the period with respect to
a particular class is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period attributable to that class minus expenses
accrued for the period attributable to that class, net of reimbursements. This
calculation can be expressed as follows:
a-b
Yield = 2 ((----- + 1)6 - 1)
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities is
recognized by accruing 1/360 of the stated dividend rate of the security each
day. Except as noted below, interest earned on debt obligations is calculated by
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computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest), and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for amortization
of the discount or premium. The amortization schedule will be adjusted monthly
to reflect changes in the market values of such debt obligations.
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have the discounts based on current market value that
are less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) the
Master Portfolio may elect either (i) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average maturity date is not
available, or (ii) not to amortize discount or premium on the remaining
security.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a
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dividend shortly thereafter. The Fund's maximum offering price per share for
purposes of the formula includes the maximum sales load imposed by the Fund on
Class A shares -- currently 4.50% of the per share offering price.
Total Return Calculations. The Fund may compute its average annual total
return separately for its separate share classes by determining the average
annual compounded rates of return during specified periods that equate the
initial amount invested in a particular share class to the ending redeemable
value of such investment in the class. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
ERV(1/n)
T = ((---------) - 1)
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
The Fund computes its aggregate total return separately for its separate
share classes by determining the aggregate rate of return during specified
periods that likewise equates the initial amount invested in a particular share
class to the ending redeemable value of such investment in the class. The
formula for calculating aggregate total return is as follows:
ERV
aggregate total return = ((----- - 1))
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. In
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addition, the Fund's average annual total return and aggregate total return
quotations reflect the deduction of the maximum front-end sales load charged in
connection with the purchase of Class A shares and the deduction of any
applicable contingent deferred sales charge with respect to Class B shares.
The Fund may advertise total return data without reflecting sales charges
imposed on the purchase of shares of the Fund in accordance with the rules of
the SEC. Quotations which do not reflect the sales load will, of course, be
higher than quotations which do.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company is an open-end management investment company organized as a
Maryland corporation on October 27, 1982. The Fund's Charter authorizes the
Board of Directors to issue up to two hundred billion full and fractional common
shares. Pursuant to the authority granted in the Charter, the Board of Directors
has authorized the issuance of twenty-two classes of stock - Classes A through W
Common Stock, $.001 par value per share, representing interests in twenty-two
separate investment portfolios. Class T represents interests in the Class A
shares of the International Equity Fund and Class T--Special Series 3 represents
interests in the Class B shares of the International Equity Fund. The Company's
charter also authorizes the Board of Directors to classify or reclassify any
particular class of the Company's shares into one or more series.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in the Prospectus, the Company's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Company's shares and redemption provisions with respect
to such shares, see "Additional Purchase and Redemption Information."
Shareholders 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 or series except as otherwise required by the 1940 Act or other
applicable law or when permitted by the Board of Directors. Shares have
cumulative voting rights to the extent they may be required by applicable law.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by
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a majority of the outstanding shares of each fund affected by the matter. The
Fund is affected by a matter unless it is clear that the interests of each of
the Company's funds in the matter are substantially identical or that the matter
does not affect any interest of the Fund. Under Rule 18f-2 any change in a
fundamental investment policy would be effectively acted upon with respect to
the Fund only if approved by a majority of the outstanding shares of the Fund.
However, the rule also provides that the ratification of independent public
accountants, the approval of principal underwriting contracts and the election
of directors may be effectively acted upon by shareholders of the Company voting
without regard to particular funds.
Notwithstanding any provision of Maryland law requiring a greater vote of
the Company's common stock (or of the shares of the Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2 discussed above) or by the Company's Charter, the
Company may take or authorize such action upon the favorable vote of the holders
of more than 50% of the outstanding common stock of the Company voting without
regard to class.
THE MASTER PORTFOLIO
The Master Portfolio is a separate series of Master Investment Trust,
Series I, which was organized on October 26, 1992 as a Delaware business trust.
The Master Trust's Declaration of Trust authorizes its Board of Trustees to
issue an unlimited number of interests of beneficial interest and to establish
and designate any unissued interests of one or more additional series of
interests. Investors in the Master Portfolio are entitled to distributions
arising from the net investment income and net realized gains, if any, earned on
investments held by the Master Portfolio. Investors are also entitled to
participate in the net distributable assets of the Master Portfolio on
liquidation. Beneficial interests have no preemptive, conversion or exchange
rights.
REPORTS
Shareholders will receive unaudited semi-annual reports describing the
Master Portfolio's and the Fund's investment operations and annual financial
statements of the Master Portfolio and the Fund, audited by the independent
accountants.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
PNC Bank, National Association ("PNC") has been appointed custodian for
the Fund and the Master Portfolio. As custodian of the assets of the Fund and
the Master Portfolio, PNC (i) maintains a separate account or accounts in the
name of the Fund and Master Portfolio (as applicable), (ii) holds and
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disburses portfolio securities; (iii) makes receipts and disbursements of money,
(iv) collects and receives income and other payments and distributions on
account of portfolio securities, (v) responds to correspondence from security
brokers and others relating to its respective duties and (vi) makes periodic
reports concerning its respective duties. PFPC, Bellevue Park Corporate
Center, 400 Bellevue Parkway, Wilmington, DE 19809 provides the Fund and Master
Portfolio with certain accounting services pursuant to separate fund accounting
services agreements with the Administrator. Under the fund accounting services
agreements, PFPC has agreed to provide certain accounting, bookkeeping, pricing,
dividend and distribution calculation services with respect to the Company and
the Master Portfolio, respectively. The monthly fees charged by PFPC under the
fund accounting services agreements are borne by the Fund and the Master
Portfolio, respectively.
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
serves as transfer and dividend disbursing agent for the Fund.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III, Secretary of the
Company, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, serves as counsel to the Company and will pass upon the
legality of the shares offered hereby.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, independent accountants, with offices at 1177 Avenue
of the Americas, New York, New York 10036, has been selected as independent
accountants of the Fund and for the Master Portfolio.
MISCELLANEOUS
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority" of the outstanding interests of the Master Portfolio, the
outstanding shares of the Fund or a particular series means the affirmative vote
of the lesser of (a) more than 50% of the outstanding interests of the Master
Portfolio, the outstanding shares of the Fund or such series, or (b) 67% of the
interests of the Master Portfolio, the shares of the Fund or such series present
at a meeting at which more than 50% of the outstanding interests of the Master
Portfolio, the outstanding shares of the Fund or series (as applicable) are
represented in person or by proxy.
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the
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outstanding Pacific Horizon Shares of the Treasury Fund were as follows:
Hare & Company, Bank of New York, Short Term Investment Funds, Attn: Bimal Saha,
One Wall Street, New York, NY 10286, 129,738,570.66 shares (9.91%); BA
Investment Services, Inc., For the Benefit of Clients, P.O. Box 7042, Attn:
Unit #7852 - Bob Santilli, San Francisco, CA 94120, 187,236,422.96 shares
(14.31%); and Bank of America State Trust Company, 299 N. Euclid Avenue,
Pasadena, CA 91101, 879,468,871.56 shares (67.23%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Shares of the
Treasury Fund were as follows: Bank of America TTEE/Custodian For Investing in
Horizon Treasury Fund, Attn: Common Trust Funds Units, 8329, P.O. Box 3577
Terminal Annex, Los Angeles, CA 90051, 340,367,029.56 shares (11.76%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Treasury Fund were as follows: Omnibus Account Horizon for the Shareholder
Accounts Maintained By Concord Financial Services, Inc., Attn: Linda Zerbe,
First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
182,496,513.51 shares (17.82%); and Omnibus Account for the Shareholder Accounts
Maintained By Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
321,226,413.93 shares (31.36%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the California Tax- Exempt Money Market Fund were as follows: Omnibus Account
For the Shareholder Accounts Maintained By Concord Financial Services, Inc.,
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 55,027,046.86 shares (33.60%); and BA Investment Services,
Inc., Attn: Bob Santilli, 185 Berry Street, 3rd Floor, Unit 7852, San Francisco,
California 94107, 43,548,248.13 shares (7.21%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the California Tax-Exempt Money Market Fund were as follows: Bank of America
National Trust and Savings Association, The Private Bank, Attn: Common Trust
Funds Unit #8329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
30,906,970.67 shares (6.99%); and BA Investment Services, Inc., For the Benefit
of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San Francisco, CA
94120, 370,355,176.96 shares (83.76%).
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At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Prime Fund were as follows: Omnibus Account For the Shareholder Accounts
Maintained By Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
219,051,606.48 shares (15.53%); Omnibus Account for the Shareholder Accounts
Maintained By Concord Financial Services, Inc., Attn: Linda Zerbe, First and
Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
583,075,731.46 shares (41.34%); and Security Pacific Cash Management, c/o Bank
of America - GPO m/c 5533, 1850 Gateway Boulevard m/c 5533, Concord, CA 94520,
479,982,900 shares (9.59%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Shares of the Prime
Fund were as follows: Bank of America TTEE/Custodian For Investing in Horizon
Prime Funds, Attn: Common Trust Funds Unit 8329, P.O. Box 3577, Terminal Annex,
Los Angeles, CA 90051, 602,705,536.17 shares (20.83%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Prime Fund were as follows: Hare & Co. Bank of New York, Short Term
Investment Funds, Attn: Bimal Saha, One Wall Street, New York, NY 10286,
116,544,091.86 shares (6.05%); BA Investment Services, Inc., For the Benefit of
Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San Francisco, CA
94120, 1,314,518,652.69 shares (68.31%); and Bank of America State Trust
Company, 299 N. Euclid Avenue, Pasadena, CA 91101, 179,521,133.11 shares
(9.33%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Tax-Exempt Money Market Fund were as follows: Fatigue Technologies, Inc.,
Attn: Kevin Dooley, 100 Andover Park West, Seattle, WA 98138, 2,582,833.38
shares (5.36%); Bank of America Illinois Sweep, Attn: Jewel James, 231 South
LaSalle Street, Chicago, IL 60697, 5,000,000 shares (10.39%); Omnibus Account
for the Shareholder Accounts Maintained by Concord Financial Services, Inc.,
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 21,318,681.46 shares (44.30%); Omnibus Account for the
Shareholder Accounts Maintained by Concord Financial Services, Inc., Attn: Linda
Zerbe, First and Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA
15222, 3,038,268.73 shares (6.31%); and Bank of America Custodian for Investing
in Horizon Tax-Exempt Fund, Attn. Common Trust Funds. Unit 8329, P.O. Box 3577
Terminal Annex, Los Angeles, CA 90051, 115,395,847.74 shares (26.39%); and
Continental Bank Natl. Assn.
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Cust., FBO Cust & Co., Attn: Mary Chester, 231 South LaSalle Street 6Q, Chicago,
IL 606970001, 174,128,061.4 shares (39.82%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Tax-Exempt Money Market Fund were as follows: BA Investment Services, Inc.,
For the Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 - Bob Santilli, San
Francisco, California 94120, 49,103,295.68 shares (87.39%); and Bank of America
State Trust Company, 299 N. Euclid Avenue, Pasadena, California 91101,
5,534,888.99 shares (9.85%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Government Fund were as follows: COHU, Inc., 5755 Kearny Villa Road, San
Diego, CA 92123, 12,187,859.46 shares (5.60%); Perkins, Coie, Stone, Olsen &
Willi, Attn: Brennan J. Devine, 1201 Third Avenue, 40th FL, Seattle, WA 98101,
14,506,737.78 (6.67%); Toasty, Ltd., Leslie L. Alexander, One Greenway Plaza,
Suite 645, Houston, TX 77046, 12,847,594.83 shares (5.91%); Rocket Ball, Ltd.,
One Greenway Plaza, Suite 645, Houston, TX 77046, 15,022,454.78 shares (6.91%);
and Omnibus Account for the Shareholder Accounts Maintained By Concord Financial
Services, Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue,
Suite 300, Pittsburgh, PA 15222, 38,579,041.68 shares (17.74%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Government Fund were as follows: Bank of America National Trust and Savings
Association, The Private Bank, Attn: ACI Unit #8329, P.O. Box 3577 Terminal
Annex, Los Angeles, CA 90051, 65,616,870.55 shares (21.09%); and BA Investment
Services, Inc., For the Benefit of Clients, P.O. Box 7042, Attn: Unit #7852 -
Bob Santilli, San Francisco, California 94120, 198,966,023.95 shares (63.95%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Horizon Service Shares of
the Treasury Only Fund were as follows: National Home Mortgage Corp., Attn:
Mortgage Banking, Treasury Operations, 5565 Morehouse Drive 3rd FL, San Diego,
CA 92121, 12,801,637.68 shares (9.38%); Comcare, Inc., 4001 N. 3rd Street, Suite
120, Phoenix, AZ 85012, 18,619,366.33 shares (13.65%); Comcare, Inc., 4001 N.
3rd Street, Suite 120, Phoenix, AZ 85012, 7,425,544.39 shares (5.44%); Omnibus
Account for the Shareholder Accounts Maintained By Concord Financial Services,
Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 31,525,895.7 shares (23.12%); and BA Investment Services,
Inc., Attn: Bob Santilli, 185 Berry Street 3rd Floor Unit 7852, San Francisco,
CA 94107, 21,434,633.16 shares (5.38%).
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At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Pacific Horizon Shares of
the Treasury Only Fund were as follows: Bank of America National Trust and
Savings Association, The Private Bank, Attn: ACI Unit #8329, P.O. Box 3577
Terminal Annex, Los Angeles, CA 90051, 28,253,603.65 shares (10.85%); Bank of
America State Trust Co., 299 N. Euclid Avenue, Pasadena, CA 91101, 24,389,477.13
shares (9.37%); Hare & Co., Bank of New York, Short Term Investment Funds, Attn:
Bimal Saha, One Wall Street, New York, NY 10286, 24,091,542.54 shares (9.25%);
and BA Investment Services, Inc., For the Benefit of Clients, P.O. Box 7042,
Attn: Unit #7852 - Bob Santilli, San Francisco, CA 94120, 154,869,688.24 shares
(59.52%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Class A Shares of the
National Municipal Bond Fund were as follows: BA Investment Services, Inc., FBO
405084421, 555 California Street, 4th FL #2640, San Francisco, CA 94104,
56,270.593 shares (5.59%); and BA Investment Services, Inc., FBO 407021281, 185
Berry Street, 3rd FL #2640, San Francisco, CA 94104, 50,388,324 shares (5.00%).
At November 30, 1995, the name, address and share ownership of the
entities which held more than 5% of the outstanding Class A Shares of the
Corporate Bond Fund were as follows: Dean Witter Reynolds, Inc., Attn: Stanley
Worksman, Stock Record Dept. 5th, 5 World Trade Center, New York, NY 10048,
118,064 shares (5.96%); and Smith Barney, Inc. CUST, 388 Greenwich 16th FL, New
York, NY 10013, 128,824.633 shares (6.50%).
At such date, no other person was known by the Company to hold of record
or beneficially more than 5% of the outstanding shares of any other investment
portfolio of the Company.
The Prospectus relating to the Fund and this Statement of Additional
Information omit certain information contained in the Company's registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the Commission by paying the charges
prescribed under its rules and regulations.
-59-
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is, however,
somewhat more vulnerable to the adverse effects of changes and circumstances
than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-
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term promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used by
Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
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"D-4" - Debt possesses speculative investment characteristics. Liquidity
is not sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which is issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-
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dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which are
currently in default.
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CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
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"CCC" - Debt has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and certain
other obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
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"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
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The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
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"A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these bonds, and
therefore, impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that possess one
of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business,
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economic or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term
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debt. Such issues are regarded as having speculative characteristics regarding
the likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
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Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectus, the Master Portfolio may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Appendix.
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Master Portfolio may use interest
rate futures as a defense, or hedge, against anticipated interest rate changes
and not for speculation. As described below, this would include the use of
futures contract sales to protect against expected increases in interest rates
and futures contract purchases to offset the impact of interest rate declines.
The Master Portfolio presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Master Portfolio,
through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by the Master Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Master Portfolio, as purchaser, to take delivery of
the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Master
Portfolio's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery date.
If the price in the sale exceeds the price in the offsetting purchase, the
Master Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Master Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Master Portfolio's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Master
Portfolio realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Master Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges principally, the Chicago Board of Trade and the
Chicago Mercantile Exchange. The Master Portfolio would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury bonds and notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. The Master Portfolio may trade in any futures
contract for which there exists a public market, including, without limitation,
the foregoing instruments.
Examples of Futures Contract Sale. The Master Portfolio would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in the
Master Portfolio tends to move in concert with the futures market prices of
long-term United States Treasury bonds ("Treasury bonds"). The adviser wishes to
fix the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the adviser
believes that, because of an anticipated rise in interest rates, the value will
decline to 95. The Master Portfolio might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the
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portfolio security does indeed decline from 100 to 95, the equivalent futures
market price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Master Portfolio in the above
example might incur a loss of 2 points (which might be reduced by an off-setting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. The Master Portfolio would engage
in an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Master Portfolio's basic motivation would be to maintain
for a time the income advantage from investing in the short-term securities; the
Master Portfolio would be endeavoring at the same time to eliminate the effect
of all or part of an expected increase in market price of the long-term bonds
that the Master Portfolio may purchase.
For example, assume that the market price of a long-term bond that the
Master Portfolio may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The adviser wishes to fix the
current market price (and thus 10% yield) of the long-term bond until the time
(four months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the adviser believes that, because
of an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Master
Portfolio might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Master Portfolio would assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked
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for sale in four months, for purchase of the long-term bond at an assumed market
price of 100. Assume these short-term securities are yielding 15%. If the market
price of the long-term bond does indeed rise from 100 to 105, the equivalent
futures market price for Treasury bonds might also rise from 98 to 103. In that
case, the 5-point increase in the price that the Master Portfolio pays for the
long-term bond would be offset by the 5-point gain realized by closing out the
futures contract purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Master Portfolio would continue with its purchase
program for long-term bonds. The market price of available long-term bonds would
have decreased. The benefit of this price decrease, and thus yield increase,
will be reduced by the loss realized on closing out the futures contract
purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Master Portfolio would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. Stock Index Futures Contracts.
A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value
(which assigns relative values to the common stocks included in the index) at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. Some stock index futures contracts are based on
broad market indices, such as the Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures contracts
on narrower market indices, such as the Standard & Poor's 100 or indices based
on an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
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The Master Portfolio will sell stock index futures contracts in order to
offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Master Portfolio may do so either to
hedge the value of its portfolios as a whole, or to protect against declines,
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, the Master Portfolio will purchase stock index futures
contracts in anticipation of purchases of securities. In a substantial majority
of these transactions, the Master Portfolio will purchase such securities upon
termination of the long futures position, but a long futures position may be
terminated without a corresponding purchase of securities.
In addition, the Master Portfolio may utilize stock index futures
contracts in anticipation of changes in the composition of its respective
portfolio holdings. For example, in the event that the Master Portfolio expects
to narrow the range of industry groups represented in its holdings it may, prior
to making purchases of the actual securities, establish a long futures position
based on a more restricted index, such as an index comprised of securities of a
particular industry group. The Master Portfolio may also sell futures contracts
in connection with this strategy, in order to protect against the possibility
that the value of the securities to be sold as part of the restructuring of its
respective portfolio securities will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that is, market
value decreased and the Master Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Master Portfolio had hedged
its stock portfolio, the results of the Master Portfolio's transactions in stock
index futures would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by the Master Portfolio to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.
IV. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no price is paid or
received by the Master Portfolio upon the purchase or sale of a futures
contract. Initially, the Master
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Portfolio will be required to deposit with the broker or in a segregated account
with the Master Portfolio's custodian an amount of cash or cash equivalents, the
value of which may vary but is generally equal to 10% or less of the value of
the contract. This amount is known as initial margin. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Master Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied. Subsequent payments,
called variation margin, to and from the broker, will be made on a daily basis
as the price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
mark-to-market. For example, when the Master Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Master Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Master Portfolio
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Master Portfolio would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, the adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Master Portfolio's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Master Portfolio, and the Master
Portfolio realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures in the
Master Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
Master Portfolio would be in a better position than if it had not hedged at all.
If the price of the securities being hedged has moved in a favorable direction,
this advantage
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will be partially offset by the loss on the future. If the price of the future
moves more than the price of the hedged securities, the Master Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, the Master Portfolio may buy or sell futures contracts in a greater
dollar amount than the dollar amount of securities being hedged if the
volatility over a particular time period of the prices of such securities has
been greater than the volatility over such time period of the future, or if
otherwise deemed to be appropriate by the investment adviser. Conversely, a
Master Portfolio may buy or sell fewer futures contracts if the volatility over
a particular time period of the prices of the securities being hedged is less
than the volatility over such time period of the futures contract being used, or
if otherwise deemed to be appropriate by the adviser. It is also possible that,
where the Master Portfolio has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
in the Master Portfolio may decline. If this occurred, the Master Portfolio
would lose money on the future and also experience a decline in value in its
portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Master Portfolio is able to invest its cash (or
cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Master Portfolio then
concludes not to invest in securities or options at that time because of concern
as to possible further market decline or for other reasons, the Master Portfolio
will realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
In instances involving the purchase of futures contracts by the Master
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the Master
Portfolio's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which
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could distort the normal relationship between the cash and futures markets.
Second, with respect to financial futures contracts, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Master
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Master Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an increase
in the price of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by the Master Portfolio is also subject to the
adviser's ability to predict correctly movements in the direction of the market.
For example, if the Master Portfolio has hedged against the possibility of a
decline
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in the market adversely affecting securities held by it and securities prices
increase instead, the Master Portfolio will lose part of all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Master Portfolio has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Master Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
VI. Options on Futures Contracts.
The Master Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Master Portfolio because the maximum amount at risk is the
premium paid for the options (plus transaction costs).
VII. Other Hedging Transactions
The Master Portfolio presently intends to use interest rate futures
contracts, stock index futures contracts and foreign currency futures contracts
(and related options) in connection
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with its hedging activities. The Master Portfolio is authorized to enter into
hedging transactions in any other futures or options contracts which are
currently traded or which may subsequently become available for trading. Such
instruments may be employed in connection with the Master Portfolios' hedging
strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VIII. Accounting and Tax Treatment.
Accounting for futures contracts and related options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by the
Master Portfolio at the close of the Master Portfolio's taxable year will be
treated for federal income tax purposes as sold for their fair market value on
the last business day of such year, a process known as "mark-to-market." Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60% of such gain or loss will be
treated as long-term capital gain or loss, without regard to the length of time
the Master Portfolio holds the futures contract or option ("the 40%-60% rule").
The amount of any capital gain or loss actually realized by the Master Portfolio
in a subsequent sale or other disposition of those futures contracts or options
will be adjusted to reflect any capital gain or loss taken into account by the
Master Portfolio in a prior year as a result of the constructive sale of the
contracts or options. With respect to futures contracts to sell, which will be
regarded as parts of a "mixed straddle" because their values fluctuate inversely
to the values of specific securities held by the Master Portfolio, losses as to
such contracts to sell will be subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which also will be applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for the
long-term holding period) be deemed not to begin prior to termination of the
straddle. With respect to certain futures contracts and related options,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, the Master Portfolio may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the last
business day of the Master Portfolio's taxable year, but gains and losses will
be subject to such short sales, wash sales and
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loss deferral rules and the requirement to capitalize interest and carrying
charges. Under Temporary Regulations, the Master Portfolio would be allowed (in
lieu of the foregoing) to elect either (1) to offset gains or losses from
portions which are part of a mixed straddle by separately identifying each mixed
straddle to which such treatment applies, or (2) to establish a mixed straddle
account for which gains and losses would be recognized and offset on a periodic
basis during the taxable year. Under either election, the 40%-60% rule will
apply to the net gain or loss attributable to the futures contracts, but in the
case of a mixed straddle account election, not more than 50% of any net gain may
be treated as long-term and no more than 40% of any net loss may be treated as
short-term.
Certain foreign currency contracts entered into by the Master Portfolio
may be subject to the "mark-to-market" process, but gain or loss will be treated
as 100% ordinary income or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by the
Master Portfolio may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some investments may be subject to special rules which govern the federal
income tax treatment of certain transactions denominated in terms of a currency
other than the U.S. dollar or determined by reference to the value of one or
more currencies other than the U.S. dollar. The types of transactions covered by
the special rules include the following: (i) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (ii) the accruing of certain
trade receivables and payables; and (iii) the entering into or acquisition of
any forward contract, futures contract, option or similar financial instrument.
However, regulated futures contracts and non-equity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the mark-to-market rules, unless
an election is made to have such currency rules apply. The
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disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from certain
identified forward contracts, futures contracts and options that are capital
assets in the hands of the taxpayer and which are not part of a straddle. In
accordance with Treasury regulations, certain transactions subject to the
special currency rules that are part of a "section 988 hedging transaction" (as
defined in the Code and the Treasury regulations) will be integrated and treated
as a single transaction or otherwise treated consistently for purposes of the
Code. "Section 988 hedging transactions" are not subject to the mark-to-market
or loss deferral rules under the Code. It is anticipated that some of the
non-U.S. dollar denominated investments and foreign currency contracts that the
Master Portfolio may make or may enter into will be subject to the special
currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Master Portfolio which are
not subject to special currency rules (such as foreign equity investments other
than certain preferred stocks) will be treated as capital gain or loss and will
not be segregated from the gain or loss on the underlying transaction.
Qualification as a regulated investment company under the Code requires
that the Fund satisfy certain requirements with respect to the source of its
income during a taxable year. At least 90% of the gross income of the Fund must
be derived from dividends, interests, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to the Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by the Master Portfolio from a partnership or trust is treated
for this purpose as derived with respect to the Master Portfolio's business of
investing in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Master Portfolio in the same manner as by the partnership or
trust.
An additional requirement for qualification by the Fund as a regulated
investment company under the Code is the Short-
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Short test described in the Prospectus. With respect to futures contracts and
other financial instruments subject to the mark-to-market rules, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contract or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract or instrument is held) if the gain arises as a result of
a constructive sale under the mark-to-market rules, and will be treated as being
derived from a security held for less than three months only if the contract or
instrument is terminated (or transferred) during the taxable year (other than by
reason of mark-to-market) and less than three months have elapsed between the
date the contract or instrument is acquired and the termination date. In
determining whether the Fund meets the Short-Short test for a taxable year,
increases and decreases in the value of the Master Portfolio's futures contracts
and other investments that qualify as part of a "designated hedge," as defined
in the Code, may be netted.
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FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A and Part B hereof:
None.
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed November 22, 1983
are incorporated by reference to Exhibit (1) to Pre-
Effective Amendment No. 1 to the Registration Statement of
the Registrant on Form N-1A (No. 2-81110) filed December
21, 1983 ("Pre-Effective Amendment No. 1").
(b) Articles Supplementary filed January 9, 1986 are
incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 5 to the Registration
Statement of the Registrant on Form N-1A (No.2-81110)
filed April 29, 1988 ("Post-Effective Amendment No. 5").
(c) Articles Supplementary to increase authorized capital
stock filed August 31, 1989 are incorporated by reference
to Exhibit (1)(c) to Pre- Effective Amendment No. 2 to the
Registration Statement of the Registrant on Form N-14 (No.
33-31539) filed on November 24, 1989 ("Pre-Effective
Amendment No. 2 on Form N-14").
(d) Articles Supplementary classifying shares filed August 31,
1989 are incorporated by reference to Exhibit (1)(d) to
Pre-Effective Amendment No. 2 on Form N-14.
(e) Articles Supplementary classifying shares filed June 3,
1991 are incorporated by reference to Exhibit (1)(e) to
Post-Effective Amendment No.
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12 to the Registration Statement of the Registrant on Form
N-1A (No. 2-81110) filed June 28, 1991 ("Post-Effective
Amendment No. 12").
(f) Articles Supplementary classifying and reclassifying
shares filed August 1, 1991 are incorporated by reference
to Exhibit (1)(f) to Post-Effective Amendment No. 13 to
the Registration Statement of the Registrant on Form N-1A
(No. 2-81110) filed August 30, 1991 ("Post-Effective
Amendment No. 13").
(g) Articles Supplementary to increase authorized capital
stock filed August 16, 1991 are incorporated by reference
to Exhibit (1)(g) to Post-Effective Amendment No. 13.
(h) Articles Supplementary classifying shares filed August 16,
1991 are incorporated by reference to Exhibit (1)(h) to
Post-Effective Amendment No. 13.
(i) Articles Supplementary classifying shares filed November
25, 1991 are incorporated by reference to Exhibit (1)(i)
to Post-Effective Amendment No. 14 to the Registration
Statement of the Registrant on Form N-1A (No. 2-81110)
filed May 1, 1992 ("Post-Effective Amendment No. 14").
(j) Articles Supplementary classifying shares filed May 11,
1992 are incorporated by reference to Exhibit (1)(j) to
Post-Effective Amendment No. 15 to the Registration
Statement of the Registrant on Form N-1A (No. 2-81110)
filed July 22, 1992 ("Post-Effective Amendment No. 15").
(k) Articles Supplementary reclassifying shares filed May 15,
1992 are incorporated by reference to Exhibit (1)(k) to
Post-Effective Amendment No. 15.
(l) Articles Supplementary classifying shares filed July 20,
1992 are
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incorporated by reference to Exhibit (1)(l) to
Post-Effective Amendment No. 15.
(m) Articles Supplementary to increase authorized capital
stock filed August 6, 1992 are incorporated by reference
to Exhibit (1)(m) to the Registration Statement of the
Registrant on Form N-14 (No. 33-54052) filed October 30,
1992 ("1992 Form N-14 No. 1").
(n) Articles Supplementary classifying shares filed August 6,
1992 are incorporated by reference to Exhibit (1)(n) to
1992 Form N-14 No. 1.
(o) Articles Supplementary classifying shares filed March 3,
1993 are incorporated by reference to Exhibit (1)(o) to
Post-Effective Amendment No. 21 to the Registration
Statement of the Registrant on Form N-1A (No. 2- 81110)
filed April 30, 1993 ("Post- Effective Amendment No. 21").
(p) Articles Supplementary reclassifying shares filed May 12,
1993 are incorporated by reference to Exhibit (1)(p) to
Post-Effective Amendment No. 22 to the Registration
Statement of the Registrant on Form N-1A (No. 2-81110)
filed May 17, 1993.
(q) Articles of Amendment eliminating restriction on number of
classes of shares filed May 8, 1990 are incorporated by
reference to Exhibit (1)(e) to Post-Effective Amendment
No. 11 to the Registration Statement of the Registrant on
Form N-1A (No. 2-81110) filed May 31, 1990
("Post-Effective Amendment No. 11").
(r) Articles of Amendment reclassifying shares filed on July
9, 1993 are incorporated by reference to Exhibit (1)(r) to
Post-Effective Amendment No. 30 to the Registration
Statement of the Registrant on Form N-1A (No. 2-81110)
filed November 19, 1993 ("Post-Effective Amendment No.
30").
(s) Articles Supplementary classifying shares filed November
18, 1993 are
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<PAGE> 140
incorporated by reference to Exhibit (1)(s) to
Post-Effective Amendment No. 30.
(t) Articles Supplementary reclassifying shares filed November
18, 1993 are incorporated by reference to Exhibit (1)(t)
to Post-Effective Amendment No. 30.
(u) Articles Supplementary reclassifying shares filed January
21, 1994 is incorporated herein by reference to Exhibit
1(u) to Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on Form N-1A filed May
2, 1994.
(2) (a) Amended By-Laws dated January 15, 1987 are incorporated by
reference to Exhibit (2) to Post-Effective Amendment No. 4
to the Registration Statement of the Registrant on Form
N-1A (No. 2-81110) filed April 30, 1987 ("Post-Effective
Amendment No. 4").
(b) Amendment to By-Laws dated July 17, 1987 as approved by
Registrant's Board of Directors is incorporated by
reference to Exhibit 2(b) to Post-Effective Amendment No.
5.
(c) Amendment to By-Laws as approved by the Registrant's Board
of Directors on March 30, 1989 is incorporated by
reference to Exhibit (2)(c) to Pre-Effective Amendment
No. 2 on Form N-14.
(d) Amendment to By-Laws as approved by the Registrant's Board
of Directors on January 29, 1990 is incorporated by
reference to Exhibit (2)(d) to Post-Effective Amendment
No. 11.
(3) None.
(4) (a) Specimen copy of share certificate for all Classes and
Series of Shares is incorporated by reference to Exhibit
(4)(a) to Post-Effective Amendment No. 37.
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<PAGE> 141
(5) (a) Investment Advisory Agreement dated as of April 22, 1992
between Registrant and Bank of America National Trust and
Savings Association (Money Market Funds) is incorporated
by reference to Exhibit (5)(a) to Post-Effective Amendment
No. 14.
(b) Investment Advisory Agreement dated as of April 22, 1992
between Registrant and Bank of America National Trust and
Savings Association (Non-Money Market Funds) is
incorporated by reference to Exhibit (5)(b) to
Post-Effective Amendment No. 14.
(c) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market Funds
- Prime Value Fund) is incorporated by reference to
Exhibit (5)(c) to Post-Effective Amendment No. 21.
(d) Addendum to Investment Advisory Agreement dated as of
March 1, 1993 between Registrant and Bank of America
National Trust and Savings Association (Money Market Funds
- Government and Treasury Only Funds) is incorporated by
reference to Exhibit (5)(d) to Post-Effective Amendment
No. 19.
(e) Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America with respect to the
Capital Income Fund is incorporated by reference to
Exhibit 5(g) to Post-Effective Amendment No. 38 to the
Registration Statement of the Registrant on Form N-1A (No.
2-81110) filed February 1, 1995 ("Post-Effective Amendment
No. 38").
(6) (a) Distribution Agreement between the Registrant and Concord
Financial Group, Inc is incorporated by reference to
Exhibit (6)(a) to Post-Effective Amendment No. 37.
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<PAGE> 142
(b) Agreement relating to the Distribution Agreement between
Registrant and Concord Financial Group, Inc. is
incorporated by reference to Exhibit (6)(b) to Post-
Effective Amendment No. 40 to the Registration Statement
on Form N-1A (No.2-81110) filed June 21, 1995 ("Post-
Effective Amendment No. 40")
(c) Form of Broker/Dealer Agreement is incorporated by
reference to Exhibit 15(a) to Post-Effective Amendment No.
5.
(d) Form of Bank Agreement is incorporated by reference to
Exhibit 15(d) to Post-Effective Amendment No. 6 to the
Registration Statement of the Registrant on Form N-1A (No.
2-81110) filed June 30, 1988 ("Post-Effective Amendment
No. 6").
(e) Form of Amended and Restated Distribution Agreement is
incorporated by reference to Exhibit (6)(e) to Post-
Effective Amendment No. 42 to the Registration Statement
of the Registrant on Form N-1A (No. 2-81110) filed July
31, 1995 ("Post-Effective Amendment No. 42").
(7) Board Guidelines on Significant Governance Issues (which
includes a description of the Board of Director's
retirement policy and benefit) is incorporated by
reference to Exhibit 7 to Post-Effective Amendment No. 39
to the Registration Statement of the Registrant on Form
N-1A (No. 2-81110) Filed April 28, 1995 ("Post-Effective
Amendment No. 39").
(8) (a) Custody Agreement between Registrant and The Bank of New
York dated as of April 3, 1989 is incorporated by
reference to Exhibit (8)(a) to Post-Effective Amendment
No. 11.
(b) Amendment No. 1 to Custody Agreement between Registrant
and The Bank of New York dated as of March 30, 1990 is
incorporated by reference to Exhibit
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<PAGE> 143
(8)(b) to Post-Effective Amendment No. 11.
(c) Custodian Services Agreement between Registrant and PNC
Bank, N.A. is incorporated by reference to Exhibit (8)(c)
to Post-Effective Amendment No. 37.
(d) Form of Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc.
(e) Sub-Custodian Agreement between Registrant, The Bank of
New York, and Security Pacific National Bank dated as of
March 21, 1984 is incorporated by reference to Exhibit
8(c) to Post-Effective Amendment No. 1 to the
Registration Statement of the Registrant on Form N-1A (No.
2-81110) filed on October 12, 1984.
(f) Sub-Custodian Agreement between The Bank of New York and
Citibank, N.A. dated May 18, 1988 as approved by
Registrant's Board of Directors on March 27, 1990 is
incorporated by reference to Exhibit (8)(f) to
Post-Effective Amendment No. 11.
(g) Form of Sub-Custody Agreement between The Bank of New York
and Bank of America National Trust and Savings Association
is incorporated by reference to Exhibit (8)(i) to
Post-Effective Amendment No. 37.
(9) (a) Basic Administrative Services Agreement between Registrant
and Concord Holding Corporation (Money Market Funds) dated
as of November 13, 1989 is incorporated by reference to
Exhibit (13)(c) to Pre-Effective Amendment No. 2 on Form
N-14.
(b) Amendment No. 1 to Basic Administrative Services Agreement
between Registrant and Concord Holding Corporation (Money
Market Funds) dated November 1, 1991 is incorporated by
reference to Exhibit (9)(b) to Post-Effective Amendment
No. 14.
C-7
<PAGE> 144
(c) Amendment No. 2 to Basic Administrative Services Agreement
dated as of March 1, 1993 between Registrant and Concord
Holding Corporation (Money Market Funds) is incorporated
by reference to Exhibit (9)(c) to Post-Effective Amendment
No. 19.
(d) Amendment No. 3 to Basic Administrative Services Agreement
dated as of March 1, 1993 between Registrant and Concord
Holding Corporation is incorporated by reference to
Exhibit (9)(c) to Post-Effective Amendment No. 21.
(e) Amendment No. 4 to Basic Administrative Services Agreement
dated November 1, 1993 between Registrant and Concord
Holding Corporation is incorporated by reference to
Exhibit (9)(w) to Post-Effective Amendment No. 30.
(f) Agreement relating to the Basic Administrative Services
Agreement between Registrant and Concord Holding
Corporation is incorporated by reference to Exhibit (9)(f)
to Post-Effective Amendment No. 40.
(g) Special Management Services Agreement among Registrant,
Concord Holding Corporation and Bank of America National
Trust and Savings Association (Money Market Funds) dated
as of April 22, 1992 is incorporated by reference to
Exhibit (9)(d) to Post-Effective Amendment No. 14.
(h) Amendment No. 1 to Special Management Services Agreement
dated as of March 1, 1993 between Registrant, Concord
Holding Corporation and Bank of America National Trust and
Savings Association (Money Market Funds) is incorporated
by reference to Exhibit (9)(f) to Post-Effective
Amendment No. 19.
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<PAGE> 145
(i) Amendment No. 2 to Special Management Services Agreement
dated as of March 1, 1993 among Registrant, Concord
Holding Corporation and Bank of America National Trust and
Savings Association (Money Market Funds) is incorporated
by reference to Exhibit (9)(g) to Post-Effective
Amendment No. 21.
(f) Amendment No. 3 to Special Management Services Agreement
dated as of April 1, 1993 among Registrant, Concord
Holding Corporation and Bank of America National Trust and
Savings Association (Money Market Funds) is incorporated
by reference to Exhibit (9)(h) to Post-Effective
Amendment No. 21.
(g) Amendment No. 4 to Special Management Services Agreement
among Registrant, Concord Holding Corporation and Bank of
America National Trust and Savings Association (Money
Market Funds) is incorporated by reference to Exhibit
(9)(i) to Post-Effective Amendment No. 37.
(h) Agreement relating to the Special Management Services
Agreement among Registrant, Concord Holding Corporation
and Bank of America National Trust and Savings Association
(Money Market Funds) is incorporated by reference to
Exhibit 9(l) to Post-Effective Amendment No. 40.
(i) Administration Agreement between Registrant and Concord
Holding Corporation (Non-Money Market Funds) dated as of
November 13, 1989 is incorporated by reference to Exhibit
(13)(e) to Pre-Effective Amendment No. 2 on Form N-14.
(j) Amendment No. 1 to Administration Agreement between
Registrant and Concord Holding Corporation (Aggressive
Growth Fund, U.S. Government Securities Fund, Capital
Income Fund and California Tax-Exempt Bond Fund) dated as
of November 1, 1991 is incorporated by reference to
Exhibit (9)(g) to Post-Effective Amendment No. 14.
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<PAGE> 146
(k) Proposed revised Amendment No. 2 to Administration
Agreement between Registrant and Concord Holding
Corporation (non-Money Market Funds) is incorporated
herein by reference to Exhibit (9)(l) of Post-Effective
Amendment No. 28 to the Registrant's Registration
Statement on Form N-1A filed on October 6, 1993.
(l) Amendment No. 3 to the Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
(9)(u) to Post-Effective Amendment No. 30.
(m) Amendment No. 4 to the Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
(9)(q) to Post-Effective Amendment No. 37.
(n) Agreement relating to the Administration Agreement between
Registrant and Concord Holding Corporation (non-Money
Market Funds) is incorporated by reference to Exhibit
(9)(r) to Post-Effective Amendment No. 40.
(o) Cash Management and Related Services Agreement between
Registrant and The Bank of New York (Horizon Shares and
Horizon Service Shares) dated as of May 1, 1990 is
incorporated by reference to Exhibit (9)(d) to
Post-Effective Amendment No. 11.
(p) Amendment to Cash Management and Related Services
Agreement between Registrant and The Bank of New York
dated as of June 21, 1993 is incorporated by reference to
Exhibit 9(m) to Post-Effective Amendment No. 24 filed on
July 1, 1993.
(q) Accounting Services Agreement between the Registrant and
Provident Financial Processing Corp is incorporated by
reference to Exhibit (9)(o) to Post-Effective Amendment
No. 37.
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(10)(1) Opinion of counsel that shares are validly issued, fully
paid and non-assessable.
(11)(a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse, LLP.
(12) None
(13)(a) Purchase Agreement between Registrant and The Dreyfus
Corporation is incorporated by reference to Exhibit (13)
to Pre-Effective Amendment No. 2 to the Registration
Statement of the Registrant on Form N-1A (No. 2-81110)
filed on March 29, 1984 ("Pre-Effective Amendment No. 2").
(b) Purchase Agreement between Registrant and Hambrecht &
Quist Group, Inc. dated March 31, 1988 is incorporated by
reference to Exhibit (13)(b) to Post-Effective Amendment
No. 5.
(c) Investment Letter of Concord Financial Group, Inc. to The
Horizon Funds is incorporated by reference to Exhibit (13)
to the Registration Statement of The Horizon Funds filed
on March 10, 1987 (No. 33-12535).
(d) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and Hambrecht & Quist Group,
Inc. is incorporated by reference to Exhibit (13)(c) to
Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A of Pacific Horizon Tax-Exempt Money
Market Portfolio, Inc. filed on April 29, 1988 (No.
2-91975).
(e) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market
- --------
(1) Filed with the SEC on April 28, 1995 under Rule 24f-2 as part of
Registrant's 24f-2 Notice.
C-11
<PAGE> 148
Portfolio, Inc. and Pacific Horizon Tax-Exempt Funds,
Inc. is incorporated by reference to Exhibit (8)(a) to
Pre-Effective Amendment No. 1 to Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc.'s Registration
Statement on Form N-1A in lieu of S-14 filed November 6,
1984 (No. 2-91975).
(f) Purchase Agreement between Pacific Horizon Tax-Exempt
Money Market Portfolio, Inc. and The Dreyfus Corporation
is incorporated by reference to Exhibit 8(a) to
Pre-Effective Amendment No. 1 to Pacific Horizon Tax-
Exempt Honey Market Portfolio, Inc.'s Registration
Statement on Form N-1A in lieu of S-14 filed November 6,
1984 (No. 2-91975).
(g) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Hambrecht & Quist
Group, Inc. is incorporated by reference to Exhibit
(13)(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A of Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc. filed on April
29, 1988 (No. 2-83854).
(h) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and The Dreyfus
Corporation is incorporated by reference to Exhibit 13 to
Pre-Effective Amendment No. 2 to the Registration
Statement of Pacific Horizon California Tax-Exempt Bond
Portfolio, Inc. filed on March 27, 1984 (No. 2-83854).
(i) Purchase Agreement between Pacific Horizon California
Tax-Exempt Bond Portfolio, Inc. and Pacific Horizon Tax-
Exempt Funds, Inc. is incorporated by reference to Exhibit
(8)(a) to Pre-Effective Amendment No. 1 to Pacific
Horizon California Tax-Exempt Bond Portfolio, Inc.'s
Registration Statement on Form N-1A in lieu of S-14 filed
November 6, 1984 (No. 2-91975).
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<PAGE> 149
(j) Investment Letter of Concord Financial Group, Inc. to The
Horizon Capital Funds is incorporated by reference to
Exhibit (13) to the Registration Statement of The Horizon
Capital Funds filed on June 2, 1987 (No. 33-14721).
(14)(a) Individual Retirement Account and accompanying Custodial
Agreement, Disclosure Statement, IRA Application and IRA
Transfer/Rollover Request Form is incorporated by
reference to Exhibit (14)(a) to Post-Effective Amendment
No. 21.
(b) Appointment of Successor Custodian for Individual
Retirement Account dated as of August 3, 1990 is
incorporated by reference to Exhibit (14)(c) of Post-
Effective Amendment No. 12.
(15)(a) Shareholder Service Plan for Non-Money Market Funds is
incorporated by reference to Exhibit (15)(c) to Post-
Effective Amendment No. 30.
(b) Shareholder Services Plan for Horizon Service Shares as
modified by Registrant's Board of Directors on January 29,
1993 is incorporated by reference to Exhibit (15)(d) to
Post-Effective Amendment No. 19.
(c) Revised Shareholder Servicing Agreement is incorporated by
reference to Exhibit (15)(f) to Post-Effective Amendment
No. 18.
(d) Revised Shareholder Service Agreement as modified by
Registrant's Board of Directors on January 29, 1993 is
incorporated by reference to Exhibit (15)(g) to
Post-Effective Amendment No. 19.
(e) Revised Shareholder Servicing Agreement for Non-Money
Market Funds is incorporated by reference to Exhibit
(15)(h) to Post-Effective Amendment No. 30.
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<PAGE> 150
(f) Distribution and Services Plan and related Administrative
Servicing Agreement is incorporated by reference to
Exhibit (15)(f) to Post-Effective Amendment No. 42.
(16)(a) Schedule for Computation of Performance Quotations with
respect to the Prime Fund, Treasury Fund, Tax-Exempt Money
Fund, Tax-Exempt Money Market Fund, California Tax-Exempt
Money Market Fund, Aggressive Growth Fund, California Tax-
Exempt Bond Fund, U.S. Government Securities Fund
(formerly known as the GNMA Extra Fund) and Capital Income
Fund (formerly known as the Convertible Securities Fund)
is incorporated by reference to Exhibit (16) to Post-
Effective Amendment No. 12.
(b) Schedule for Computation of Performance Quotations with
respect to the Government Fund, Treasury Only Fund and
Prime Value Fund is incorporated by reference to Exhibit
(16)(b) of Post-Effective Amendment No. 24, filed on July
1, 1993.
(c) Schedule for Computation of Performance Quotations with
respect to the Corporate Bond Fund, Flexible Bond Fund,
Blue Chip Fund, Asset Allocation Fund and National
Municipal Bond Fund is incorporated by reference to
Exhibit 16(c) to Post-Effective Amendment No. 41 to the
Registration Statement of the Registrant on Form N-1A (No.
2-81110) filed June 30, 1995 ("Post-Effective Amendment
No. 41").
(17) Not Applicable.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System is incorporated by
reference to Exhibit (18) to Post-Effective Amendment No.
42.
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<PAGE> 151
Item 25. Persons Controlled by or under
Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class October 31, 1995
-------------- ----------------
<S> <C>
Class A Common Stock 1,147
Class A Common Stock -
Special Series 1 491
Class A Common Stock -
Special Series 2 99
Class B Common Stock 12,132
Class B Common Stock -
Special Series 1 898
Class B Common Stock -
Special Series 2 188
Class D Common Stock 14,190
Class E Common Stock 4,764
Class F Common Stock 16,163
Class G Common Stock 4,519
Class H Common Stock
Class I Common Stock 166
Class I Common Stock -
Special Series 1 51
Class I Common Stock -
Special Series 2 19
Class J Common Stock 560
Class J Common Stock -
Special Series 1 190
Class K Common Stock 595
Class K Common Stock -
Special Series 1 127
Class K Common Stock -
Special Series 2 2
Class L Common Stock 138
Class L Common Stock -
Special Series 1 186
Class L Common Stock -
Special Series 2 35
Class M Common Stock 410
Class N Common Stock 4,016
Class O Common Stock 1,429
Class P Common Stock 0
Class P Common Stock -
Special Series 1 0
Class P Common Stock -
</TABLE>
C-15
<PAGE> 152
<TABLE>
<S> <C>
Special Series 2 0
Class Q Common Stock 295
Class R Common Stock 0
Class S Common Stock 0
Class T Common Stock 0
Class U Common Stock 0
Class V Common Stock 0
Class W Common Stock 2,621
</TABLE>
Item 27. Indemnification
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's By-Laws, incorporated herein by reference
as Exhibit (2)(a) hereto, provide for the indemnification of Registrant's
directors and officers. Indemnification of the Fund's principal underwriter,
custodians, sub-custodians, transfer agent and sub-transfer agent is provided
for, respectively, in Article V of the Distribution Agreement, incorporated by
reference as Exhibit (6)(a), Article XV (and in Article V of the amended and
restated Distribution Agreement incorporated by reference as Exhibit (6)(e)),
Section 15 of the Custody Agreement incorporated by reference as Exhibit (8)(a)
hereto (and in Section 10 of the Custody Agreement incorporated by reference as
Exhibit (8)(c)), Article XII, Section 14 of the Sub-Custodian Agreement,
incorporated herein by reference as Exhibit (8)(f) hereto, and Section 8 of the
form of Sub-Custody Agreement incorporated by reference as Exhibit (8)(g),
Article VIII, Section 7, of the form of Transfer Agency Agreement included
herewith as Exhibit (8)(d), and Article VI, Section 3, of the Cash Management
and Related Services Agreement incorporated by reference as Exhibit (9)(o)
hereto. Registrant has obtained from a major insurance carrier a directors and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its directors, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act of 1940 in connection with any
indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
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<PAGE> 153
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Bank of America National Trust and Savings Association ("Bank of America")
performs investment advisory services for Registrant. Bank of America and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts since 1904. In addition to its trust business, Bank of
America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or officers of Bank
of America, except those set forth below, is or has been, at any time during the
past two calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
of Bank of America also hold various positions with, and engage in business for,
BankAmerica Corporation, which owns all the outstanding stock of Bank of
America, or other subsidiaries of BankAmerica Corporation. Set forth below are
the names and principal businesses of the directors of Bank of America and the
directors and certain of the senior executive officers of Bank of America who
are engaged in any other business, profession, vocation or employment of a
substantial nature, other than with BankAmerica Corporation.
<TABLE>
<S> <C> <C>
Director................... Joseph F. Alibrandi Chairman of the Manufacturer of
Board and Chief Aerospace and
Executive Officer, Biotechnology
Whittaker Products
Corporation
Director................... Jill Elikann Barad President and Chief Toy manufacturer
Operating Officer,
Mattel, Inc.
Director................... Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate Dev-
Investors, Inc. elopment and In-
vestment Firm
</TABLE>
C-17
<PAGE> 154
<TABLE>
<CAPTION>
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- --------------- ---- ---------- --------
<S> <C> <C> <C>
Director .... Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director .... Richard A. Clarke Chairman of the Utility Company
Board, Pacific
Gas and Electric
Company
President and
Director ... David A. Coulter President, Bank Banking
America Corporation
and Bank of
America National
Trust & Savings
Association;
effective
January 1, 1996,
Chief Executive
Officer, Bank
America
Corporation and
Bank of America
National Trust &
Savings
Association
Director .... Timm F. Crull Chairman of the Food and Related
Board, Nestle Products
USA, Inc.
Director .... Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director .... Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director .... Philip M. Hawley Retired Chairman Retail
and Chief Executive Department
Officer, Carter Stores
Hawley Hale
Stores, Inc.
Director .... Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director .... Ignacio E. Lozano, Editor-In-Chief, Newspaper
Jr. "La Opinion" Publishing
</TABLE>
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<PAGE> 155
<TABLE>
<CAPTION>
Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business
- --------------- ---- ---------- --------
<S> <C> <C> <C>
Director Walter E. Massey, Provost and Senior Higher
Ph.D. Vice President for Education
Academic Affairs
for the University
of California
Director John M. Richman Counsel, Wachtell, Law firm
Lipton, Rosen &
Katz
Chief Executive
Officer and
Director Richard M. Rosenberg Chief Executive Banking
Officer, Bank
America
Corporation and
Bank of America
National Trust &
Savings
Association
until January 1,
1996; effective
January 1, 1996,
Chairman of the
Board, Bank of
America National
Trust & Savings
Association
Director A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
</TABLE>
Item 29. Principal Underwriters
(a) Principal underwriter (exclusive distributor) also acts as principal
underwriter or exclusive distributor for The Infinity Funds, Inc., The Pilot
Funds, Seafirst Retirement Funds, Time Horizon Funds and The Victory Funds.
(b) For information as to the business, profession, vocation or employment
of a substantial nature of each of the principal underwriter, its officers and
directors, reference is made to their Form BD File No. 8-37601 filed by the
principal underwriter. For information, as to the positions or offices of
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<PAGE> 156
each of the principal underwriter, its officers and directors, reference is made
to the section entitled "Management" in the Statements of Additional
Information. Both the principal underwriter's Form BD and the Registrants
Statements of Additional Information are incorporated by reference herein.
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) Concord Holding Corporation, 125 West 55th Street, New York, New
York 10019 (records relating to the administrator).
(2) Concord Financial Group, Inc., 125 West 55th Street, New York, New
York 10019 (records relating to the distributor).
(3) Concord Management (Ireland) Limited, ITI House, 23 Earlsfort
Terrace, Dublin 2, Ireland (records relating to the administrator
for the Funds it services).
(4) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records relating
to the investment adviser).
(5) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records relating
to the Sub- Custodian for the Funds it services).
(6) The Bank of New York, 90 Washington Street, New York, New York
10286) (records relating to the custodian for the Funds it
services).
(7) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to the transfer agent for the Funds it
services).
(8) Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrant's
Charter, By- Laws and Minute Books).
(9) PNC Bank, N.A., Broad and Chestnut Streets, Philadelphia, PA 19101,
(records relating to the custodian for the Funds it services).
(10) PFPC, Inc. 103 Bellevue Parkway, Wilmington, DE 19809, (records
relating to the sub-administrator for the Funds it services).
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<PAGE> 157
(11) Concord Financial Services, Inc. First and Market Building, 100
First Avenue, Suite 300, Pittsburgh, PA 15222 (records relating to
the transfer agent for the class of shares it services).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual Report to Shareholders
upon request and without charge to any person to whom a prospectus is delivered.
Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act Registration Statement.
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<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, and the Commonwealth of
Pennsylvania, on this 15th day of December 1995 .
PACIFIC HORIZON FUNDS, INC.
Registrant
*Cornelius John Pings
---------------------------------------
Cornelius John Pings
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Cornelius John Pings Chairman of the Board December 15, 1995
- ---------------------------- and President
Cornelius John Pings
/s/Martin R. Dean Treasurer (Chief December 15, 1995
- ---------------------------- Accounting and
Martin R. Dean Financial Officer)
* Thomas M. Collins Director December 15, 1995
- ----------------------------
Thomas M. Collins
* Douglas B. Fletcher Director December 15, 1995
- ----------------------------
Douglas B. Fletcher
* Robert E. Greeley Director December 15, 1995
- ----------------------------
Robert E. Greeley
* Kermit O. Hanson Director December 15, 1995
- ----------------------------
Kermit O. Hanson
* Kenneth L. Trefftzs Director December 15, 1995
- ----------------------------
Kenneth L. Trefftzs
*By: /s/W. Bruce McConnel, III
-------------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
<PAGE> 159
SIGNATURES
Master Investment Trust, Series I has duly caused this Amendment to
the Registration Statement of the Pacific Horizon Funds, Inc. as it relates to
the International Equity Fund only, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia, and the
Commonwealth of Pennsylvania on this 15th day of December, 1995.
MASTER INVESTMENT TRUST, SERIES I
/s/Richard E. Stierwalt
-----------------------
Richard E. Stierwalt
President
(Signature and Title)
This Amendment to the Registration Statement of Pacific Horizon Funds,
Inc. has been signed below by the Trustees and Principal Officers of Master
Investment Trust, Series I on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Richard E. Stierwalt President December 15, 1995
- ----------------------- -----------------
Richard E. Stierwalt
* Thomas M. Collins Chairman of the Board December 15, 1995
- -------------------- -----------------
Thomas M. Collins
/s/Adrian J. Waters Executive Vice President, December 15, 1995
- ------------------- Treasurer and Assistant -----------------
Adrian J. Waters Secretary (Chief
Accounting and Financial
Officer)
* Michael Austin Trustee December 15, 1995
- ----------------- -----------------
Michael Austin
* Robert A. Nathane Trustee December 15, 1995
- -------------------- -----------------
Robert A. Nathane
* Robert E. Greeley Trustee December 15, 1995
- -------------------- -----------------
Robert E. Greeley
* Cornelius John Pings Trustee December 15, 1995
- ----------------------- -----------------
Cornelius John Pings
* By: /s/W. Bruce McConnel, III
-------------------------
W. Bruce McConnel, III
Attorney-in-fact
</TABLE>
<PAGE> 160
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ Cornelius John Pings
------------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 161
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Thomas M. Collins
---------------------
Thomas M. Collins
Date: December 7, 1995
<PAGE> 162
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Douglas, B. Fletcher, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Douglas B. Fletcher
-----------------------
Douglas B. Fletcher
Date: December 7, 1995
<PAGE> 163
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/Robert E. Greeley
--------------------
Robert E. Greeley
Date: December 7, 1995
<PAGE> 164
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Kermit O. Hanson, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kermit O. Hanson
--------------------
Kermit O. Hanson
Date: December 6, 1995
<PAGE> 165
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
Kenneth L. Trefftzs, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
/s/ Kenneth L. Trefftzs
-----------------------
Kenneth L. Trefftzs
Date: December 6, 1995
<PAGE> 166
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney and agent shall do or cause to be done by virtue hereof.
/s/Thomas M. Colllins
---------------------
Thomas M. Collins
Date: October 6, 1993
<PAGE> 167
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
Michael Austin, whose signature appears below, does hereby constitute
and appoint Thomas M. Collins and W. Bruce McConnel, III, and either of them,
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/Michael Austin
-----------------
Michael Austin
Date: October 6, 1993
<PAGE> 168
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
Robert A. Nathane, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/Robert A. Nathane
--------------------
Robert A. Nathane
Date: October 6, 1993
<PAGE> 169
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/Robert E. Greeley
--------------------
Robert E. Greeley
Date: October 6, 1993
<PAGE> 170
MASTER INVESTMENT TRUST, SERIES I
POWER OF ATTORNEY
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint Thomas M. Collins and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Master Investment
Trust, Series I (the "Trust") to comply with the Investment Company Act of 1940,
as amended and/or the Securities Act of 1933, as amended (the "Acts") and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of (i) the
Trust's Registration Statement and (ii) the Registration Statement of any
management investment company which invests or intends to invest substantially
all of its assets in the Trust (collectively, the "Registration Statements") and
any and all amendments to the Registration Statements (including post-effective
amendments) pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a trustee and/or officer of the Trust the
Registration Statements and any and all amendments thereto filed with the
Securities and Exchange Commission under said Acts, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue hereof.
/s/Cornelius John Pings
-----------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 171
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
8 (d) Form of Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc.
11 (a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse, LLP.
</TABLE>
<PAGE> 1
EXHIBIT 8d
FORM OF TRANSFER AGENCY AGREEMENT
This Transfer Agency Agreement is made as of the ___ of _________, 1995
between Pacific Horizon Funds, Inc., a Maryland corporation (herein called the
"Company"), having its principal office and place of business at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 and BISYS Fund Services Ohio, Inc., an Ohio
corporation having its principal office and place of business at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 (herein called the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises herein set forth,
the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
1. "Approved Institution" shall mean an entity so named in a
Certificate. From time to time the Company may amend a previously delivered
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. "Board of Directors" shall mean the Board of Directors of the
Company.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Transfer Agent by the Company which is signed by any Officer, as hereinafter
defined, and actually received by the Transfer Agent.
4. "Class" shall mean a subclass of shares within a particular
Fund.
5. "Custodian" shall mean the financial institution appointed as
custodian under the terms and conditions of the Custody Agreement between the
financial institution and the Company, or its successor(s).
<PAGE> 2
6. "Company Accountant" shall mean the entity appointed as
accountant under the terms and conditions of the Accounting Services Agreement
between the entity and the Company, or its successor(s).
7. "Company Business Day" shall be deemed to be each day the
Company is open for trading.
8. "Manager" shall mean Bank of America, NT&SA, acting under the
terms and conditions of the Management Agreement and includes any successor and
assigns.
9. "Officer" shall be deemed to be the Company's Chairman of the
Board, the Company's President, any Vice President of the Company, the Company's
Secretary, the Company's Treasurer, the Company's Controller, any Assistant
Controller of the Company, any Assistant Treasurer of the Company, any Assistant
Secretary of the Company, and any other person duly authorized by the Board of
Directors of the Company to execute any Certificate, instruction, notice or
other instrument on behalf of the Company and named in the Certificate annexed
hereto as Appendix A, as such Certificate may be amended from time to time, and
any person reasonably believed by the Transfer Agent to be such a person.
10. "Prospectus" shall mean with respect to a Class of Shares, the
last Company prospectus actually received by the Transfer Agent from the Company
with respect to such Class of Shares and with respect to which the Company has
indicated a Registration Statement under the Securities Act of 1933, as amended,
has become effective, including the Statements of Additional Information,
incorporated by reference therein.
11. "Funds" shall mean the various portfolios of the Company as
described from time to time in the current and effective Prospectuses.
12. "Shares" shall mean all or any part of each Class of shares of
common stock of the Company listed in the Certificate, attached hereto as
Appendix B, as may be amended from time to time, which are from time to time
authorized and/or issued by the Company.
13. "Transfer Agent" shall mean BISYS Fund Services Ohio, Inc., as
transfer agent and dividend disbursing agent under the terms and conditions of
this Agreement, its successor(s) or assign(s).
-2-
<PAGE> 3
14. "Out-of-Pocket Expenses" means amounts reasonably necessary
and actually paid to third parties by the Transfer Agent in the provision of the
Transfer Agent services or pursuant to this Agreement. Such amounts will not
include charges of legal counsel, but will otherwise include amounts paid for
the following purposes: (i) postage and all freight and other delivery and
bonding charges incurred by the Transfer Agent in delivering materials to and
from the Company and in delivering all materials to shareholders; (ii) all
direct telephone, telephone transmission, telecopy, or other electronic
transmission expenses incurred by the Transfer Agent in communication with the
Company's dealers, shareholders or others, as required for the Transfer Agent to
perform the services to be provided hereunder; (iii) all charges related to the
settlement of shareholder transactions, including but not limited to NSCC/FUND
SERV charges, bank wire charges, and checking account charges; (iv) charges
associated with satisfying Internal Revenue Service tax reporting requirements;
(v) expenses associated with Securities and Exchange Commission examinations of
Company books and records; (vi) paper stocks and printing costs for statements,
checks, envelopes, tax and other forms; and (vii) such other expenses paid or
incurred by Transfer Agent on behalf of the Company at the request of the
Manager.
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Company hereby appoints the Transfer Agent as transfer
agent of all the Shares of the Company and as dividend disbursing agent during
the period of this Agreement.
2. (a) The Transfer Agent hereby accepts appointment as
transfer agent and dividend disbursing agent and agrees to perform the duties
thereof as herein set forth, including those duties set forth in Schedule I(a)
hereto.
(b) The services and specific capabilities to be provided
under this Agreement by the Transfer Agent shall include those specifically
listed in this Agreement.
3. Upon the request of the Transfer Agent, the Company shall
deliver the following documents to the Transfer Agent:
-3-
<PAGE> 4
(a) A copy of the Articles of Incorporation of the
Company and all amendments thereto certified by the Secretary of the Company;
(b) A copy of the By-Laws of the Company certified by the
Secretary of the Company;
(c) A copy of a resolution of the Board of Directors of
the Company certified by the Secretary of the Company appointing the Transfer
Agent and authorizing the execution of this Transfer Agency Agreement;
(d) A Certificate signed by the Secretary or any
Assistant Secretary of the Company specifying with respect to each Class or
Fund, the number of authorized Shares, the number of such authorized Shares
issued, and the number of such authorized Shares issued and currently
outstanding; the names and specimen signatures of the Officers of the Company;
and the name and address of the legal counsel for the Company;
(e) Copies of the Company's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment thereto,
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, together with any applications filed in connection therewith;
and
(f) Opinion of counsel for the Company with respect to
the validity of the authorized and outstanding Shares, whether such Shares are
fully paid and non-assessable and the status of such Shares under the Securities
Act of 1933, as amended, and any other applicable federal law or regulation
(i.e., if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor).
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Company shall deliver to the Transfer Agent the following
documents on or before the effective date of any increase or decrease in the
total number of Shares authorized to be issued:
-4-
<PAGE> 5
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for
the Company with respect to the validity of the Shares of the Company and the
status of such Shares under the Securities Act of 1933, as amended, and any
other applicable federal law or regulation (i.e., if subject to registration,
that they have been registered and that the Registration Statement has become
effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent is expressly limited to the previously authorized number of
Shares, a certified copy of a resolution of the Board of Directors of the
Company increasing the authority of the Transfer Agent.
2. Prior to the issuance of any additional Shares of the Company
pursuant to actions such as stock dividends or stock splits, and prior to any
reduction in the number of Shares outstanding, the Company shall deliver the
following documents to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the
Board of Directors and/or the shareholders of the Company authorizing such
issuance of additional Shares of the Company or such reduction, as the case may
be; and
(b) An opinion of counsel for the Company with respect to
the validity of the Shares of the Company and the status of such Shares under
the Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered and
that the Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
3. The Company is authorized to issue (a) 15,000,000,000 shares
representing interests in the Treasury Money Market Fund-Pacific Horizon
shares; (b) 15,000,000,000 shares representing interests in the Treasury Money
Market Fund-Horizon Service shares; (c) 14,400,000,000 shares representing
interests in the Treasury Money Market Fund-Horizon shares; (d) 15,000,000,000
shares representing interests in the Prime Money Market Fund-Pacific Horizon
shares; (e) 15,000,000,000 shares representing interests in the Prime Money
Market Fund-
-5-
<PAGE> 6
Horizon Service shares; (f) 28,000,000,000 shares representing interests in the
Prime Money Market Fund-Horizon shares; (g) 1,000,000,000 shares representing
interests in the Aggressive Growth Fund; (h) 250,000,000 shares representing
interests in the U.S. Government Securities Fund; (i) 250,000,000 shares
representing interests in the Capital Income Fund; (j) 250,000,000 shares
representing interests in the California Tax-Exempt Bond Fund, (k) 1,500,000,000
shares representing interests in the Tax-Exempt Money Market Fund- Pacific
Horizon shares; (l) 3,000,000,000 shares representing interests in the Tax-
Exempt Money Market Fund-Horizon Service shares; (m) 3,000,000,000 shares
representing interests in the Tax- Exempt Money Market Fund-Horizon shares; (n)
1,000,000,000 shares representing interests in the California Tax-Exempt Money
Market Fund- Pacific Horizon shares; (o) 1,000,000,000 shares representing
interests in the California Tax-Exempt Money Market Fund-Horizon Service
shares; (p) 15,000,000,000 shares representing interests in the Treasury Only
Money Market Fund- Pacific Horizon shares; (q) 15,000,000,000 shares
representing interests in the Treasury Only Money Market Fund-Horizon Service
shares; (r) 7,000,000,000 shares representing interests in the Treasury Only
Money Market Fund-Horizon shares; (s) 15,000,000,000 shares representing
interests in the Government Money Market Fund- Pacific Horizon shares; (t)
15,000,000,000 shares representing interests in the Government Money Market
Fund-Horizon Service shares; (u) 7,000,000,000 shares representing interests in
the Government Money Market Fund-Horizon shares; (v) 100,000,000 shares
representing interests in the Flexible Bond Fund; (w) 100,000,000 shares
representing interests in the Blue Chip Fund; (x) 100,000,000 shares
representing interests in the Asset Allocation Fund; (y) 100,000,000 shares
representing interests in the National Municipal Bond Fund; (z) 100,000,000
shares representing interests in the Utilities Fund; (aa) 100,000,000 shares
representing interests in the Growth and Income Fund; (bb) 100,000,000 shares
representing interests in the International Equity Fund; (cc) 100,000,000 shares
representing interests in the Short-Term Government Fund; (dd) 100,000,000
shares representing interests in the International Bond Fund; and (ee)
100,000,000 shares representing interests in the Corporate Bond Fund; each with
par value of $.001 per share. The Transfer Agent shall record issues of all
shares and shall notify the Company in case any proposed issue of shares by the
Company shall result in an over-issue as defined by Section 8-104(2) of Article
8 of the Maryland Commercial Law Article. In case any issue of shares would
result in such an over-issue, the
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Transfer Agent shall refuse to issue said shares and shall not countersign and
issue certificates (if any) for such shares.
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or
other capital adjustment requiring a change in the form of Share certificates,
the Transfer Agent will issue Share certificates in the new form in exchange
for, or upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change; and
(c) Specimen Share certificates for each Class of Shares
in the new form approved by the Board of Directors of the Company, with a
Certificate signed by the Secretary or any Assistant Secretary of the Company as
to such approval.
2. The Company at its expense shall furnish the Transfer Agent
with a sufficient supply of blank Share certificates in the new form if
certificates are to be issued and from time to time will replenish such supply
upon the request of the Transfer Agent. Such blank Share certificates shall be
properly signed by facsimile or otherwise by Officers of the Company authorized
by law or by the By-Laws to sign Share certificates and, if required shall bear
the corporate Seal of the Company or facsimile thereof. The Company agrees to
indemnify and exonerate, save and hold the Transfer Agent harmless, from and
against any and all claims or demands that may be asserted against the Transfer
Agent with respect to the genuineness of any Share certificate supplied to the
Transfer Agent pursuant to this paragraph.
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ARTICLE V
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. The Transfer Agent acknowledges that it has received a copy of
the Company's Prospectuses with respect to its currently authorized Funds and
Classes of Shares, which Prospectuses describe how sales and redemption of
Shares of the Company shall be made, and the Transfer Agent agrees to accept
purchase orders and redemption requests with respect to Company Shares on each
Company Business Day in accordance with such Prospectuses. The Company agrees to
notify the Transfer Agent as soon as possible under the circumstances of any
changes in the procedures set forth in the Prospectus regarding such purchase
and redemption procedures.
2. On each Company Business Day, a duly authorized officer or
employee of the Transfer Agent shall furnish the following information by
telephone call to an Officer of the Company or by such other form to such other
person as shall be agreed upon from time to time by the Company and the Transfer
Agent:
(a) The total dollar amount to be applied to the purchase
of Shares of each Class or Fund on such day, computed by aggregating the amount
so specified in such of the purchase orders described in paragraph 1 of this
Article V with respect to which payment has been, or will be, credited by the
Custodian to the Company's custody account with the Custodian on such day. The
Transfer Agent shall also accept with respect to each Company Business Day, at
such times as are agreed upon from time to time by the Transfer Agent and the
Company, a computer tape consistent in all respects with the Transfer Agent's
tape layout package, as amended from time to time, upon prior written notice to
the Company or its Distributor, which is believed by the Transfer Agent to be
furnished by or on behalf of any Approved Institution. The Transfer Agent shall
not be liable for any loss or damage to the Company or its shareholders in the
event that a computer tape or electronic data transmission from an Approved
Institution is unable to be processed for any reason beyond the control of the
Transfer Agent, or if any of the information on such tape or transmission is
found to be incorrect.
(b) The total dollar amount of Shares of each Class or
Fund to be redeemed on such day, computed by aggregating the amount so specified
in (i) such of the
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redemption requests described in paragraph 1 of this Article V with respect to
which the amount payable as redemption proceeds has been, or will be, charged by
the Custodian on such day, and (ii) all computer tapes described in paragraph
2(a) of this Article V with respect to which the amount payable as redemption
proceeds has been, or will be, charged by the Custodian on such day.
3. On each Company Business Day, the Transfer Agent shall, as of
the time at which the Company computes the net asset value of each Class or Fund
of the Company, issue to and redeem from the shareholder accounts specified in a
purchase order, redemption request or computer tape, which in accordance with
the Prospectuses is effective on such Company Business Day, the appropriate
number of full and fractional Shares based on the net asset value per Share of
such Class or Fund specified in an advice received on such Company Business Day
from the Company or the Company Accountant. Notwithstanding the foregoing, if a
redemption specified in a computer tape is for a dollar value of Shares in
excess of the dollar value of uncertificated Shares in the specified account,
the Transfer Agent shall not effect such redemption in whole or in part and
shall within twenty-four (24) hours orally advise both the Company and the
Approved Institution which supplied such tape of the discrepancy.
4. In connection with a reinvestment of a dividend or
distribution on Shares of any Class or Fund of the Company, the Transfer Agent
shall, as of each Company Business Day, as specified in a Certificate or
resolution described in paragraph 1 of Article VI, issue Shares of a Class or
Fund to the appropriate shareholder account, based on the net asset value per
Share of such Class or Fund specified in an advice received from the Company or
its Company Accountant on such Company Business Day.
5. On each Company Business Day, the Transfer Agent shall supply
the Company Accountant with a statement specifying with respect to the
immediately preceding Company Business Day (or the same day if a money market
portfolio): the total number of Shares of each Class or Fund (including
fractional Shares) issued and outstanding at the opening of business on such
day; the total number of Shares of each Class or Fund sold on such day, pursuant
to paragraph 3 of this Article V; the total number of Shares of each Class or
Fund redeemed by the Transfer Agent on such day; the total number of Shares of
each Class or Fund, if any, sold on such day pursuant to paragraph 4 of this
Article V; and the total
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number of Shares of each Class or Fund issued and outstanding. On the same day
such statement is received by the Company, the Company shall confirm the
information contained therein, after making any necessary corrections, by
delivering to the Transfer Agent a Certificate with respect to the same.
6. In connection with each purchase and each redemption of
Shares, and each reinvestment of a dividend or distribution of Shares, the
Transfer Agent shall send to the affected shareholder such statements as are
prescribed by the federal securities laws applicable to transfer agents and as
are described in the applicable Prospectuses. If the Prospectuses indicate that
certificates for Shares are available and if specifically requested in writing
by any shareholder, or if otherwise required hereunder, the Transfer Agent shall
countersign, issue and mail by first-class mail to such shareholder at the
address set forth in the records of the Transfer Agent, a Share certificate for
any full Shares requested.
7. As of each Company Business Day, the Transfer Agent shall
furnish the Custodian with a written statement (which may be by facsimile
transfer) setting forth the number and dollar amount of each Class or Fund of
Shares to be redeemed on such Company Business Day in accordance with paragraph
3 of this Article V.
8. Upon receipt of a proper redemption request and moneys paid to
it by the Custodian in connection with a redemption of Shares, the Transfer
Agent shall cancel the redeemed Shares and, after making appropriate deduction
for any withholding of taxes required of it by applicable law, (a) in the case
of a redemption of Shares pursuant to a redemption described in paragraph 1 of
this Article V, make payment in accordance with the Company's redemption and
payment procedures described in the Prospectuses, and (b) in the case of a
redemption of Shares pursuant to a computer tape described in paragraph 2(a) of
this Article V, make payment by directing a federal funds wire order to the
account previously designated by the Approved Institution specified in the
computer tape.
9. The Transfer Agent shall not be required to issue any Shares
after it has received from an Officer of the Company or from an appropriate
federal or state authority written notification that the sale of Shares has been
suspended or discontinued, and the Transfer Agent shall be entitled to rely upon
such written notification.
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10. Upon the issuance of any Shares in accordance with this
Agreement, the Transfer Agent shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Company in connection
with such issuance of any Shares.
11. The Transfer Agent shall accept a computer tape consistent
with the Transfer Agent's tape layout package, as amended from time to time upon
prior notice to the Company or the Distributor, which is reasonably believed by
the Transfer Agent to be furnished by or on behalf of an Approved Institution
and is represented to be instructions with respect to the transfer of Shares
from one account of such Approved Institution to another such account, and shall
effect the transfers specified in said computer tape. The Transfer Agent shall
not be liable for any losses to the Company or its shareholders in the event
that a computer tape or electronic data transmission from an Approved
Institution is unable to be processed for any reason beyond the control of the
Transfer Agent, or if any of the information on such tape or transmission is
found to be incorrect.
12. (a) Except as otherwise provided in sub-paragraph (b) of
this paragraph and in paragraph 14 of this Article V, Shares shall be
transferred or redeemed upon presentation to the Transfer Agent of Share
certificates or instructions properly endorsed for transfer or redemption,
accompanied by such documents as the Transfer Agent deems necessary to evidence
the authority of the person making such transfer or redemption, and bearing
satisfactory evidence of the payment of any transfer taxes. In the case of small
estates where no administration is contemplated, the Transfer Agent may, when
furnished with an appropriate surety bond, and without further approval of the
Company, transfer or redeem Shares registered in the name of a decedent where
the current market value of the Shares being transferred does not exceed such
amount as may from time to time be prescribed by various states. The Transfer
Agent reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the endorsement on the share certificate or instructions is valid
and genuine, and for that purpose it will require, unless otherwise instructed
by an authorized officer of the Company, a guarantee of signature, acceptable to
the Transfer Agent and in compliance with applicable law. The Transfer Agent
also reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authorized, and
it shall incur no
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<PAGE> 12
liability for the refusal, in good faith, to make transfers or redemptions which
the Transfer Agent, in its judgment, deems improper or unauthorized, or until it
is satisfied that there is no basis to any claims adverse to such transfer or
redemption. The Transfer Agent may, in effecting transfers and redemptions of
Shares, rely upon those provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time and as is applicable to the transfer in question, and
the Company shall indemnify the Transfer Agent for any act performed or omitted
by it in good faith in reliance upon such laws.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent shall be fully
protected by the Company in the event the Transfer Agent does not require any
instruments, documents, assurances, endorsements or guarantees, including,
without limitation, any signature guarantees, in connection with a redemption or
transfer of Shares whenever the Transfer Agent reasonably believes that
requiring the same would be inconsistent with the transfer and redemption
procedures as described in the applicable Prospectus.
13. Notwithstanding any provision contained in this Agreement to
the contrary, the Transfer Agent shall not be required or expected to require,
as a condition to any transfer of any Shares pursuant to paragraph 12 of this
Article V or any redemption of any Shares pursuant to a computer tape described
in this Agreement, any documents, including, without limitation, any documents
of the kind described in sub-paragraph (a) of paragraph 13 of this Article V, to
evidence the authority of the person requesting the transfer or redemption
and/or the payment of any share transfer taxes, and shall be fully protected in
acting in accordance with the applicable provisions of this Article V.
14. (a) As used in this Agreement, the terms "computer tape"
and "computer tape believed by the Transfer Agent to be furnished by an Approved
Institution" shall include any tape or electronic transmission generated by the
Transfer Agent to reflect information believed by the Transfer Agent to have
been input by an Approved Institution, via a remote terminal or other similar
link, into a data processing, storage, or collection system, or similar system
(the "System"), located on the Transfer Agent's premises or utilized by the
Transfer Agent. For
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purposes of paragraph 2 of this Article V, such computer tape shall be deemed to
have been furnished at such times as are agreed upon from time to time by the
Transfer Agent and Company only if the information reflected thereon was input
into the System at such times as are agreed upon from time to time by the
Transfer Agent and the Company.
(b) Nothing contained in this Agreement shall constitute
any agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
(c) The Transfer Agent reserves the right to approve in
advance any Approved Institution, such approval not to be unreasonably withheld.
The Transfer Agent also reserves the right to terminate any and all automated
data communications, at its discretion, upon a reasonable attempt to notify the
Company when in the opinion of the Transfer Agent continuation of such
communications would jeopardize the accuracy and/or integrity of the Company's
records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Company shall furnish to the Transfer Agent a copy of a
resolution of its Board of Directors, certified by the Secretary or any
Assistant Secretary, either (i) setting forth with respect to a Class or Fund of
Shares the date of the declaration of a dividend or distribution, the date of
accrual or payment, as the case may be, thereof, the record date as of which
Shareholders entitled to payment or accrual shall be determined, the amount per
Share of such dividend or distribution, the payment date on which all previously
accrued and unpaid dividends are to be paid, and the total amount, if any,
payable to the Transfer Agent on such payment date, or (ii) authorizing the
declaration of dividends and distributions on a daily or other periodic basis
and authorizing the Transfer Agent to rely on a Certificate setting forth the
information described in subsection (i) of this paragraph.
2. Upon the payment date specified in such Certificate or
resolution, the Company shall, in the case of a cash dividend or distribution,
cause the Custodian to pay to the Transfer Agent an amount of cash, if any,
sufficient for the Transfer Agent to make the payment, if any, as of the payment
date, specified in such Certificate or
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resolution, to the shareholders who were of record on the record date who are
entitled to receive the cash dividend or distribution. The Transfer Agent shall,
upon receipt of any such cash, make payment of such cash dividends or
distributions to the shareholders of record as of the record date by: (i)
mailing a check, payable to the registered shareholder, to the address of record
or dividend mailing address, or transmitting payment through the Automated
Clearing House System, or (ii) wiring such amounts, or transmitting such amounts
through the Automated Clearing House System, to the accounts previously
designated by an Approved Institution. The Transfer Agent shall not be liable
for any improper payments made in good faith and without negligence, in
accordance with a Certificate or resolution described in the preceding
paragraph. If the Transfer Agent shall not receive from the Custodian sufficient
cash to make payment of any cash dividend or distribution to all shareholders of
a Class or Fund of Shares of the Company as of the record date who are entitled
to receive the cash dividend or distribution, the Transfer Agent shall, upon
notifying the Company, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss as a result of
processing a distribution based on information provided in the Certificate that
is incorrect. The Company agrees to pay the Transfer Agent for any and all
costs, both direct and Out-of-Pocket Expenses, incurred in such corrective work
as necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such
appropriate information returns concerning the payment of dividend and capital
gain distributions with the proper federal, state and local authorities as are
required by law to be filed by the Company but shall in no way be responsible
for the collection or withholding of taxes due on such dividends or
distributions due to shareholders, except and only to the extent required by
applicable law. To the extent such collection or withholding of taxes is
required of the Transfer Agent, it shall pay on a timely basis to the
appropriate authority any amounts required to be remitted to the authority.
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ARTICLE VII
CONCERNING THE COMPANY
1. The Company represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing under
the laws of the State of Maryland.
(b) It is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been held to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the
Investment Company Act of 1940 (the "1940 Act"), as amended.
(e) A registration statement under the Securities Act of
1933, as amended, with respect to the Shares is effective. The Company shall
notify the Transfer Agent if such registration statement or any state securities
registrations have been terminated or a stop order has been entered with respect
to the Shares.
2. Each copy of the Articles of Incorporation of the Company and
any amendment thereto provided by the Company to the Transfer Agent shall be
certified by the Secretary of State (or other appropriate official) of the state
of organization, and if such Articles of Incorporation and/or amendments are
required by law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a certified copy
submitted to the Transfer Agent. Each copy of the Articles of Incorporation and
By-Laws and copies of all amendments thereto, and copies of resolutions of the
Board of Directors of the Company, shall be certified by the Secretary or
Assistant Secretary of the Company.
3. It shall be the sole responsibility of the Company to deliver
to the Transfer Agent the Company's currently effective Prospectuses and, for
purposes of this Agreement, the Transfer Agent shall not be deemed to have
notice of any information contained in such Prospectuses until they are actually
received by the Transfer Agent.
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ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Company
that:
(a) It is a corporation duly organized and existing under
the laws of the State of Ohio.
(b) It is empowered under applicable law and by its
Charter and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been held to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under
Section 17A of the Securities Exchange Act of 1934, as amended. The Transfer
Agent shall promptly give written notice to the Company and the Manager in the
event that its registration is revoked or a proceeding is commenced that could
result in such revocation.
2. The Transfer Agent shall not be liable and shall be
indemnified in acting upon any computer tape, writing or document reasonably
believed by it to be genuine and to have been signed or made by the proper
person or persons and shall not be held to have any notice of any change of
authority of any person until receipt of written notice thereof from the Company
or such person. It shall also be protected in processing Share certificates
which bear the proper countersignature of the Transfer Agent and which it
reasonably believes to bear the proper manual or facsimile signature of the
Officers of the Company.
3. The Transfer Agent upon notice to and consent of the Company,
which consent will not be unreasonably withheld, may establish such additional
procedures, rules and regulations governing the transfer or registration of
Share certificates as it may deem advisable and consistent with such rules and
regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are specified in
Schedules I and II hereto in the form and manner and for such period as it may
deem advisable and is agreeable to the Company but not inconsistent with the
rules and regulations of appropriate government authorities, in
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particular Rules 31a-2 and 31a-3 under the 1940 Act, as amended. The Transfer
Agent may deliver to the Company from time to time at its discretion, for
safekeeping or disposition by the Company in accordance with law, such records,
papers, Share certificates which have been cancelled in transfer, exchange or
redemption, or other documents accumulated in the execution of its duties as
such Transfer Agent, as the Transfer Agent may deem expedient, other than those
which the Transfer Agent is required to maintain pursuant to applicable laws and
regulations. The Company shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled Share certificate, or other
document so returned, if and when required. The records maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been previously
delivered to the Company pursuant to the foregoing provisions of this paragraph
4, shall be considered to be the property of the Company, shall be made
available upon request for inspection by the officers, employees, and auditors
of the Company or other persons authorized by the Company and shall be delivered
to the Company upon request and in any event upon the date of termination of
this Agreement, as specified in Article IX of this Agreement, in the form and
manner kept by the Transfer Agent on such date of termination or such earlier
date as may be requested by the Company. Upon reasonable request by the Company,
the Transfer Agent shall provide in hard copy or on microfilm, whichever the
Transfer Agent shall elect, any records included in any such delivery which are
maintained by the Transfer Agent on a computer disk or are similarly maintained.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance or reckless disregard of its duties under this
Agreement.
6. In performing its services hereunder, the Transfer Agent shall
seek to attain the Performance Objectives set forth in Schedule IV hereto. The
Transfer Agent's failure to meet any Transfer Agent performance objective shall
not in and of itself constitute wilful misconduct or negligence under this
Agreement.
7. (a) The Company shall indemnify and hold harmless the
Transfer Agent from and against all claims (whether with or without basis in
fact or law), demands,
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expenses (including attorneys' fees) and liabilities of any and every nature
which the Transfer Agent may sustain or incur or which may be asserted against
the Transfer Agent by any person as a result of any action taken or omitted to
be taken by the Transfer Agent in good faith and without negligence or willful
misconduct or in reliance upon (i) any provision of this Agreement; (ii) the
Prospectuses; (iii) any instruction or order including, without limitation, any
computer tape reasonably believed by the Transfer Agent to have been received
from an Approved Institution; (iv) any instrument or order reasonably believed
by it to be genuine and to be signed, countersigned or executed by any duly
authorized Officer of the Company; (v) any Certificate or other instruction of
an Officer; or (vi) any opinion of legal counsel for the Company or the Transfer
Agent. The Company shall indemnify and hold harmless the Transfer Agent from and
against all claims (whether with or without basis in fact or law), demands,
expenses (including attorneys' fees) and liabilities of any nature which the
Transfer Agent may sustain or incur or which may be asserted against the
Transfer Agent by any person by reason of or as a result of any action taken or
omitted to be taken by the Transfer Agent in good faith in connection with its
appointment or in reasonable reliance upon any law, act, regulation or any
interpretation of the same even though such law, act or regulation may have been
altered, changed, amended or repealed thereafter.
(b) The Transfer Agent shall indemnify and hold harmless
the Company, its officers, trustees, employees and agents from and against all
claims (whether with or without basis in fact or law), demands, expenses
(including attorneys' fees) and liabilities of any and every nature which the
Company may sustain or incur or which may be asserted against the Company by any
person as a result of any action taken or omitted to be taken by the Transfer
Agent which constitutes bad faith, negligence, reckless disregard or willful
misfeasance or arising out of a failure of the Transfer Agent to comply with
this Agreement or a breach by the Transfer Agent of any representation or
warranty contained in this Agreement or the attached Exhibits or Schedules.
(c) Neither party ("Indemnified Party") shall settle nor
make any compromise of any claim, demand, expense or liability to which it may
seek indemnity pursuant to paragraph 7(a) of this Article VIII (each, an
"Indemnifiable Claim") without the express written consent of the other party
("Indemnifying Party"). The Indemnified
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Party shall notify the Indemnifying Party within 15 days of receipt of
notification of an Indemnifiable Claim, provided that the failure by the
Indemnified Party to furnish such notification shall not impair its right to
seek indemnification from the Indemnifying Party unless the Indemnifying Party's
ability to adequately defend the Indemnifiable Claim is impaired as a result of
such failure, and further provided, that if as a result of the Indemnified Party
failure to provide the Indemnifying Party with timely notice of the initiation
of litigation, a judgment by default is entered, prior to seeking
indemnification from the Indemnifying Party, the Indemnified Party, at its own
cost and expense, shall oppose such judgment. The Indemnifying Party shall have
the right to defend any Indemnifiable Claim at its own expense, provided that
such defense shall be conducted by counsel selected by the Indemnifying Party
and reasonably acceptable to the Indemnified Party. The Indemnified Party may
join in such defense at its own expense, but to the extent that it shall so
desire, the Indemnifying Party shall direct such defense. The Indemnifying Party
shall not settle any Indemnifiable Claim without the express written consent of
the Indemnified Party if the Indemnified Party determines that such settlement
would have an adverse effect on the Indemnified Party beyond the scope of this
Agreement. In such event, each of the Indemnifying Party and the Indemnified
Party shall be responsible for their own defense at their own cost and expense,
and such claim shall not be deemed an Indemnifiable Claim hereunder. If the
Indemnifying Party fails or refuses to defend an Indemnifiable Claim, the
Indemnified Party may provide its own defense at the cost and expense of the
Indemnifying Party.
(d) Notwithstanding any provision in this Agreement to
the contrary, the Indemnifying Party shall not indemnify the Indemnified Party
against any liability or expense arising out of the Indemnifying Party's
negligence, willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement. The Indemnified
Party shall indemnify and hold harmless the Indemnifying Party from and against
any and all claims (whether with or without basis in fact or law), losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to any action or failure or omission to act by the
Indemnified Party as a result of the Indemnified Party's bad faith, negligence,
willful misfeasance, gross negligence or reckless disregard of its duties under
this Agreement.
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8. Excluded from the consideration of whether the Transfer Agent
has been negligent or has breached this Agreement shall be any period of time,
and only such period of time, during which the Transfer Agent's performance is
materially affected by reason of circumstances beyond its control (collectively,
"Causes"), including without limitation mechanical breakdowns of equipment
(including any alternative power supply and operating systems software), flood
or catastrophe, acts of God, failures of transportation, communication or power
supply, strikes, lockouts, work stoppages or other similar circumstances.
9. The obligations of the parties hereto under paragraphs 2, 5,
6, 7 and 8 of Article VIII shall survive termination of this Agreement.
10. At any time, the Transfer Agent may apply to an Officer of the
Company that is not associated with or employed by the Transfer Agent or any of
its affiliates, for written instructions with respect to any matter arising in
connection with the Transfer Agent's duties and obligations under this
Agreement, and the Transfer Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with such written instructions. Such
application by the Transfer Agent for written instructions from an Officer of
the Company may set forth in writing any action proposed to be taken or omitted
by the Transfer Agent with respect to its duties or obligations under this
Agreement and the date on and/or after which such action shall be taken. The
Transfer Agent shall not be liable for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein unless, prior to taking or omitting any such action, the Transfer Agent
has received written instructions in response to such application specifying the
action to be taken or omitted. The Transfer Agent may consult with counsel of
the Company, or upon notice to and consent of the Company and Manager, its own
counsel, at the expense of the Company and shall be fully protected with respect
to anything done or omitted by it in good faith in accordance with the advice or
opinion of counsel to the Company or its own counsel.
11. The Transfer Agent shall issue and mail subscription warrants
for Shares of capital stock, Shares representing stock dividends, exchanges or
splits, or act as conversion agent upon receiving written instructions from an
Officer and such other documents as the Transfer Agent may deem necessary.
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12. The Transfer Agent shall supply shareholder lists to the
Company upon receiving a request therefor from an Officer of the Company.
13. (a) The Transfer Agent shall treat confidentially and as
proprietary information of the Company records and other information relative to
the Company and to persons who are at any time shareholders of the Company, and
shall not use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder. In case of any request
or demand for the inspection of the shareholder records of the Company, the
Transfer Agent shall endeavor to notify the Company promptly and to secure
instructions from an Officer as to such inspection. The Transfer Agent reserves
the right, however, to exhibit the shareholder records to any person whenever it
receives an opinion from its counsel that there is a reasonable likelihood that
the Transfer Agent will be held liable for the failure to exhibit the
shareholder records to such person; provided, however, that in connection with
any such disclosure the Transfer Agent shall promptly notify the Company and the
Manager that such disclosure has been made or is to be made.
(b) The obligations of confidentiality in Paragraph 13(a)
shall survive termination or cancellation of this Agreement and shall not apply
to any information which a party has in its possession when disclosed to it by
the other party, information which a party develops, information which is or
becomes known to the public other than by breach of this Agreement, or
information rightfully received by either party from a third-party without the
obligation of confidentiality.
14. At the request of an Officer of the Company, the Transfer
Agent shall address and mail such appropriate notices to shareholders as the
Company may direct.
15. Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Company to request such sale or issuance;
-21-
<PAGE> 22
(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid therefor, or
the authority of the Approved Institution or of the Company to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by
the Company, or the legality of the issue of any Shares in payment of any share
dividend; or
(d) The legality of any recapitalization or readjustment
of Shares.
16. The Transfer Agent shall be entitled to receive and the
Company hereby agrees to pay to the Transfer Agent for its performance
hereunder, including its performance of the duties and functions set forth in
Schedule I hereto, (i) its reasonable Out-of-Pocket Expenses (including legal
expenses and attorneys' fees) incurred in connection with its performance
hereunder and (ii) such compensation as may be agreed upon in writing from time
to time by the Transfer Agent and the Company.
17. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
18. Purchase and Price of Services.
(a) The Company shall compensate the Transfer Agent for,
and the Transfer Agent will provide, beginning on the execution date of this
Agreement and continuing until the termination of this Agreement as provided
herein, the Services set forth herein in Schedule I(a).
(b) The current unit prices for the Services shall be as
set forth in Schedule III (the "Schedule III Fee Schedule"). At least 90 days
prior to the end of each calendar year, the Transfer Agent may negotiate with
the Company to adjust the Schedule III Fee Schedule for the following calendar
year upon the approval of the Board of Directors of the Company. Notwithstanding
the above, at any time the Transfer Agent shall be entitled to increased fees or
one-time charges due to changes in legal or regulatory requirements; provided
that such increased fees or one-time charges shall be subject to the approval of
the Board of
-22-
<PAGE> 23
Directors of the Company, which approval shall not be unreasonably withheld.
19. Billing and Payment.
(a) The Transfer Agent shall bill the Company as follows:
(i) monthly in arrears for Accounts maintained and in arrears for any
Out-of-Pocket Expenses incurred by the Transfer Agent; provided, however, that
with respect to Out-of-Pocket Expenses, the Transfer Agent shall provide the
Company monthly with an amount to be advanced to the Transfer Agent for
estimated postage expenses for the following month. Documentation to support
reconciliation of actual postal charges shall be provided to the Company
monthly. The Transfer Agent may from time to time request the Company to make
additional advances when appropriate.
(b) The Company shall pay the Transfer Agent in
immediately available funds at Columbus, Ohio within thirty (30) days of the
date of the bill, provided the bill is received in proper order and on a timely
basis.
20. Transfer Agent shall provide the Company and the
Manager with annual financial statements not later than 90 days after the end of
each of Transfer Agent's fiscal years. These financial statements shall be
prepared in accordance with generally accepted accounting principles and shall
be audited by an independent firm of certified public accountants. Upon the
Company's request, Transfer Agent shall provide the Company and the Manager with
its quarterly financial statements no later than 45 days after the end of each
fiscal quarter.
ARTICLE IX
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party notice in writing specifying the date of such
termination, which shall be not less than 90 days after the date of receipt of
such notice. Notwithstanding the foregoing, the Company may at any time
terminate this Agreement in accordance with the provisions of Schedule IV
hereto.
2. If either party fails to observe, keep or perform any material
term or condition of this Agreement, or if a voluntary or involuntary petition
is commenced by or against either party under Title 11 of the United States
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<PAGE> 24
Code or a party becomes insolvent, or should any substantial part of either
party's property be subject to any levy, seizure, assignment, application or
sale for or by any creditor or government agency, the other party may terminate
this Agreement in whole or in part. The party seeking to terminate this
Agreement shall give the other party written notice of any of the foregoing
claimed to be a basis for termination, and the Agreement shall terminate 30 days
after the receipt of the notice if the party receiving the notice has then
failed to correct or remedy the situation. The party charged with alleged
material breach may initiate the procedures in Article X Paragraph 5 and, in
that case, termination shall not be effective during the pendency of such
procedures. In the event such notice is given by the Company, it shall be
accompanied by a copy of a resolution of the Board of Directors of the Company,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement.
3. In the event such notice is given by the Transfer Agent, the
Company shall, on or before the termination date, deliver to the Transfer Agent
a copy of a resolution of its Board of Directors certified by the Secretary or
an Assistant Secretary designating a successor transfer agent or transfer
agents. In the absence of such designation by the Company, the Company shall,
upon the date specified in the notice of termination of this Agreement and
delivery of the records maintained hereunder, be deemed to be its own transfer
agent and the Transfer Agent shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement.
4. In the event this Agreement is terminated as provided herein,
upon the written request of the Company, the Transfer Agent shall deliver the
records of the Company on electromagnetic media to the Company or its successor
transfer agent. The Company shall be responsible to the Transfer Agent for the
reasonable costs and expenses associated with the preparation and delivery of
such media, including copies of computer ready formats, to the extent such costs
were approved by the Company prior to such costs being incurred. Upon
termination as described in this Article IX, for so long as the Transfer Agent
continues to perform any one or more of the services contemplated by this
Agreement or any Schedule hereto, the provisions of this Agreement, including
without limitation the provisions dealing with indemnification, shall continue
in full force and effect. Fees and out-of-pocket expenses incurred by the
Transfer Agent but unpaid by the Company upon such
-24-
<PAGE> 25
termination shall be immediately due and payable upon and notwithstanding such
termination. Subsequent to such termination, for a reasonable fee the Transfer
Agent shall provide the Company with reasonable access to any Company documents
or records remaining in its possession and previously provided to the Company.
ARTICLE X
MISCELLANEOUS
1. Representatives of the Company's independent outside auditors
("Auditors") shall have the right from time to time to perform on-site audits at
the facility of the Transfer Agent which do not result in an unreasonable
disruption of the business of the Transfer Agent. Such audits shall be conducted
in accordance with an audit program, the scope and frequency of which shall be
agreed upon from time to time in good faith by the parties. The Auditors may
obtain a reasonable number of copies of records and accounts directly related to
the services to be supplied hereunder by the Transfer Agent. Except as provided
in clause (c) below, nothing in this paragraph shall be deemed to permit the
Auditors to have access to any records or information concerning (a) any other
customer of the Transfer Agent, (b) the manner or method used by the Transfer
Agent in establishing the fees it charges any customer, including the Company or
(c) the Transfer Agent's internal operating procedures, provided that the
Transfer Agent shall permit officers or employees of the Auditors to have access
to such internal operating procedures to the extent necessary for the proper
completion of such audit, and the expression of their unqualified opinion in the
Company's semi-annual report on Form N-SAR and the performance of any other
services required by applicable law, provided such Auditors have agreed to keep
such internal operating procedures confidential and treat such information as
proprietary information of the Transfer Agent.
2. During the term of this Agreement, at no additional cost to
the Company, the Transfer Agent shall provide a facility capable of safeguarding
the transfer agency and dividend disbursing records of the Company in case of
damage to the primary facility providing those services (the "Back-Up
Facility"). Transfer of the transfer agency and dividend records of the Company
to the Back-Up Facility shall be at the Transfer Agent's expense, shall commence
immediately after damage to the primary facility
-25-
<PAGE> 26
results in an inability to provide the transfer agency and dividend disbursing
services, and shall be completed within 72 hours of commencement. After the
primary facility has recovered, the Transfer Agent shall again utilize it to
provide the transfer agency and dividend disbursing services to the Company at
no additional cost to the Company. The Transfer Agent shall use reasonable
efforts to provide the services described in this Agreement from the Back-Up
Facility.
3. The Transfer Agent represents that it has and is currently
registered as a transfer agent with the Securities and Exchange Commission
("SEC") and has complied with the SEC's regulations for registered transfer
agents. The Transfer Agent agrees that it will continue to be registered with
the SEC as a transfer agent for the duration of this Agreement. Should the
Transfer Agent fail to be registered with the SEC as a transfer agent at any
time during this Agreement, the Company may, upon written notice to the Transfer
Agent, immediately terminate this Agreement.
4. The following procedures will be adhered to in all disputes
arising under this Agreement which the parties cannot resolve informally. The
aggrieved party shall notify the other party in writing of the nature of the
dispute with as much detail as possible about the deficient performance of the
other party. Representatives of the parties shall meet (in person or by
telephone) within seven days of the date of the written notification to reach an
agreement about the nature of the deficiency and the corrective action to be
taken by the respective parties. The representatives of the parties shall
produce a report about the nature of the dispute in detail to their respective
management. If the representatives of the parties are unable to agree on
corrective action, the managers to whom the representatives of the parties
report or their successors ("Management") shall meet or otherwise act to
facilitate an agreement within 14 days of the date of the written notification.
If Management cannot resolve the dispute, or agree upon a written plan of
corrective action to do so, within seven days after their initial meeting or
other action, or if the agreed upon completion dates in the written plan of
corrective action are exceeded, either party may request arbitration as provided
for in this Agreement. Except as otherwise specifically provided, neither party
shall terminate this Agreement for breach or initiate arbitration or other
dispute resolution procedures unless and until this dispute resolution procedure
has been employed or waived in writing by both parties.
-26-
<PAGE> 27
5. (a) Any controversy or claim between or among the
parties, including, but not limited to, those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in accordance with the United States Arbitration Act (Title
9, U.S. Code), notwithstanding any choice of law provision in this Agreement,
and under the auspices and rules of the American Arbitration Association then in
effect. The parties submit to personal jurisdiction in San Francisco,
California. Each party may serve a single request for production of documents.
If disputes arise concerning these requests, the arbitrator(s) shall have sole
and complete discretion to determine the disputes. The arbitrator(s) shall give
effect to statutes of limitation in determining any claim, and any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator(s). The arbitrator(s) shall deliver a written opinion setting forth
findings of fact and the rationale for the decision. The arbitrator(s) shall
reconsider the decision once upon the motion and at the expense of a party.
(b) The confidentiality provisions of Article VIII
Paragraph 13 of this Agreement shall apply to the arbitration proceeding, all
evidence taken and the opinion. Judgment upon the decision rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The institution
and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.
(c) No provision of this paragraph 5 of Article X shall
limit the right of a party to this Agreement to obtain provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration. The exercise of a remedy does not waive the right
of either party to resort to arbitration.
(d) If a legal action or arbitration is commenced in
connection with the enforcement of this Agreement or any instrument or agreement
required under this Agreement, the prevailing party shall be entitled to
attorneys' fees actually incurred (including allocated costs for in-house legal
services), costs and necessary disburse-
-27-
<PAGE> 28
ments incurred in connection with such action or proceeding, as determined by
the court or arbitrator(s).
6. The Company agrees that prior to effecting any change in any
Prospectus which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such proposed
change prior to the intended date of the same.
7. (a) Notices of any kind to be given to the Manager
hereunder shall be in writing and shall be duly given if mailed or delivered to
the Manager at the following address:
Bank of America NT&SA With a copy to:
555 South Flower Street, Arthur A. Fritz, Esq.
5th Floor Bank of America NT&SA
Los Angeles, CA 90071 555 South Flower Street
Attn: Debra McGinty-Poteet 8th Floor
Los Angeles, CA 90071
or at such other address or to such individual as shall be so specified by the
Manager.
(b) Notices of any kind to be given to the Transfer Agent
hereunder shall be in writing and shall be duly given if mailed or delivered to
the Transfer Agent at the following address:
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Stephen G. Mintos
or at such other address or to such individual as shall be so specified by the
Transfer Agent.
(c) Notices of any kind to be given to the Company shall
be in writing and shall be duly given if mailed or delivered to the Company at
the following address:
Pacific Horizon Funds, Inc. With a copy to:
3435 Stelzer Road Drinker Biddle & Reath
Columbus, Ohio 43219 1345 Chestnut Street
Attention:____________ Suite 1100
Philadelphia, PA 19107
Attention: Michael P. Malloy
-28-
<PAGE> 29
8. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties to this Agreement.
9. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns. This Agreement
shall not be assignable by either party without the written consent of the other
party. This Agreement will automatically terminate in the event of its
assignment, as described hereunder, or as such term is defined in the 1940 Act.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (without reference to
principles of conflicts of law).
11. This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
12. The provisions of this Agreement are intended to benefit only
the Transfer Agent and the Company, and no rights shall be granted to any other
person by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the day
and year first above written.
BISYS FUND SERVICES OHIO, INC. PACIFIC HORIZON FUNDS, INC.
By: By:
------------------------ ------------------------
(Signature) (Signature)
------------------------ ------------------------
(Name) (Name)
------------------------ ------------------------
(Title) (Title)
------------------------ ------------------------
(Date Signed) (Date Signed)
-29-
<PAGE> 30
TRANSFER AGENCY AGREEMENT
APPENDIX A
I, Cornelius J. Pings, President, and I, W. Bruce McConnel, III,
Secretary, of PACIFIC HORIZON FUNDS, INC., a Maryland corporation (the
"Company"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Directors of the Company in conformity with the Company's Declaration of Trust
and By-Laws to execute any Certificate, instruction, notice or other instrument,
including an amendment to Appendix B or Schedule I hereto, or to give oral
instructions on behalf of the Company, and the signatures set forth opposite
their respective names are their true and correct signatures.
NAME SIGNATURE
------------------------ ------------------------
------------------------ ------------------------
------------------------ ------------------------
------------------------ ------------------------
PACIFIC HORIZON FUNDS, INC.
By:
------------------------
Cornelius J. Pings
President
Dated: , 1995 By:
------------ ------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 31
TRANSFER AGENCY AGREEMENT
APPENDIX B
I, Cornelius J. Pings, President, and I, W. Bruce McConnel, III,
Secretary, of PACIFIC HORIZON FUNDS, INC., a Maryland corporation (the
"Company"), do hereby certify that:
The following is a list of the Classes and Funds of the Company issued
and/or authorized as of the date of this Transfer Agency Agreement:
Fund CLASS
By:
------------------------
Cornelius J. Pings
President
Dated: By:
--------------------------- ------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 32
SCHEDULE I(A)
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at such
times as the Company and the Transfer Agent may agree, the Transfer Agent shall
provide the services set forth below:
Examine and process new accounts, subsequent payments, liquidations,
exchanges, telephone transactions, check redemptions, automatic withdrawals,
certificate issuances, wire order trades, direct trades, dividends, dividend
statements, dealer statements.
DAILY ACTIVITY
Maintain the following shareholder information on computer recordkeeping
systems or in such other manner as the Transfer Agent shall determine:
Name and Address, including Zip Code;
Balance of uncertificated Shares;
Balance of certificated Shares;
Certificate number, number of Shares, issuance date of each certificate
outstanding and cancellation date for each certificate no longer
outstanding, if issued;
Balance of Shares having paid a commission;
Balance of dollars available for redemption;
Dividend code (daily accrual, monthly reinvest, monthly cash or quarterly
cash);
Type of account code (regular account, Automatic Withdrawal Plan);
Dealer, Branch and Salesperson information;
Establishment date indicating the date an account was opened, carrying
forward pre-conversion data as available;
Original establishment date for accounts opened by exchange;
<PAGE> 33
W-9 withholding status and periodic reporting;
State of residence code;
Social Security or taxpayer identification number, and indication of
certification (SSN also usable as a reference for on-line account lookup);
Historical transactions on the account for the most recent 18 months, or
other period as mutually agreed to from time-to-time;
Indication as to whether phone transactions can be accepted for this
account;
Beneficial owner code, i.e. male, female, joint tenant, etc.;
An alternate or "secondary" account number issued by a dealer (or bank,
etc.) to a customer for use in inquiry and transaction input by "remote
accessors" (Company client institutions with remote terminal access or
transmission capability).
FUNCTIONS
Answer all investor and dealer telephone and/or written inquiries, except
those concerning Company policy or requests for investment advice which
will be referred to the Company or those which the Company chooses to
answer, and provide a staff until 8:00 pm Eastern time on each business day
in connection therewith.
Deposit Company Share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if issued.
Examine and process transfers of Shares insuring that all transfer
requirements and legal documents have been supplied.
Process and confirm address changes.
Process standard account record changes as required, i.e. dividend codes,
dealer and salesperson codes, etc.
Microfilm source documents for transactions, such as account applications
and correspondence.
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<PAGE> 34
Use of master account application to establish individual participant
accounts.
Perform backup withholding for those accounts which federal government
regulations indicate is necessary.
Perform withholdings on liquidations, if applicable, for employee benefit
plans.
Prepare and mail shareholder reporting forms relative to processing
performed, including 5498s, W2Ps, and 1099s.
Handle bad purchase check processing by notifying Fund prior to trade
reversal.
Solicit missing taxpayer identification numbers.
Provide remote access inquiry to Company records via Company supplied
hardware.
REPORTS PROVIDED
Daily Journals Reflecting all Shares and
dollar activity for the
previous day
Blue Sky Report Supply information monthly for
Company's preparation of Blue
Sky Reporting
N-SAR Report Supply monthly correspondence,
redemption and liquidation
information for use in
Company's N-SAR Report
12b-1 Report/ Supply monthly dealer
Average Asset Reporting reallowance, commission and
other fee reporting
Additionally, the following will be provided at the Company's request to
the Company at no charge:
1. Shareholder listings:
- by beneficial owner code
- by tax status code
- by state code
- by establishment date
- by dividend code
- by account plan type
-3-
<PAGE> 35
- top ten shareholders.
2 Dealer Transaction Totals.
3. Monthly average daily balance reports.
Prepare and mail copies of summary statements to dealers and investment
advisers;
Generate and mail confirmation statements for all financial transactions.
Send copies of financial transaction confirmations to the dealer specified,
as well as investment advisor and possibly other indicated interested
parties;
Monthly management report as Company and Transfer Agent agree that will
provide summary information of Company activity and quality of services
delivered.
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds within the
fund group serviced by the Transfer Agent as described in each Company
prospectus.
Distribute capital gains simultaneously with income dividend.
DEALER SERVICES
Prepare and mail confirmation statements to dealers daily.
Prepare and mail copies of statements to dealers, same frequency as
investor statements.
Allow on-line access to institutions designated by the Company from time to
time.
SHAREHOLDER MEETINGS
Proxy mailing.
Prepare certified list of Shareholders, hard copy or microfiche as
requested by the Company.
Address and mail proxies and related material. Tabulate returned proxies
and supply daily reports when sufficient proxies have been received
(material must be
-4-
<PAGE> 36
adaptable to mechanical equipment as reasonably specified by the Transfer
Agent)
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors.
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably specified
by the Transfer Agent).
Mail periodic statement to investors.
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1096, 1099DIV, 1099B, 1042 and 1042S.
Enclose various marketing material as designated by the Company in
statement mailings, i.e. monthly and quarterly statements (material must be
adaptable to mechanical equipment as reasonably specified by the Transfer
Agent).
-5-
<PAGE> 37
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Cancelled certificates plus stock powers and supporting
documents
- Checks including check registers, reconciliation records, any
adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing checks
- Liquidation, redemption, withdrawal and transfer requests
including stock powers, signature guarantees and any
supporting documentation
- Proxy records for shareholder meetings held within the
previous twelve (12) months (held with the Transfer Agent's
Compliance Department)
- State and federal tax records
- Journals (or other records of original entry) containing
itemized daily record of all sales and redemptions
- Separate ledger accounts (or other records) showing number of
shares held by each shareholder of record (including details
with respect to periodic investment plans, dividend
reinvestment plans, etc.)
-6-
<PAGE> 38
SCHEDULE III
FEE SCHEDULE - PACIFIC HORIZON FUNDS, INC.
Annual Base Fee Per Portfolio
Annual Open Account Fee
(Non-Daily Dividend) ___ per account
Annual Open Account Fee
(Daily Dividend) $____ per account
Annual Close Account Fee $___ per account
Annual IRA Fee $_____ per TIN
Asset Allocation:
Annual Rebalancing $____ per portfolio
Monthly Rebalancing $____ per portfolio
Transaction Charge $____ per transaction
Payroll Deduction:
Initial Set-Up Fee $___ per portfolio
Transaction Charge $____ per transaction
- - Out-of-pocket charges will be billed on a pass-through basis.
- - BISYS agrees to annual percentage increases not to exceed the Consumer
Price Index.
- - The above schedule is based upon a three year contract. Additional fee
concessions are possible for an extended service contract.
- - All conversion costs will be absorbed by BISYS.
<PAGE> 39
SCHEDULE IV
TRANSFER AGENT PERFORMANCE OBJECTIVES
PACIFIC HORIZON FUNDS, INC.
The performance objectives set forth below represent what the Company believes
should be reasonably obtainable by the Transfer Agent, given the typical daily
variables associated with any transfer agent operation (i.e., transaction volume
fluctuations).
IF THE TRANSFER AGENT FAILS TO MEET THE PERFORMANCE LEVELS DESCRIBED BELOW AS
"ACCEPTABLE" FOR ONE OR MORE OF THE LISTED FUNCTIONS BASED ON A
TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A CALENDAR MONTH PERIOD, THE TRANSFER
AGENT SHALL CREDIT THE COMPANY ON THE COMPANY'S INVOICE FOR THE NEXT MONTH TEN
PERCENT (10%) OF THE SERVICE FEES THE TRANSFER AGENT INVOICED THE COMPANY FOR
THE MONTH THE PERFORMANCE LEVELS WERE NOT MET.
IF THE TRANSFER AGENT FAILS TO MEET THE PERFORMANCE LEVELS DESCRIBED BELOW AS
"MARGINAL" FOR ANY ONE OR MORE OF THE LISTED FUNCTIONS BASED ON A
TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A CALENDAR MONTH PERIOD, THE TRANSFER
AGENT SHALL CREDIT THE COMPANY ON THE COMPANY'S INVOICE FOR THE NEXT TWENTY
PERCENT (20%) OF THE SERVICE FEES THE TRANSFER AGENT INVOICED THE COMPANY FOR
THE MONTH PRIOR TO THE MONTH THE PERFORMANCE LEVELS WERE NOT MET.
This Agreement may be immediately terminated upon written notice by the Company
to the Transfer Agent in the event that the TRANSFER AGENT FAILS TO MEET THE
PERFORMANCE LEVELS DESCRIBED BELOW AS "UNACCEPTABLE" FOR ANY ONE OR MORE OF THE
LISTED FUNCTIONS BASED ON A TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A CALENDAR
MONTH PERIOD and not cured by the Transfer Agent within a subsequent period of
30 days. Notice of such failure to meet performance objectives shall be provided
in writing by the Company to the Transfer Agent.
-1-
<PAGE> 40
SCHEDULE IV (cont.)
Performance Standards
<TABLE>
<CAPTION>
================================================================================
Function Objective Acceptable Marginal Unacceptable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Account Processed 97.5% 95.0% 92.5%
Set Up/Processing day of
receipt
- --------------------------------------------------------------------------------
Transaction Processed 97.5% 95.0% 92.5%
Processing day of
receipt
- --------------------------------------------------------------------------------
Maintenance Processed 85.0% 80.0% 75.0%
Processing within 2
days
- --------------------------------------------------------------------------------
Quality of Error rate 99.0% 98.0% 97.05
Entry-New of:
Accounts
- --------------------------------------------------------------------------------
Quality of Error rate 99.0% 98.0% 97.0%
Entry- of:
Financial
Transactions
- --------------------------------------------------------------------------------
Quality of Error rate 99.0% 97.0% 96.0%
Entry-Clerical of:
Transactions
- --------------------------------------------------------------------------------
Research Within 1 day 90.0% 80.0% 75.0%
Turnaround*
================================================================================
</TABLE>
* For items other than those that occurred after BISYS became Transfer Agent.
-2-
<PAGE> 1
EXHIBIT 11a
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Counsel" in the Statement of Additional Information that
is included in Post- Effective Amendment No. 43 to the Registration Statement
(No. 2- 81110) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, of Pacific Horizon Funds, Inc. This consent
does not constitute a consent under section 7 of the Securities Act of 1933, and
in consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ Drinker Biddle & Reath
----------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
December 13, 1995
<PAGE> 1
EXHIBIT 11b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading Independent
Accountants in the Statement of Additional Information constituting part of
this Post-Effective Amendment No. 43 to the registration statement on Form
N-1A.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
December 14, 1995
