PACIFIC HORIZON FUNDS INC, N-30D, 1996-11-12

PACIFIC HORIZON FUNDS INC
N-30D, 1996-11-12

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PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS

- -----------------------------------------------------------------------------

PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
SEMI-ANNUAL REPORT
August 31, 1996

NATIONAL MUNICIPAL BOND FUND

CALIFORNIA TAX-EXEMPT BOND FUND

Investing For All
The Times Of Your Life

----------------
NOT FDIC INSURED
----------------

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PACIFIC HORIZON FUNDS, INC.
3435 Stelzer Road, Columbus, OH 43219
1-800-332-3863

INVESTMENT ADVISER
Bank of America National Trust
and Savings Association
555 California Street
San Francisco, CA 94104

ADMINISTRATOR
Concord Holding Corporation
3435 Stelzer Road
Columbus, OH 43219
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

FUND COUNSEL
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107

DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219

FUND SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE ENDORSED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY.

The Pacific Horizon Funds, Inc. are sponsored and distributed by Concord
Financial Group, Inc., which is unaffiliated with Bank of America. Bank of
America serves as investment adviser and receives fees for such services. From
time to time, Bank of America may provide other services to the Funds for
additional fees, as disclosed in the Funds' prospectuses.

A portion of the Funds' income may be subject to Federal Alternative Minimum
Tax, and certain investors may be subject to such tax and to some state and
local taxes.

This material must be preceded or accompanied by a current prospectus.

NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 3

..................................

Contents

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 8-9
INTERVIEW WITH YOUR
INVESTMENT MANAGER 10-15
PACIFIC HORIZON NATIONAL MUNICIPAL
BOND FUND
Portfolio of Investments 16-20
Statement of Assets
and Liabilities 21
Statement of Operations 22
Statements of Changes
in Net Assets 23
Financial Highlights 38-39
PACIFIC HORIZON CALIFORNIA TAX-EXEMPT
BOND FUND
Portfolio of Investments 24-28
Statement of Assets
and Liabilities 29
Statement of Operations 30
Statements of Changes
in Net Assets 31
Notes to Financial Statements 32-37
Financial Highlights 40-41
</TABLE>
<PAGE> 4

PACIFIC HORIZON FUND FACTS

The Pacific Horizon Family of Funds offers a variety of mutual funds with
different investment objectives to help you diversify your portfolio and meet
your investment goals. Some Funds offer greater growth potential, while others,
the money market funds, strive to maintain a stable net asset value but offer no
growth potential.
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE
- ------------------------------------------------------------------------------------
<S> <C>
International Equity Long-Term Capital Growth
.....................................................................................
Aggressive Growth Maximum Capital Appreciation
.....................................................................................
Blue Chip Long-Term Capital Appreciation
.....................................................................................
Capital Income Total Investment Return
.....................................................................................
Asset Allocation Long-Term Growth
.....................................................................................
Corporate Bond High Current Income
.....................................................................................
Intermediate Bond Income and Capital Appreciation
.....................................................................................
U.S. Government Securities High Level of Current Income
.....................................................................................
Short-Term Government High Current Income with Relative
Stability of Principal
.....................................................................................
National Municipal Bond* High Level of Federal Tax-Free
Current Income
.....................................................................................
California Tax-Exempt Bond* High Level of Federal and California
Tax-Free Current Income
.....................................................................................
Money Market Funds+ High Current Income Plus Principal
- Prime Stability
- Treasury
- Government
- Treasury Only
.....................................................................................
Tax-Exempt Money Market Funds*+
- Tax-Exempt Money High Level of Federal Tax-Free Current
Income Plus Principal Stability
- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
</TABLE>

- --------------------------------------------------------------------------------
* Certain investors may be subject to the Federal Alternative Minimum Tax and to
certain state and local taxes.

+ There can be no assurance that the Funds will be able to maintain a stable net
asset value of $1.00 per share. Fund shares are not insured or guaranteed by
the U.S. Government.

2
<PAGE> 5

With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your investment
specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>

<CAPTION>
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- ------------------------------------------------------------------------------------
<S> <C>
Foreign Equity Securities Diversification into foreign equity markets with
associated risk.
................................................................................................
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
U.S. Government and Government Agency Monthly income and relative stability of investment.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.
Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
</TABLE>

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3
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UNDERSTANDING YOUR SHAREHOLDER REPORT

As a mutual fund shareholder, you receive two financial reports a year that
contain important information about your investment. The financial statements
and financial highlights included in annual reports are audited by an
independent public accounting firm and cover the activity for the past fiscal
year. The independent public accountant provides an opinion letter in each
audited report. A semi-annual report is a six-month interim report that includes
financial statements that are generally not audited by an independent public
accounting firm.

This guide will help you extract the information from
the report.
The TABLE OF CONTENTS helps
you locate the information you
want.

The ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER provides a
brief overview of the economy
and how it affects the
financial markets.

The INTERVIEW WITH YOUR
INVESTMENT MANAGER enables you
to gain insight into the
Fund's investments and learn
more about the Fund manager's
strategies.

[CHART]

Because a picture or chart can help clarify the
text, the investment management team may have
illustrated the most important features of the Fund.
The illustrations may represent the portfolio
composition, the largest holdings or a
simplification of the investment adviser's
investment style.

LOGO

4
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The financial statements summarize and describe the Fund's financial
transactions. They are broken down into four different statements, which are
illustrated below:

The PORTFOLIO OF INVESTMENTS lists each investment holding in the Fund as of the
date of the report. Investments may be grouped by category (by industry or
security type, for example). The percentage of the Fund's net assets represented
by these groupings is also disclosed.

TYPE OF SECURITY

INDUSTRY SECTOR AND PERCENTAGE OF THE FUND'S
NET ASSETS REPRESENTED BY INVESTMENTS IN THAT
SECTOR (IF APPLICABLE)

ACTUAL PORTFOLIO HOLDINGS WITH SHARES AND
[CHART] MARKET VALUE AS OF REPORT DATE

The STATEMENT OF ASSETS AND LIABILITIES lists all the assets and liabilities of
the Fund as of the date of the statement. This is an individual fund's "balance
sheet." Also disclosed in this statement are the Fund's net asset value per
share and its maximum offering price per share as of the date of the statement.
The statement also lists the accounts that comprise the Fund's
net assets (capital stock, undistributed
income, etc.).

SUMMARY OF THE FUND'S INVESTMENTS AND ALL
OTHER ASSETS OWNED BY THE FUND, INCLUDING
AMOUNTS OWED TO THE FUND BY OUTSIDE PARTIES

SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

THE MARKET VALUE OF THE FUND'S TOTAL NET
ASSETS DIVIDED BY THE NUMBER OF SHARES
OUTSTANDING

THE CURRENT NET ASSET VALUE PER SHARE PLUS SALES CHARGE, IF ANY

[CHART]

5
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The STATEMENT OF OPERATIONS shows the amount of dividend and interest income
earned from the Fund's investments, the expenses incurred by the Fund from its
operations and any
gains or losses realized and not yet realized
by the Fund from holding and/or selling any
investments.

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD

GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD

[CHART] NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

The STATEMENTS OF CHANGES IN NET ASSETS shows the changes in the net assets of
the Fund during each of the two most recent reporting periods. The changes in
net assets are generally
broken down into four distinct sections:

OPERATIONS: SEE STATEMENT OF OPERATIONS

DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS

DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS

FUND SHARE TRANSACTIONS: DOLLAR VALUE OF FUND
SHARES PURCHASED, REDEEMED OR REINVESTED
DURING THE PERIODS

The NOTES TO FINANCIAL STATEMENTS are footnotes to the statements listed above.
These notes include information on accounting methods used by the Fund,
contractual arrangements between the Fund and its service providers, certain
transactions effected by the Fund and other general information about the Fund.

The FINANCIAL HIGHLIGHTS shows, for a single share outstanding throughout each
period presented, the net investment income, the realized and unrealized gains
and losses and the dividends and distributions of the Fund. It also shows key
data and ratios (such as the total investment return for each period), the
portfolio turnover rate for Funds other than money market mutual funds, the
ratio of expenses to average net assets and the ratio of net investment income
to average net assets.
[CHART]

6
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[This page intentionally left blank.]

7
<PAGE> 10

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

The financial markets were volatile during the six-month period ended August 31,
1996, due to uncertainty about the economy, interest rates and corporate
earnings. As the period began, strong corporate earnings encouraged investors to
expect higher stock prices. But during the summer investors were confronted with
relatively poor early announced earnings reports as compared to the same quarter
the previous year.

At the same time, there were signs that the economy was growing much faster than
expected. Some factors that restrained economic growth during the early part of
1996 were behind us -- in particular, the General Motors and Boeing strikes, the
government shutdown and bad weather -- and the economy grew at a surprisingly
strong rate of 4.7% during the second quarter. As a result, investors worried
that the Federal Reserve would increase short-term interest rates to slow growth
and keep a tight rein on inflation.

MIXED SIGNALS
IN THE MARKETS

Meanwhile, other economic indicators, including a high level of inventory
buildup and relatively weak retail sales figures, suggested that the economy
might be losing steam. The result: Stocks and bonds declined sharply in July,
but rebounded somewhat in August. For the period, the Standard & Poor's 500
Stock Index gained 2.96%. Also, the bellwether 30-year Treasury bond was down
5.12%.

The best-performing stock market sectors during the recent period were capital
goods and selected technology issues, both of which gained more than 13%. More
defensive sectors of the market also performed well. These included stocks in
the consumer staples sector and the financial services sector, where stocks
gained roughly 10% during the period.

We expect corporate earnings to grow at a rate of about 7% for 1996 -- slower
than the double-digit growth of last year, but still strong in absolute terms.
That said, profit growth at many firms will look modest compared to their gains
of a year ago. As a result, many companies may pre-announce any disappointing
third-quarter earnings expectations to prevent their stock prices from stumbling
too much when they announce the actual numbers.

Although inflation does not appear too threatening -- apart from some concerns
about rising wages -- we expect the Federal Reserve to debate the question of
whether to raise rates through year end. We expect the economy to slow down a
bit, returning to a more sustainable growth rate of around 2% to 2.5% as
calendar year 1996 nears its close. Some reasons for the projected slower growth
include increased corporate downsizing, rising consumer debt from credit cards
and loans, a general buildup of company inventories and some slower than
expected growth in overseas economics.

GOOD VALUES IN
SELECTED SECTORS

Looking ahead, we are slightly more bullish about stocks than bonds over the
next six months. Some specific equity sectors that we like include capital
goods, health care, and select areas of technology. We believe that all of these
sectors represent good value and have reasonable earnings outlooks over the next
six months.

Our fixed-income outlook is also positive. We believe the yield curve may
flatten, with short-term rates rising more than long-term rates.

Therefore, we expect our bond funds to take a barbell approach to investing,
with portfolios that concentrate heavily on both short- and long-term issues.
This will provide us the potential to pick up extra yield on both long- and
short-term bonds, while positioning the Funds to pick up some capital gains when
long-term rates ease. We will

8
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also emphasize high-quality, highly liquid fixed-income issues.

A wild card in the outlook for the financial markets is the Congressional and
Presidential elections in November. Most investors expect the Republican party
to remain in control of Congress. If they are proven wrong, we may see fiscal
policy changes that might lead to increased volatility in the markets.

Sincerely,
Keith Wirtz
Drew Brahos
Bank of America NT&SA,
Investment Advisers
to the Pacific Horizon Funds

9
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PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND AND
CALIFORNIA TAX-EXEMPT BOND FUND

STEPHEN P. SCHARRE
Portfolio Manager
Bank of America NT&SA

GOAL:

The Pacific Horizon National Municipal Bond Fund seeks to achieve as high a
level of current interest income exempt from federal income tax as is consistent
with prudent investment management and preservation of capital.

INVESTMENTS:

The Fund invests primarily in investment-grade municipal securities issued on
behalf of states, territories and possessions of the United States, the District
of Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions.

APPROPRIATE FOR:

Investors seeking monthly interest income exempt from federal income tax.

INCEPTION:

January 28, 1994

SIZE OF FUND AS OF
AUGUST 31, 1996:

Over $14 million

KIM MICHALSKI
Director of Tax-Exempt Fixed Income
Bank of America NT&SA

GOAL:

The Pacific Horizon California Tax-Exempt Bond Fund seeks to achieve as high a
level of current interest income exempt from federal and California state income
taxes as is consistent with prudent investment management and preservation of
capital.

INVESTMENTS:

The Fund invests primarily in municipal securities issued on behalf of the state
of California and its political subdivisions, agencies, authorities and other
governmental entities.

APPROPRIATE FOR:

California residents seeking monthly interest income exempt from both federal
and California personal income taxes.

INCEPTION:

March 30, 1984

SIZE OF FUND AS OF
AUGUST 31, 1996:

Over $210 million

10
<PAGE> 13

Q
HOW DID THE MUNICIPAL MARKET AND THE FUNDS PERFORM DURING THE RECENT PERIOD?

A
STEVE SCHARRE: Yields on bonds rose as their prices fell during the period,
but municipal bond yields rose less than those of taxable bonds. In fact, the
ratio of municipal bond yields to Treasury yields fell from about 83% to 80%
during the period. Since rising yields on bonds typically accompany falling
prices, that means municipal bonds outperformed the taxable market during the
past six months.

The National Municipal Bond Fund's total return during the six months ended
August 31, 1996, was 0.41% and the California Tax-Exempt Bond Fund's total
return was -0.38%. (Both Funds' returns are for A Shares without deduction of
the maximum 4.50% front-end sales charge.) That compared to a return of 0.35%
for the Funds' benchmark, the Lehman Brothers Municipal Bond Index, during the
period.*

Q
WHY DID MUNICIPAL BONDS OUTPERFORM TREASURIES AND OTHER TAXABLE BONDS?

A
STEVE SCHARRE: Politics. As we entered the period, investors still worried
about the Republican candidates' tax reform proposals, which included calls
for a flat tax. Such a tax would likely reduce the value of the tax break that
municipal bonds offer, causing prices in the tax-free sector to decline. But
such fears receded after Steve Forbes, the leading flat-tax proponent, left the
race and Bill Clinton moved far ahead of Bob Dole in the polls. As investors
stopped worrying about a flat tax, they put some money back to work in municipal
bonds, which helped support the bonds' prices.

KIM MICHALSKI: The tax-exempt market also benefited from the low volume of new
issues, especially in California. This situation generated more demand for
existing municipal bonds, offering some support for their prices. In addition,
California's economic recovery generated strong demand from institutional
investors for the state's tax-exempt issues.

Q
WHAT CAUSED THE LOW SUPPLY OF NEW CALIFORNIA BONDS?

A
KIM MICHALSKI: During 1994 and 1995, many municipalities issued new bonds to
take advantage of low interest rates and pay off their old high-rate bonds. In
fact, such refunding accounted for 30% to 40% of new issues. There have been

AVERAGE ANNUAL TOTAL RETURN AS OF AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NATIONAL MUNICIPAL CALIFORNIA TAX-EXEMPT
WITHOUT BOND FUND WITH WITHOUT BOND FUND WITH
SALES CHARGE SALES CHARGE SALES CHARGE SALES CHARGE
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
A Shares -- Inception Dates: (1/28/94) (3/30/84)
6 months+ 0.41% -4.12% -0.38% -4.85%
...................................................................................................................
1 year 0.66% 0.66% 0.49% 0.49%
...................................................................................................................
5 years N/A N/A 5.78% 5.78%
...................................................................................................................
10 years N/A N/A 6.14% 6.14%
...................................................................................................................
Since Inception 3.18% 3.18% 7.79% 7.79%
- ------------------------------------------------------------------------------------
</TABLE>

+ Performance quoted is not annualized.

Return figures for the Funds include change in share price, reinvestment of
dividends and capital gains distributions.

11
<PAGE> 14

fewer refundings in this higher-rate environment. In addition, many California
municipalities and agencies held back on issuing new bonds. They worried that
investors would demand high yields in the wake of the Orange County
bankruptcy -- although those fears have abated.
Q
ARE MUNICIPAL BONDS ATTRACTIVE NOW COMPARED TO THE TAXABLE SECTOR?

A
STEVE SCHARRE: Right now, the differences between yields of municipal and
taxable bonds of comparable maturities are about average based on historical
figures. This suggests that municipal bonds offer fair value versus corporate
bonds and U.S. Government bonds.
Q
HOW DID YOU MANAGE THE FUNDS IN THIS ENVIRONMENT?

A
STEVE SCHARRE: After being relatively long during 1995, the National
Municipal Bond Fund's average maturity was shortened last December. We then
maintained an average maturity relatively close to that of the Lehman Brothers
Municipal Bond Index through April. The decision to shorten the Fund's average
maturity was a significant factor in improving the Fund's results as rates rose
sharply in the spring, thus helping protect profits earned last year. In May, we
extended the Fund's average maturity somewhat because bonds seemed to offer
better value in the wake of significant price declines. Since then, interest
rates have been volatile, but without any sustained trend in either direction.

KIM MICHALSKI: The California Tax-Exempt Fund had maintained a somewhat lower
average maturity and duration -- a measure of its price sensitivity to
interest-rate changes -- than its benchmark index. That caused it to
under-perform during periods of rising bond prices. (Conversely, a higher
average maturity or duration fund tends to outperform the market when prices
fall.) We acted to bring the Fund's duration to a more neutral position; that
is, more in line with its competitive market index. For example, we reduced the
Fund's position in bonds subject to short-term calls, which can be redeemed
early by the issuer. We purchased issues that are non-callable or have 10-year
call protection.

Q
WHAT OPPORTUNITIES DID YOU FIND FOR THE NATIONAL MUNICIPAL BOND FUND IN
DIFFERENT REGIONS AND SECTORS OF THE TAX-EXEMPT MARKET?

A
STEVE SCHARRE: In general, interest rates drove prices more than any
differences between regions. However, California bonds did well, as the state's
economy recovered and Orange County emerged from bankruptcy. Such bonds
accounted for about 10% of the portfolio. We also owned issues of several
utilities that we expect to benefit from deregulation. Among them: Jacksonville
Electric and Northern Municipal Power of Minnesota. Their prices held up
well -- even though electric utilities as a group were poor performers due to
fears of increased competition.**

Q
HOW DID YOU MANAGE THE CREDIT QUALITY OF THE SECURITIES IN THE FUNDS?

A
STEVE SCHARRE: In the National Municipal Bond Fund, the credit quality
stayed fairly constant, at around AA- on average. When interest rates climbed,
we temporarily became more defensive by increasing our investment in insured and
other AAA-rated issues. When we extended the Fund's maturity in May, we sold the
insured bonds. We continued to emphasize revenue bonds, which typically pay
higher yields than general obligation bonds (GOs). Although revenue bonds
generally are considered riskier than GOs, we emphasize

12
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bonds backed by revenues from essential services such as water or
transportation. Such bonds often can rely on consistent revenues even when the
economy is flat or slowing down, whereas the taxing power of
GOs can be strongly affected by economic conditions. For example, we recently
purchased Massachusetts Bay Transportation Authority revenue bonds with a coupon
of 5.375%, due 2016 and rated A+ by Standard & Poor's.**

KIM MICHALSKI: We maintained a high-quality portfolio of securities in the
California Tax-Exempt Bond Fund, with an average credit quality of AA. In fact,
77% of the Fund's holdings were invested in bonds rated AA or better.**
Recently, single-A bonds have been yielding only about two-tenths of a
percentage point more than AAA-insured issues -- not enough to take on the
additional credit risk in the lower-quality issues.

Q
WHAT IS YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET AND YOUR CURRENT
STRATEGY FOR THE CALIFORNIA TAX-EXEMPT BOND FUND?

A
KIM MICHALSKI: Municipals have become more expensive relative to taxable
bonds. However, it seems likely that low supply and continued high demand will
help the tax-exempt market keep pace with or outperform taxable securities of
comparable quality and maturity. That said, it is difficult to say how the
fixed-income markets as a whole will perform. This depends largely on whether
the economy continues to grow at a strong pace, causing interest rates to rise.
For now, it seems likely that the Federal Reserve Board will act to increase
short-term interest rates by the end of 1996. In that environment, we would
focus on finding the best values in the California municipal market. Right now,
bonds that mature in 10 to 15 years offer the best trade-off between risk and
potential reward. They are paying 90% to 95% of the yields on 30-year issues,
which are much more risky. We'll look for those intermediate-term issues in a
variety of sectors.

Q
STEVE: WHAT IS YOUR OUTLOOK AND STRATEGY GOING FORWARD?

A
STEVE SCHARRE: As Kim said, there is some risk that the economy will
continue to grow more rapidly, causing inflation to rise slightly, while pushing
bond prices lower. If that happens, we'd like to be in a position to take
advantage of higher rates by extending the National Municipal Bond Fund's
maturity. But for now, we plan to maintain a somewhat cautious approach. In
fact, we have been letting some cash accumulate in the Fund to bring down the
average maturity of the Fund in anticipation of a possible Fed tightening.

- ---------------
*The Lehman Brothers Municipal Bond Index is an unmanaged index generally
representative of the municipal bond market as a whole and cannot be invested
in directly.

** The composition of the Funds' holdings are subject to change.

The performance data quoted represents past performance and is not an indication
of future results. The investment return and Net Asset Value will fluctuate so
than an investor's shares, when redeemed, may be worth more or less than the
original cost.

13
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PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF AUGUST 31, 1996)

TAX-EXEMPT INCOME
A Monthly Opportunity

Compare the difference between the after-tax income from the two hypothetical
$100,000 investments illustrated. This hypothetical example assumes a 31 percent
tax bracket and does not represent actual performance of the Pacific Horizon
National Municipal Bond Fund.

A tax-exempt investment, despite a lower yield, can actually provide certain
investors with greater after-tax income than a taxable investment. Past
performance is not a guarantee of future results. Some investors may be subject
to the federal alternative minimum tax and to certain state and local taxes. Any
capital gain distributions from the Fund will be taxable. Consult with your tax
adviser.

* Bond Buyer Municipal Index and Merrill Lynch Corporate Bond Index, as reported
in The Wall Street Journal, August 31, 1996.

TAXABLE EQUIVALENT YIELD:
THE INCOME YOU CAN KEEP

Tax-Exempt Yield on
$100,000 at 6.21%*

Taxable Yield on
$100,000 at 7.60%*

<TABLE>
<S> <C>
You Keep 5244
Uncle Sam Takes 2356
J54209X2
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 FEDERAL TAX RATES+
<S> <C> <C> <C> <C>
- -----------------------------------------------

- -------------------------------------------------
28% 31% 36% 39.6%
- -------------------------------------------------
Joint $40,100 $96,900 $147,700 Over
Return: $96,900 $147,700 $263,750 $263,750
......................................................
Single $24,000 $58,150 $121,300 Over
Return: $58,150 $121,300 $263,750 $263,750
- -------------------------------------------------
</TABLE>

A FEDERAL
TAX-EXEMPT
INVESTMENT
YIELDING: IS EQUIVALENT TO A TAXABLE
INVESTMENT YIELDING:

- -
+ Source: Internal Revenue Service.

* Certain investors may be subject to the Federal Alternative Minimum Tax or
certain state and local taxes. Shareholders should consult with a tax adviser.
TAX-EQUIVALENT YIELD
The Bottom Line
Today's higher federal tax
rates make tax-exempt income
more attractive. This chart
enables you to determine what
the yield on a taxable
investment would have to be
to match a hypothetical tax-
exempt yield.* For example,
in order to equal a 5%
tax-exempt yield, a taxable
investment would have to
yield between 6.94% and
8.28%, depending on your
federal tax bracket. The
higher your tax bracket, the
better the potential
after-tax result of investing
in a tax-exempt fund. The
Pacific Horizon National
Municipal Bond Fund seeks to
provide a high level of
current income free from
federal income tax,
consistent with prudent
investment management and
preservation of capital.

14
<PAGE> 17
PACIFIC HORIZON
CALIFORNIA TAX-EXEMPT BOND FUND
(AS OF AUGUST 31, 1996)
TAX-EXEMPT
Dollars and Sense
for California
Residents
The top federal
income tax rate is
39.6 percent and
there is a 10
percent surtax on
those with incomes
above $250,000. By
investing in the
Pacific Horizon
California
Tax-Exempt Bond
Fund, Golden State
residents may
benefit from
regular income that
is free from
federal and state
taxes.* Use the
chart to determine
what the
hypothetical yield
on a taxable
investment
would have to be to match a tax-exempt yield. For example, in order to equal a 5
percent tax-exempt yield, a taxable investment would have to yield between 7.40
percent and 7.72 percent, depending on your combined federal and state tax
brackets. The higher your tax bracket, the better the potential after-tax result
of investing in a tax-exempt fund.
- -------------
* Certain investors may be subject to the Federal Alternative Minimum Tax or
certain state and local taxes. Shareholders should consult with a tax adviser.
California tax rates are for 1996.

<TABLE>
<CAPTION>
COMBINED 1996 CALIFORNIA
STATE & FEDERAL EFFECTIVE RATE
<S> <C> <C> <C>
---------------------------------------------------------

----------------------------------------------------------
32.4% 35.2%
----------------------------------------------------------
Single Joint
Return: $50,000 Return: $100,000
..................................................................
----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
A TAX-EXEMPT
INVESTMENT
YIELDING:
YIELDING: IS EQUIVALENT TO A TAXABLE INVESTMENT

<S> <C> <C>
4.50% 6.66% 6.94%
..................................................................
5.00% 7.40% 7.72%
..................................................................
5.50% 8.14% 8.49%
..................................................................
6.00% 8.88% 9.26%
..................................................................
6.50% 9.62% 10.03%
..................................................................
----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------

PORTFOLIO COMPOSITION*

QUALITY
Quality Counts

S&P/MOODY'S
LONG-TERM RATING OF
PORTFOLIO COMPOSITION

<TABLE>
<S> <C>
A 15.19%
BBB 0.95%
AA 16.79%
AAA 60.46%
NONRATED 6.61%
</TABLE>

- ---------------
* The composition of the Fund's holdings is subject to change.
The Pacific Horizon California Tax-Exempt Bond Fund invests primarily in
investment-grade municipal securities that are rated in the four highest
categories by an independent rating agency such as Standard & Poor's or nonrated
securities deemed by the Fund's adviser to be of comparable quality. By
maintaining high standards, the Fund seeks to reduce risk while attempting to
maximize yield, offering an investor the opportunity for capital preservation as
well as consistent monthly dividends. Tax-exempt bond funds invest in securities
issued by states, local municipalities and governments, whose financial
condition will affect the value of their securities.

15
<PAGE> 18

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- 97.6%
CALIFORNIA -- 7.7%
California Health Facilities
Financing Revenue, Ponoma Valley
Hospital Medical Center (MBIA
Insured)........................... Aaa/AAA 6.75 % 1/01/07 $ 250 $ 267,188
California State Department of
Veterans Affairs Home Purchase
Revenue, Series A (AMT)............ Aa/A+ 7.375% 8/01/12 30 30,868
Del Mar Race Track Authority
Revenue............................ NR/NR 6.20 % 8/15/11 250 239,688
Foothill Eastern Transportation
Corridor Agency, California Toll
Road Revenue Senior Lien, Series
A.................................. Baa/BBB- 5.00 % 1/01/35 400 320,000
Foothill Eastern Transportation
Corridor Agency, California Toll
Road Revenue Senior Lien, Series
A.................................. Baa/BBB- 6.00 % 1/01/34 150 141,375
West Covina, Certificate of
Participation, Queen of The Valley
Hospital........................... A/A 6.50 % 8/15/24 75 76,125
-----------
1,075,244
-----------
COLORADO -- 3.7%
Moffat County Pollution Control
Revenue, PacifiCorp Project........ Aaa/AAA 3.85 %* 5/01/13 300 300,000
Pueblo County Single Family
Mortgage........................... NR/AA- 6.85 % 12/01/25 210 216,300
-----------
516,300
-----------
CONNECTICUT -- 0.5%
Connecticut State Clean Water
Revenue............................ Aaa/AA+ 5.65 % 6/01/10 75 75,375
-----------
FLORIDA -- 4.3%
Florida State Board of Education,
Capital Outlay Public Education,
Series B........................... Aa/AA 5.875% 6/01/25 300 297,750
Florida State Board of Education,
Capital Outlay Public Education,
Series A........................... Aa/AA 6.10 % 6/01/24 75 76,406
Jacksonville Electric Authority
Revenue, St. John's River, Issue 2,
Series 9........................... Aa1/AA 5.25 % 10/01/21 255 233,963
-----------
608,119
-----------
</TABLE>

- ---------------
See Notes to Financial Statements.

16
<PAGE> 19

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
ILLINOIS -- 10.7%
Chicago, Illinois O'Hare
International Airport, Series A.... A1/A+ 4.80 % 1/01/05 $ 500 $ 476,875
Cook County, Series B (FGIC
Insured)........................... Aaa/AAA 5.50 % 11/15/22 300 277,500
Illinois Health Facility Authority
Revenue, Elmhurst Hospital, Series
B.................................. A1/NR 3.90 % 1/01/20 300 300,000
Illinois Health Facility
Authority Revenue, Edward Hospital,
Series A........................... A/A 6.00 % 2/15/19 75 71,250
Illinois Health Facility Authority
Revenue, Illinois Masonic Medical
Center, Series A................... A/A- 7.60 % 10/01/07 300 322,875
Illinois State Sales Tax Revenue,
Series O........................... A1/AAA 6.00 % 6/15/18 50 49,625
-----------
1,498,125
-----------
INDIANA -- 6.4%
Bloomington Sewer Works Revenue (MBIA
Insured)........................... Aaa/AAA 5.875% 1/01/25 150 146,063
Indiana Bond Bank Revolving Fund,
Program A.......................... NR/A 6.875% 2/01/12 100 108,750
Indianapolis Local Public Improvement
Revenue............................ Aaa/AAA 7.90 % 2/01/07 300 347,625
Jasper County Pollution Control
Revenue, Northern Indiana Public
Service Co., Series B, LOC:
Union Bank of Switzerland.......... NR/ A 3.85 % 6/01/13 300 300,000
-----------
902,438
-----------
KENTUCKY -- 1.5%
Kentucky State Property & Buildings
Refunding, Project No. 55.......... A/A+ 6.00 % 9/01/08 200 206,000
-----------
LOUISIANA -- 1.4%
Louisiana State General Obligation
Bond, Series A (MBIA Insured)...... Aaa/AAA 5.375% 8/01/05 200 202,500
-----------
MASSACHUSETTS -- 7.5%
Massachusetts Bay Transportation
Authority, Series A................ A1/A+ 5.375% 3/01/16 500 469,375
Massachusetts State Water Resource
Authority, Series C................ A/A 5.25 % 12/01/20 100 89,375
Massachusetts State Housing Finance
Agency Housing Revenue, Single
Family (AMT) (MBIA Insured)........ Aaa/AAA 6.25 % 12/01/15 500 501,250
-----------
1,060,000
-----------
MICHIGAN -- 3.8%
Greater Detroit Resource Recovery
Authority, Michigan Revenue, Series
B (AMBAC Insured).................. Aaa/AAA 6.25 % 12/13/05 500 535,625
-----------
MINNESOTA -- 3.4%
Northern Municipal Power Agency,
Series A........................... A/A 7.25 % 1/01/16 445 470,587
-----------
</TABLE>

- ---------------
See Notes to Financial Statements.

17
<PAGE> 20

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MISSISSIPPI -- 3.5%
Hattiesburg, Mississippi Water &
Sewer (AMBAC Insured).............. Aaa/AAA 5.25 % 8/01/07 $ 500 $ 491,250
-----------
NEBRASKA -- 1.2%
Omaha Public Power District Electric
Revenue, Series C.................. Aa/AA 5.50 % 2/01/14 175 169,968
-----------
NEVADA -- 6.9%
Clark County Convention & Visitors
Center, General Obligation
Limited............................ Aaa/AAA 4.80 % 7/01/02 500 497,500
Clark County Passenger Facilities
Charge, Las Vegas/Macarran
International Airport, Series A
(MBIA Insured) (AMT)............... Aaa/AAA 5.75 % 7/01/23 500 475,625
-----------
973,125
-----------
NEW JERSEY -- 3.8%
New Jersey Economic Development
Authority, Market Transition
Facilities Revenue, Series A (MBIA
Insured)........................... Aaa/AAA 5.70 % 7/01/05 150 155,812
New Jersey State Turnpike, Series C
(AMBAC Insured).................... Aaa/AAA 6.40 % 1/01/07 350 372,313
-----------
528,125
-----------
NEW YORK -- 4.1%
New York City, Industrial Development
Agency, Special Facilities Revenue,
Terminal One Group Assistant
Project (AMT)...................... A/A 6.00 % 1/01/15 75 72,750
New York State Energy Research and
Development Authority, Electric
Facility Revenue, Series A (AMT)... A1/A+ 7.75 % 1/01/24 65 68,169
New York State Local Government
Assistant Corp., Series B.......... A/A 6.00 % 4/01/18 50 50,375
New York State Urban Development
Facilities......................... Baa1/BBB 5.75 % 4/01/11 400 391,500
-----------
582,794
-----------
OREGON -- 1.1%
Portland Airport Revenue, Portland
International Airport, Series 10
(FGIC Insured) (AMT)............... Aaa/AAA 5.875% 7/01/15 150 150,563
-----------
</TABLE>

- ---------------
See Notes to Financial Statements.

18
<PAGE> 21

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA -- 5.2%
Pennsylvania State General Obligation
Bonds, First Series................ A1/AA- 4.875% 5/01/02 $ 250 $ 250,312
Philadelphia Airport Revenue, Series
A (AMBAC Insured)
(AMT).............................. Aaa/AAA 5.70 % 6/15/07 200 203,000
Philadelphia Wastewater Revenue
(AMBAC Insured).................... Aaa/AAA 5.50 % 6/15/07 250 253,750
Pittsburgh Urban Redevelopment
Authority, Home Improvement, Series
A
(AMT).............................. A/A 5.65 % 8/01/15 20 19,000
-----------
726,062
-----------
TENNESSEE -- 4.2%
Humphreys County Tenn. Industrial
Development Board, Solid Waste
Revenue Board, E.I. Du Pont De
Nemours and Co. Project (AMT)...... Aa3/AA- 6.70 % 5/01/24 75 79,219
Maury County Industrial Development
Board/ Pollution Control Revenue... NR/A- 6.50 % 9/01/24 500 515,000
-----------
594,219
-----------
TEXAS -- 10.3%
Brazos River Authority Special
Facilities Revenue (FGIC
Insured)........................... Aaa/AAA 5.50 % 8/15/15 200 190,750
Lower Colorado River Authority
Revenue, (AMBAC Insured)........... Aaa/AAA 6.00 % 1/01/17 50 50,413
Lower Neches Valley River Treatment
Project (AMBAC Insured)............ Aa2/AA 5.65 % 2/01/29 600 563,250
Texas State National Research Labor
Commission, General Obligation
Unlimited (Prerefunded 4/1/00 @
102.00)............................ AAA/NR 7.125% 4/01/00 500 548,125
Texas Water Development Board
Revenue............................ Aa1/AAA 6.00 % 7/15/13 100 101,750
-----------
1,454,288
-----------
UTAH -- 4.1%
Intermountain Power Agency, Utah
Power Supply Revenue, Series C..... Aa/AA- 5.25 % 7/01/14 150 141,375
Intermountain Power Agency, Utah
Power Supply Revenue, Series D..... Aa/AA- 5.00 % 7/01/21 500 434,375
-----------
575,750
-----------
WISCONSIN -- 1.5%
Wisconsin State General Obligation
Bond............................... Aa/AA 6.00 % 5/01/03 200 212,250
-----------
</TABLE>

- ---------------
See Notes to Financial Statements.

19
<PAGE> 22

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
WYOMING -- 0.8%
Wyoming Community Development
Authority, Single Family Mortgage,
Series G, FHA/VA Mtgs.............. Aa/AA 7.20 % 6/01/10 $ 100 $ 107,250
-----------
TOTAL INVESTMENTS -- 97.6%............ 13,715,957
(Cost $13,755,856)(a)
Other assets in excess of
liabilities -- 2.4%................ 336,848
-----------
NET ASSETS -- 100.0%.................. $14,052,805
=============
</TABLE>

- ---------------

Percentages indicated are based on net assets of $14,052,805.

(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation...................................... $ 91,663
Unrealized depreciation...................................... (131,562)
---------
Net unrealized appreciation.................................. $ (39,899)
==========
</TABLE>

* Reflects current yield.

AMT -- Interest on securities subject to federal Alternative Minimum Tax.

AMBAC -- AMBAC Indemnity Corporation.

FGIC -- Financial Guaranty Insurance Company.

FHA -- Federal Housing Administration.

LOC -- Letter of credit.

MBIA -- Municipal Bond Insurance Association.

NR -- No rating assigned by Moody's or S&P.

VA -- Veterans Administration.

See Notes to Financial Statements.

20
<PAGE> 23

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND

----------------------------------------------------------------------

Statement of Assets and Liabilities
August 31, 1996 (Unaudited)

-------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $13,755,856)............... $13,715,957
Cash................................................................. 33,421
Receivable for Portfolio shares sold................................. 287,700
Interest receivable.................................................. 182,902
Unamortized organization costs....................................... 31,285
-----------
Total assets........................................................... 14,251,265
-----------
LIABILITIES:
Dividends payable.................................................... 53,621
Payable for Portfolio shares redeemed................................ 1,450
Payable to Administrator............................................. 28,000
Audit fees........................................................... 43,670
Legal fees........................................................... 12,236
Registration fees.................................................... 22,131
Reports to shareholders.............................................. 20,262
Other accrued expenses............................................... 17,090
-----------
Total liabilities...................................................... 198,460
-----------
NET ASSETS............................................................. $14,052,805
===========
NET ASSETS:
A Shares............................................................. $14,051,806
K Shares............................................................. 999
-----------
$14,052,805
===========
Shares Outstanding ($0.001 par value, 150 million shares authorized):
A Shares............................................................. 1,414,008
K Shares............................................................. 101
-----------
1,414,109
===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value and redemption price per share....................... $ 9.94
Sales charge -- 4.50% of public offering price....................... 0.47
-----
Maximum Offering Price............................................... $10.41
======
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -- K
SHARES............................................................... $ 9.93
======
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 1,414
Additional paid-in capital........................................... 14,042,897
Accumulated net realized gains on investments........................ 43,337
Net unrealized depreciation of investments........................... (39,899)
Undistributed Net Investment Income.................................. 5,056
-----------
NET ASSETS, AUGUST 31, 1996............................................ $14,052,805
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

21
<PAGE> 24

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the Six Months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $ 360,628
--------
EXPENSES:
Advisory fees............................................. $ 22,890
Administration fees....................................... 13,044
Shareholder service fees (A Shares)....................... 16,290
Transfer agent fees and expenses.......................... 6,350
Custodian fees and expenses............................... 12,484
Audit fees................................................ 23,047
Reports to Shareholders................................... 17,945
Legal fees................................................ 20,044
Directors' fees........................................... 12,919
Insurance expense......................................... 184
Fund accounting fees and expenses......................... 27,822
Amortization of organization costs........................ 10,963
Registration fees......................................... 16,720
Other expenses............................................ 562
---------
Total expenses............................................ 201,264
Less: Fee waivers and expense reimbursements.............. (168,682) 32,582
--------- --------
Net Investment Income....................................... 328,046
--------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on securities transactions............. 24,146
Net change in unrealized appreciation (depreciation) of
investments............................................. (314,722)
--------
Net Loss on Investments..................................... (290,576)
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 37,470
========
</TABLE>

- ---------------
See Notes to Financial Statements.

22
<PAGE> 25

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................... $ 328,046 $ 369,257
Net realized gains (losses) on securities
transactions...................................... 24,146 22,823
Net change in unrealized appreciation (depreciation)
of investments.................................... (314,722) 288,587
----------- -----------
Net increase in net assets resulting from
operations........................................ 37,470 680,667
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- A
SHARES:
Dividends to shareholders from net investment
income............................................ (322,985) (369,257 )
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- K
SHARES:
Dividends to shareholders from net investment income
(a)............................................... (5) --
----------- -----------
Total Dividends and distributions to shareholders..... (322,990) (369,257 )
----------- -----------
Fund Share Transactions:
Net proceeds from shares subscribed................. 4,983,735 10,755,826
Net asset value of shares issued to shareholders in
reinvestment of dividends......................... 196,510 279,903
Cost of shares redeemed............................. (3,084,323) (1,624,728 )
----------- -----------
Net increase in net assets from Fund share
transactions...................................... 2,095,922 9,411,001
----------- -----------
Total Increase........................................ 1,810,402 9,722,411
NET ASSETS:
Beginning of period................................. 12,242,403 2,519,992
----------- -----------
End of period (Including undistributed net
investment income of $5,056 and $0,
respectively)..................................... $14,052,805 $12,242,403
=========== ===========
</TABLE>

- ---------------

(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.

See Notes to Financial Statements.

23
<PAGE> 26

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Portfolio of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------- ------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS
CALIFORNIA -- 95.4%
Alameda County Water District Water
Systems Project (FGIC Insured).... Aaa/AAA 6.00 % 6/01/15 $ 2,515 $ 2,518,949
Alameda Santa Rita Jail,
Certificates of Participation
(MBIA Insured).................... Aaa/AAA 5.70 % 12/01/14 3,000 2,944,680
Associates Bay Area Govt. Fin.
Auth., Certificates of
Participation, Series A........... NR/A 6.25 % 6/01/11 1,000 1,009,720
California General Obligation....... A1/A+ 6.75 % 4/01/07 2,575 2,897,750
California General Obligation
(AMBAC -- TCRS Insured)........... Aaa/AAA 6.00 % 5/01/12 2,645 2,717,949
California General Obligation
(FGIC -- TCRS Insured)............ Aaa/AAA 5.25 % 10/01/17 2,600 2,434,666
California Health Facs. Auth.,
Adventist Health Sys. West, Series
B (MBIA Insured).................. Aaa/AAA 6.50 % 3/01/07 1,000 1,080,670
California Health Facs. Auth.,
Adventist Health Sys. West, Series
B (MBIA Insured).................. Aaa/AAA 7.00 % 3/01/13 1,000 1,084,580
California Health Facs. Auth.,
Kaiser Permanente Med. Care,
Series A.......................... Aa3/AA 6.50 % 12/01/20 2,000 2,067,560
California Housing Fin. Agency, Home
Mtg. Rev., Series D............... Aa/AA 8.00 % 8/01/19 790 831,404
California Public Works Brd Lease
Rev., Dept. of Corrections, Series
A (AMBAC Insured)................. Aaa/AAA 5.50 % 1/01/10 2,000 1,985,860
California Pollution Control Finance
Auth., Pacific Gas & Electric Co.,
Series A (AMT).................... A2/A 6.625% 6/01/09 1,000 1,049,990
California Pollution Control Finance
Auth., So. Cal. Edison, Series A
(AMT)............................. NR/A+ 6.90 % 9/01/06 1,000 1,074,260
California Pollution Control Finance
Auth., So. Cal. Edison, Series B
(AMT)............................. A2/A+ 6.40 % 12/01/24 1,000 1,022,030
California Pollution Control Finance
Auth., Var-Delano Project, (LOC-
Algemene Bank Nederland+)......... Aa/AA 0.00 % 8/01/19 300 300,000
California State Dept. of Water
Rev., Central Valley Project,
Series L.......................... Aa/AA 5.70 % 12/01/16 4,500 4,360,410
California State Dept. of Water
Rev., Central Valley Project,
Series O.......................... Aa/AA 4.75 % 12/01/25 3,000 2,501,760
Capital Area Development Auth.,
Sacramento Lease Rev., Series A
(MBIA Insured).................... Aaa/AAA 6.50 % 4/01/12 1,000 1,070,990
Central Coast Water Auth. Rev.,
State Water Proj., Regal Fac.
(AMBAC Insured)................... Aaa/AAA 6.50 % 10/01/14 1,750 1,881,967
</TABLE>

- ---------------
See Notes to Financial Statements.

24
<PAGE> 27

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------- ------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Central Valley Finance Auth.,
General Project................... NR/BBB- 6.00 % 7/01/09 $ 1,000 $ 989,770
Chino Unified School District
California Convertible Cap.
Apprec., Certificate of
Participation, Series A+ (FSA
Insured).......................... Aaa/AAA 0.00 % 9/01/14 2,000 1,660,840
Coachella Valley Water Dist.,
Certificates of Participation,
Series A.......................... A/NR 6.75 % 10/01/12 1,000 1,056,270
Contra Costa Water, Series F (FGIC
Insured).......................... Aaa/AAA 5.25 % 10/01/26 2,500 2,308,725
Del Mar Race Track Authority
Rev. ............................. NR/NR 6.00 % 8/15/08 1,000 976,340
Del Mar Race Track Authority
Rev. ............................. NR/NR 6.20 % 8/15/11 1,000 980,230
Delta County Home Mortgage Finance
Auth., Single Family Mortgage Rev.
(AMT) (GNMA Backed)............... NR/AAA 6.75 % 12/01/25 1,790 1,843,002
East Bay Municipal Utility District
Water System Rev. (FGIC
Insured).......................... Aaa/AAA 5.00 % 6/01/26 1,750 1,544,655
East Bay Municipal Utility District,
Wastewater Treatment System Rev.
(FGIC Insured).................... Aaa/AAA 5.00 % 6/01/16 1,500 1,362,300
East Bay Municipal Utility District
Rev. (FGIC Insured)............... Aaa/AAA 5.00 % 6/01/16 3,000 2,724,600
Eastern Muni. Water & Sewer Distr.,
Certificates of Participation,
Series A (FGIC Insured)........... Aaa/AAA 6.75 % 7/01/12 1,000 1,124,690
Eastern Muni. Water & Sewer Distr.,
Certificates of Participation,
Series A (FGIC Insured)........... Aaa/AAA 5.375% 7/01/13 2,000 1,926,920
Elsinore Valley Water & Sewer,
Certificates of Participation,
Series A (FGIC Insured)........... Aaa/AAA 6.00 % 7/01/12 1,500 1,561,530
Emeryville Public Finance Agency,
Emeryville Redev. Project,
Series A.......................... NR/A- 6.50 % 5/01/21 1,500 1,534,695
Escondido JT Power Fin. Authority,
California Center for the Arts,
Lease Rev. (AMBAC Insured)........ Aaa/AAA 6.00 % 9/01/18 1,500 1,521,105
Fresno Health Fac. Agy., Holy Cross
Health Systems Rev., St. Agnes
Project........................... Aa/AA 6.625% 6/01/21 2,450 2,532,026
Fresno Sewer Rev., Ser. A-1 (AMBAC
Insured).......................... Aaa/AAA 6.25 % 9/01/14 5,000 5,374,500
Industry Urban Development Tax
Allocation Trans. District,
Project 3......................... NR/A- 6.90 % 11/01/16 1,000 1,055,490
Irvine Ranch Water Distr., Joint
Powers Agency, Issue II........... NR/A+ 8.25 % 8/15/23 2,400 2,547,624
Lafayette General Obligation Bond... NR/AA- 6.00 % 7/15/25 1,000 980,430
Long Beach Harbor Rev. (MBIA
Insured) AMT...................... Aaa/AAA 5.375% 5/15/20 3,000 2,762,370
Los Angeles County, Convention,
Series A (MBIA Insured)........... Aaa/AAA 6.00 % 08/15/10 3,000 3,164,250
Los Angeles County, Sanitation
District, Series A................ Aa/AA 5.375% 10/01/13 1,500 1,419,720
</TABLE>

- ---------------
See Notes to Financial Statements.

25
<PAGE> 28

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------- ------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Los Angeles County Transportation,
Sales Tax Rev., Series A.......... A1/AA- 6.50 % 7/01/13 $ 2,500 $ 2,612,400
Los Angeles County Transportation,
Sales Tax Rev., Series A.......... A1/AA- 7.40 % 7/01/15 2,000 2,170,300
Los Angeles County Transportation,
Sales Tax Rev., Series A
(Prerefunded 7/1/01 @ 102)........ Aaa/AA- 6.90 % 7/01/01 1,100 1,227,930
Los Angeles Dept. Water and Power
Rev............................... Aa/AA 5.75 % 4/15/12 2,000 1,998,820
Los Angeles General Obligation Bond
(MBIA Insured).................... Aaa/AAA 6.00 % 9/01/11 2,000 2,053,700
Los Angeles Harbor Rev.............. Aa/AA 6.25 % 8/01/25 2,000 2,088,640
Los Angeles Waste Water Sys. Rev.,
Series A (MBIA Insured)........... Aaa/AAA 5.70 % 6/01/20 2,650 2,570,950
Manhattan Beach Unified School
District, Certificates of
Participation, Convertible Cap.
Appr., Series B+ (MBIA
Insured).......................... Aaa/AAA 0.00 % 8/01/20 2,000 1,624,580
Metropolitan Water Dist., Southern
California Waterworks Rev. (MBIA
Insured).......................... Aaa/AAA 5.50 % 7/01/25 3,240 3,063,258
Metropolitan Water Dist., Southern
California Waterworks Rev.
(Prerefunded 7/1/01 @ 102)........ NR/AA 6.75 % 7/01/01 1,000 1,107,560
Metropolitan Water Dist., Southern
California Waterworks Rev., Series
A (MBIA Insured).................. Aaa/AAA 5.75 % 7/01/01 3,000 2,943,360
Metropolitan Water Dist., Southern
California Waterworks Rev., Series
A................................. Aa/AA 5.75 % 7/01/21 4,500 4,538,250
Natomas Unified School Dist. Series
A (MBIA Insured).................. Aaa/AAA 5.75 % 9/01/17 1,000 986,210
Northern California Transmission
Rev., Ore Transmission Project.,
Series A (MBIA Insured)........... Aaa/AAA 6.25 % 5/01/10 2,000 2,103,500
Northern California Transmission
Rev. Ore Transmission Proj.,
Series A (MBIA Insured)
(Prerefunded 5/1/01 @ 101.5)...... Aaa/AAA 7.00 % 5/01/01 1,000 1,097,600
Northridge Water Dist. Rev. (AMBAC
Insured).......................... Aaa/AAA 5.25 % 2/01/18 2,500 2,333,925
Orange County Community Finance
Dist. (Prerefunded 8/15/02 @
102).............................. NR/AAA 7.20 % 8/15/02 2,000 2,284,680
Orange County Community Finance
Dist. Special Tax (FSA Insured)... Aaa/AAA 7.125% 8/15/17 1,500 1,611,885
Pasadena Multi Family Housing Civic
Center (AMT) (FSA Insured)........ Aaa/AAA 6.40 % 12/01/12 2,500 2,565,675
Pleasonton, California Joint Power
Fin. Auth. Rev., Series A......... Baa/NR 6.15 % 9/02/12 4,960 4,968,482
Poway Certificates of Participation,
Poinsettia Mobilehome Park (FSA
Insured).......................... Aaa/AAA 6.375% 6/01/18 2,500 2,621,025
Rancho Water District Fin. Auth.
(AMBAC Insured)................... Aaa/AAA 6.40 % 8/15/04 1,000 1,078,240
Rancho Water District Fin. Auth.
(FGIC Insured).................... Aaa/AAA 5.90 % 11/01/15 2,000 2,003,860
</TABLE>

- ---------------
See Notes to Financial Statements.

26
<PAGE> 29

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------- ------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Center Unified School District,
General Obligation Bond (MBIA
Insured).......................... Aaa/AAA 6.625% 9/01/17 $ 1,000 $ 1,073,640
San Bernardino Cap Facs Project,
Series B.......................... NR/AAA 7.00 % 8/01/28 7,000 7,855,260
San Diego Area Local Govt Ctfs...... NR/Sp1+ 4.75 % 10/01/97 3,000 3,021,840
San Diego Community Facility
District.......................... NR/NR 7.00 % 9/01/15 2,000 2,019,080
San Diego County Indust. Dev. Rev.,
San Diego Gas & Electric, Series A
(AMT)............................. A1/A+ 6.40 % 9/01/18 1,500 1,536,450
San Diego County Water Auth.
Certificates of Participation,
Series A.......................... Aa/AA- 6.40 % 5/01/08 2,000 2,124,940
San Diego Public Facilities Fin.
Auth., Sewer Rev. Bond (FGIC
Insured).......................... Aaa/AAA 4.875% 5/15/08 5,000 4,776,100
San Francisco Airport Rev. Bond
(MBIA Insured).................... Aaa/AAA 6.75 % 5/01/13 1,730 1,897,222
San Francisco Bay Area Rapid Trans.,
District Sales Tax Rev. (FGIC
Insured).......................... Aaa/AAA 5.50 % 7/01/20 1,095 1,039,900
San Francisco Building Auth. Rev.,
General Services, Series A (MBIA-
IBC Insured)...................... Aaa/AAA 5.00 % 10/01/08 1,000 969,530
San Francisco City & County, Intl.
Airport Rev. (MBIA Insured)....... Aaa/AAA 5.70 % 5/01/26 3,000 2,873,670
San Francisco City and County School
and Dist. Fac. Improvements,
Series C (FGIC Insured)........... Aaa/AAA 6.30 % 6/15/14 2,000 2,098,140
San Francisco City and County Public
Utilities Water Rev............... Aa/AA 6.00 % 11/01/15 1,000 991,470
San Joaquin County Public Facility,
Certificates of Participation
(MBIA Insured).................... Aaa/AAA 5.50 % 11/15/13 1,750 1,722,140
San Joaquin Transit Corridor Agency
Toll Road Rev., Sr. Lien.......... NR/NR 7.00 % 1/01/30 2,500 2,606,100
San Jose Finance Auth. Lease Rev.,
Convention Center, Series C....... A1/A+ 6.40 % 9/01/17 3,000 3,051,510
San Jose Redevelopment Agency Tax
Allocation (MBIA Insured)......... Aaa/AAA 6.00 % 8/01/15 3,670 3,815,736
Santa Ana Finance Auth. Lease Rev.,
Police & Holding Fac., Series A
(MBIA Insured).................... Aaa/AAA 5.625% 7/01/09 1,130 1,122,260
Santa Clara Transit Sales Tax,
Series A.......................... A1/AA 6.75 % 6/01/11 1,000 1,082,610
Santa Clarita Public Finance Auth.
Lease Rev......................... NR/A- 6.75 % 10/01/21 1,000 1,056,570
Santa Cruz Certificate of
Participation, Capital Improvement
Project (MBIA Insured)............ Aaa/AAA 6.70 % 9/01/20 1,000 1,073,700
Shasta Dam Area Public Utility
Dist., Certificates of
Participation (Prerefunded 3/1/02
@ 102)............................ Baa/NR 7.25 % 3/01/02 1,000 1,138,660
Southern California Pub. Pwr. Auth.,
SCAPPA Pwr. Project............... A/A 6.75 % 7/01/13 1,000 1,109,720
</TABLE>

- ---------------
See Notes to Financial Statements.

27
<PAGE> 30

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------- ------------ ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Southern California Rapid
Transportation, Certificates of
Participation (MBIA Insured)...... Aaa/AAA 6.00 % 7/01/10 $ 1,000 $ 1,031,250
Thousand Oaks Redev. Agency (MBIA
Insured).......................... Aaa/AAA 5.25 % 12/01/08 1,370 1,354,656
Thousand Oaks Redev. Agency (MBIA
Insured).......................... Aaa/AAA 5.40 % 12/01/09 1,290 1,279,886
Thousand Oaks Redev. Agency (MBIA
Insured).......................... Aaa/AAA 5.375% 12/01/25 2,500 2,352,650
Turlock, California Industrial
Refunded Rev. (MBIA Insured)...... Aaa/AAA 6.00 % 1/01/09 2,000 2,118,920
Union City Commission(AMBAC
Insured).......................... Aaa/AAA 5.85 % 10/01/23 1,250 1,235,687
University of California Revenue,
Davis Med Center (AMBAC
Insured).......................... Aaa/AAA 6.00 % 7/01/26 3,500 3,497,235
University of California Revenue,
Series B.......................... NR/A 6.30 % 9/01/15 2,500 2,505,950
West and Central Basin Fin. Auth.
(AMBAC Insured)................... Aaa/AAA 6.125% 8/01/12 2,000 2,063,100
West Covina Redev. Agency........... NR/A 6.00 % 9/01/17 3,000 2,945,580
Westwood School District............ NR/BBB 6.50 % 8/01/21 1,025 987,649
------------
200,870,918
------------
PUERTO RICO -- 3.4%
Puerto Rico Electric Power Auth..... Baa1/BBB+ 6.00 % 7/01/14 5,000 4,980,550
Puerto Rico Electric Power Auth.,
Series P (Prerefunded 7/1/01 @
102).............................. AAA/BBB+ 7.00 % 7/01/01 2,000 2,239,340
------------
7,219,890
------------
TOTAL INVESTMENTS -- 98.8%
(COST $203,422,235)(a).............. 208,090,808
Other assets in excess of
liabilities -- 1.2%................. 2,491,608
------------
NET ASSETS -- 100.0%................. $210,582,416
==============
</TABLE>

- ---------------
Percentages indicated are based on net assets of $210,582,416.

(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................... $6,414,493
Unrealized depreciation.................................... (1,745,920)
----------
Net unrealized appreciation................................ $4,668,573
============
</TABLE>

+ -- Zero coupon bonds.

* -- Ratings assigned by Fitch Investors Services, Inc.

AMBAC -- AMBAC Indemnity Corporation.

AMT -- Subject to Federal Alternative Minimum Tax.

FGIC -- Financial Guaranty Insurance Company.

FSA -- Financial Security Assurance.

GNMA -- Government National Mortgage Association.

LOC -- Letter of credit.

MBIA -- Municipal Bond Insurance Association.

NR -- No rating assigned.

TCRS -- Trust Certificate Receipts

See Notes to Financial Statements.

28
<PAGE> 31

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (cost $203,422,235).......................... $208,090,808
Receivable for Portfolio shares sold............................................ 503,647
Receivable for investment securities sold....................................... 2,257,120
Interest receivable............................................................. 990,632
-----------
Total assets..................................................................... 211,842,207
-----------
LIABILITIES:
Cash overdraft.................................................................. 43,963
Payable for Portfolio shares redeemed........................................... 73,204
Advisory fees payable........................................................... 52,202
Administration fees payable..................................................... 39,161
Shareholder service fees payable A Shares....................................... 45,677
Dividends payable............................................................... 855,952
Other accrued expenses.......................................................... 149,632
-----------
Total liabilities................................................................ 1,259,791
-----------
NET ASSETS....................................................................... $210,582,416
===========
NET ASSETS:
A Shares........................................................................ $210,581,416
K Shares........................................................................ 1,000
-----------
$210,582,416
===========
Shares Outstanding ($0.001 par value, 300 million shares authorized):
A Shares........................................................................ 29,091,830
K Shares........................................................................ 138
-----------
29,091,968
===========
CALCULATION OF MAXIMUM OFFERING PRICE -- A SHARES:
Net asset value and redemption price per share.................................. $ 7.24
Sales charge -- 4.50% of public offering price.................................. 0.34
-----------
Maximum Offering Price.......................................................... $ 7.58
===========
Net Asset Value, Offering Price and Redemption Price per Share -- K Shares:...... $ 7.24
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par.................................................. $ 29,092
Additional paid-in capital...................................................... 204,137,243
Accumulated net realized gains on investment transactions....................... 1,747,508
Net unrealized appreciation of investments...................................... 4,668,573
-----------
NET ASSETS, AUGUST 31, 1996...................................................... $210,582,416
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

29
<PAGE> 32

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the Six Months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 6,211,510
--------
EXPENSES:
Advisory fees........................................... $ 427,410
Administration fees..................................... 320,558
Shareholder service fees A Shares....................... 267,131
Transfer agent fees and expenses........................ 64,382
Custodian fees and expenses............................. 26,372
Audit fees.............................................. 26,600
Reports to shareholders................................. 4,767
Legal fees.............................................. 5,820
Directors' fees......................................... 2,874
Insurance expense....................................... 3,498
Registration fees....................................... 8,152
Other expenses.......................................... 3,914
---------
Total expenses.......................................... 1,161,478
Less: Fee waivers....................................... (213,705) 947,773
--------- --------
NET INVESTMENT INCOME..................................... 5,263,737
--------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on securities transactions........... 453,530
Net change in unrealized appreciation (depreciation) of
investments........................................... (6,669,953)
--------
Net Loss on Investments................................... (6,216,423)
--------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ (952,686)
========
</TABLE>

- ---------------
See Notes to Financial Statements.

30
<PAGE> 33

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED
1996 FEBRUARY 29,
(UNAUDITED) 1996
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.......................................... $ 5,263,737 $ 10,474,790
Net realized gains on securities transactions.................. 453,530 4,935,074
Net change in unrealized appreciation (depreciation) of
investments.................................................. (6,669,953) 4,229,371
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................... (952,686) 19,639,235
------------ ------------
Dividends and distributions to shareholders -- A Shares:
Dividends to shareholders from net investment income........... (5,263,732) (10,474,790)
Dividends and distributions to shareholders -- K Shares:
Dividends to shareholders from net investment income (a)........ (5) --
------------ ------------
Total Dividends and distributions to shareholders............... (5,263,737) (10,474,790)
------------ ------------
Fund Share Transactions:
Net proceeds from shares subscribed............................ 15,805,671 41,159,400
Net asset value of shares issued to shareholders in
reinvestment of dividends.................................... 2,604,230 6,188,256
Cost of shares redeemed........................................ (22,752,409) (29,971,556)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions................................................. (4,342,508) 17,376,100
------------ ------------
Total Increase (decrease)....................................... (10,558,931) 26,540,545
NET ASSETS:
Beginning of period............................................ 221,141,347 194,600,802
------------ ------------
End of period.................................................. $ 210,582,416 221,141,347
============ ============
</TABLE>

- ---------------

(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.

See Notes to Financial Statements.

31
<PAGE> 34

PACIFIC HORIZON FUNDS, INC.
- --------------------------------------------------------------------------------

Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Pacific Horizon Funds, Inc. (The "Company"), a Maryland Corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At August 31, 1996, the Company
operated as a series company comprised of seventeen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon National
Municipal Bond Fund (the "National Municipal Bond Fund") and the Pacific Horizon
California Tax-Exempt Bond Fund (the "California Tax-Exempt Bond Fund")
(collectively, the "Funds") only. The Funds seek to achieve as high a level of
current income exempt from federal income tax, and in the case of the California
Tax-Exempt Bond Fund exempt from California state personal income tax as well,
as is consistent with prudent investment management and preservation of capital.
The Funds offer two classes of shares: A Shares and K Shares.

Prior to July 1, 1996 the National Municipal Bond Fund sought to achieve its
investment objective by investing substantially all of its assets in the
National Municipal Bond Portfolio of Master Investment Trust, Series II (the
"Portfolio"), an open-end management investment company that had the same
investment objective as that of the National Municipal Bond Fund.

Effective July 1, 1996, the National Municipal Bond Fund withdrew its
investment in the Master Investment Trust, Series II and began investing its
assets directly in investment securities.

Bank of America National Trust and Savings Association ("Bank of America"),
a subsidiary of BankAmerica Corporation, serves as the Funds' investment
adviser. Concord Holding Corporation ("Concord") serves as the Funds'
administrator and Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of Concord, serves as the distributor of the Funds' Shares.
Effective March 29, 1995, Concord became a wholly owned subsidiary of The BISYS
Group, Inc. ("BISYS").

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.

A) SECURITIES VALUATIONS:

The Funds' securities (other than debt securities with remaining maturities
of 60 days or less) are valued each business day by the independent pricing
service approved by the Board of Directors. Such prices reflect market values
which have

32
<PAGE> 35

been established through the use of electronic data processing techniques and
matrix systems.

Debt securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase or, in the case
of securities purchased with more than 60 days to maturity, at their market
value each day until the 61st day prior to maturity, and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and such valuation.

B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded on a trade date basis. Interest income,
including amortization of premiums and accretion of discount where required by
the Internal Revenue Code (the "Code"), is accrued daily. Realized gains and
losses from securities transactions are calculated on the identified cost basis.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or after the trade date.

C) DIVIDENDS AND DISTRIBUTIONS:

Dividends are declared daily to shareholders of record from net investment
income. Such dividends are paid monthly. Net realized gains on the Funds'
securities, if any, are distributed at least annually. However, to the extent
net realized gains of any Fund can be offset by capital loss carryovers of that
Fund, such gains will not be distributed. Dividends and distributions are
recorded by the Funds on the ex-dividend date.

The amount of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.

D) FEDERAL INCOME TAXES:

It is the policy of the Funds to meet the requirements of Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders. Therefore, no federal
income tax provision is required.

During the year ended February 29, 1996 the National Municipal Bond Fund and
California Tax-Exempt Fund utilized their net capital loss carryovers of $3,632
and $2,188,950, respectively.

33
<PAGE> 36

E) OTHER:

The Company accounts separately for the assets, liabilities and operations
of each Fund. Expenses directly attributable to the Funds are charged to the
respective Fund, while expenses which are attributable to more than one fund of
the Company are allocated among the respective funds.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Funds have an Investment Advisory Agreement with Bank of America, an
Administration Agreement with Concord and a Distribution Agreement with the
Distributor. Pursuant to the terms of the Investment Advisory Agreement, Bank of
America is entitled to a fee from the Funds, which is accrued daily and payable
monthly, at an annual rate of 0.35% and 0.40% of the National Municipal Bond
Fund's and California Tax-Exempt Bond Fund's average net assets, respectively.
Pursuant to the terms of the Administration Agreement, Concord is entitled to a
fee from the Funds, which is accrued daily and payable monthly, at an annual
rate of 0.20% and 0.30%, of the National Municipal Bond Fund's and California
Tax-Exempt Bond Fund's average net assets, respectively. Bank of America and
Concord voluntarily waived a portion of their respective fees. The amount of
such waivers totaled $22,890 and $13,044 for the National Municipal Bond Fund
and $121,924 and $91,738 for the California Tax-Exempt Bond Fund, respectively.

The Investment Advisory and Administration agreements provide that if, in
any fiscal year, the operating expenses of each Fund (generally excluding
interest, taxes, brokerage commissions and extraordinary expenses) exceed the
most restrictive expense limitation of any state having jurisdiction over the
Funds, then Bank of America and Concord will reimburse the Funds for any such
excess expenses. At August 31, 1996, the most restrictive expense limitation is
believed to limit expenses to 2.5% of the first $30 million of each Fund's
average daily net assets, plus 2.0% of the next $70 million of such assets, plus
1.5% of such assets in excess of $100 million. These agreements provide that
such reimbursements will be estimated and paid on a monthly basis. No
reimbursement were required for the six months ended August 31, 1996.

For the six months ended August 31, 1996, the Distributor advised the
National Municipal Bond Fund and the California Tax-Exempt Bond Fund that it
retained $10,235 and $21,385, respectively, from commissions earned on sales of
each Fund's shares. For the same period, various affiliates of Bank of America
advised the National Municipal Bond Fund and the California Tax-Exempt Bond Fund
that they retained $84,835 and $286,885, respectively, from commissions earned
on sales of each Fund's shares.

The Funds have a Shareholder Service Plan (the "Plan") under which the Funds
pay for shareholder servicing expenses related to Fund shares. Under the Plan,
payments by the Funds for shareholder servicing expenses may not exceed 0.25%
(annualized) of the A Shares of each Fund's average daily net assets. For the
six months ended August 31, 1996, the National Municipal Bond Fund and the
California Tax-Exempt Bond Fund

34
<PAGE> 37

incurred charges of $16,290 and $267,131, respectively, pursuant to the Plan.
The the National Municipal Bond Fund and the California Tax-Exempt Bond Fund
were advised that of these amounts, the Distributor retained $427 and $104,382,
respectively, and affiliates of the Bank of America retained $15,645 and
$150,021, respectively. The Plan provides that if, in any month, the fees paid
to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred. For the six months ended August 31,
1996, the Distributor waived no fees. The Funds have adopted a Distribution Plan
and an Administrative and Shareholder Services Plan with respect to K Shares of
the Funds. Under the Distribution Plan the Funds pay the Distributor for
expenses primarily intended to result in the sale of the Funds' K Shares. Under
the Distribution Plan, payments by the Funds for distribution expenses may not
exceed 0.75% (annualized) of the average daily net assets of each Fund's K
Shares. Payments for distribution expenses under the Distribution Plan are
subject to Rule 12b-1 under the Act. Under the Administrative and Shareholder
Services Plan (the "Administrative Plan"), the Funds pay for 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
beneficial owners of K Shares. Under the Administrative Plan, payments for
shareholder services and administrative services may not exceed 0.25% and 0.75%
(annualized), respectively, of the average daily net assets of each Fund's K
Shares. The total of all payments under the Distribution Plan and the
Administrative and Shareholder Services Plan may not exceed, in the aggregate,
the annual rate of 1.00% of the average daily net assets of each Fund's K
Shares.

Effective December 11, 1995, BISYS Fund Services, also a wholly owned
subsidiary of BISYS, serves the Company as transfer agent and dividend
disbursing agent. In this capacity for the National Municipal Bond Fund and the
California Tax-Exempt Bond Fund, BISYS Fund Services earned $6,350 and $64,382,
respectively, for the six months ended August 31, 1996. Prior to December 11,
1995, an unaffiliated party provided those services.

For the six months ended August 31, 1996, the National Municipal Bond Fund
and the California Tax-Exempt Bond Fund incurred legal charges totaling $20,044
and $5,820, respectively, which were earned by a law firm, a partner which
serves as Secretary of the company. Certain officers of the Company are
"affiliated persons" (as defined in the Act) of Concord.

NOTE 4 -- DIRECTORS' COMPENSATION

Each Director of the Company is entitled to an annual retainer of $25,000
plus $1,000 for each day the Director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives an annual
retainer of $1,000 for services as Chairman of the

35
<PAGE> 38

Committee. In addition, the Company's President is entitled to an annual salary
of $20,000 for services as President. The former President and Chairman of the
Company receives an additional $40,000 per year through February 28, 1997 in
consideration for his years of service. Total charges for directors' fees
incurred for the six months ended August 31, 1996 by the National Municipal Bond
Fund and the California Tax-Exempt Bond Fund were $12,919 and $2,874,
respectively.

The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that Director's 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 as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's 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. In addition, the
amount payable each year to a Director who dies or resigns shall be increased by
$1,000 for each year of service that the Director served as Chairman of the
Board. Each Director may receive any benefits payable under the Retirement Plan,
at his or her election, either in one lump sum payment or ten annual
installments. A Director's years of service for the purpose of calculating the
payments described above shall be based upon service as a Director or Chairman
after February 28, 1994. Aggregate costs to the National Municipal Bond Fund and
the California Tax-Exempt Bond Fund pursuant to the Retirement Plan amounted to
$67 and $1,104, respectively, for the six months ended August 31, 1996.

NOTE 5 -- SECURITIES TRANSACTIONS

For the six months ended August 31, 1996, the cost of purchases and the
proceeds from sales of portfolio securities (excluding short-term investments)
for the National Municipal Bond Fund amounted to $3,260,798 and $1,549,959,
respectively, and the cost of purchases and the proceeds from sales of portfolio
securities (excluding short-term investments) for the California Tax-Exempt Bond
Fund amounted to $42,751,003 and $43,969,499, respectively.

NOTE 6 -- CAPITAL SHARE TRANSACTIONS

At August 31, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 300 million shares were classified
as Class G Common Stock (California Tax-Exempt Bond Fund) and 150 million shares
were classified as Class Q Common Stock (National Municipal Bond Fund).

Transactions in shares of common stock of the California Tax-Exempt Bond
Fund and the National Municipal Bond Fund, respectively, are summarized below:

36
<PAGE> 39

CALIFORNIA TAX-EXEMPT BOND FUND

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29,
--------------------------- 1996
A SHARES K SHARES (a) (000)
----------- ------------- -------------
<S> <C> <C> <C>
Net proceeds from shares subscribed........ $15,804,671 $ 1,000 $ 41,159
Net asset value of shares issued to
shareholders in reinvestment of
dividends................................ 2,604,230 -- 6,188
Cost of shares redeemed.................... (22,752,409) -- (29,971)
----------- ------ -------------
Net increase (decrease).................... $(4,343,508) $ 1,000 $ 17,376
=========== ============= =============
Shares sold................................ 2,174,570 138 5,640
Shares issued in reinvestment of
distributions............................ 360,202 -- 847
Shares redeemed............................ (3,142,169) -- (4,122)
----------- ------ -------------
Net increase (decrease).................... (607,397) 138 2,365
=========== ============= =============
</TABLE>

- ---------------

NATIONAL MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29,
--------------------------- 1996
A SHARES K SHARES (A) (000)
----------- ------------- -------------
<S> <C> <C> <C>
Net proceeds from shares subscribed........ $ 4,982,736 $ 999 $10,756
Net asset value of shares issued to
shareholders in reinvestment of
dividends................................ 196,510 -- 280
Cost of shares redeemed.................... (3,084,323) -- (1,625)
----------- ------ -------------
Net increase............................... $ 2,094,923 $ 999 $ 9,411
=========== ============= =============
Shares sold................................ 499,474 101 1,077
Shares issued in reinvestment of
distributions............................ 19,779 -- 28
Shares redeemed............................ (311,046) -- (161)
----------- ------ -------------
Net increase............................... 208,207 101 944
=========== ============= =============
</TABLE>

- ---------------

(a) For the period from July 22, 1996 (commencement of operations) through
August 31, 1996.

NOTE 7--CONCENTRATION OF CREDIT RISK

The California Tax-Exempt Bond Fund invests substantially all of its assets
in a diversified portfolio of tax-exempt debt obligations primarily consisting
of issuers in the State of California. The issuers' ability to meet their
obligations may be affected by California economic or political developments.

37
<PAGE> 40

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED PERIOD
AUGUST 31, ----------------------------- ENDED
1996(a) FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994*
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
A SHARES
Net asset value per share,
beginning of year............... $ 10.15 $ 9.64 $ 9.89 $ 10.00
----------- ------------ ------ ------------
Income (loss) from investment
operations:
Net investment income........... 0.25 0.54 0.50 0.01
Net realized and unrealized
gains (losses) on
securities.................... (0.21) 0.51 (0.25) (0.11)
----------- ------------ ------ ------------
Total income (loss) from
investment operations........... 0.04 1.05 0.25 (0.10)
----------- ------------ ------ ------------
Less dividends from net investment
income.......................... (0.25) (0.54) (0.50) (0.01)
----------- ------------ ------ ------------
Net change in net asset value..... (0.21) 0.51 (0.25) (0.11)
----------- ------------ ------ ------------
Net asset value per share, end of
year............................ $ 9.94 $ 10.15 $ 9.64 $ 9.89
============ ============ ============ ============
Total return (excludes sales
charge)......................... 0.41%++ 1.16% 2.78% (1.00%)++
Ratios/Supplemental Data:
Net assets, end of year (000)... $14,052 $ 12,242 $2,520 $ 733
Ratio of net expenses to average
net assets.................... 0.50%+ 0.12% 0.00% 0.00%+
Ratio of net investment income
to average net assets......... 5.04%+ 5.24% 5.30% 1.15%+
Ratio of expenses to average net
assets**...................... 3.09%+ 2.71% 17.46% 170.99%+
Ratio of net investment income
to average net assets**....... 2.45%+ 2.65% (12.16%) (169.84%)+
Portfolio turnover................ 12% 38% 20% 15%
</TABLE>

- ---------------

* For the period January 28, 1994 (commencement of operations) through
February 28, 1994.

** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.

+ Annualized.

++ Not annualized.

(a) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.

See Notes to Financial Statements.

38
<PAGE> 41

PACIFIC HORIZON NATIONAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST 31,
1996(a)
(UNAUDITED)
-----------
<S> <C>
K SHARES
Net asset value per share, beginning of period......................... $ 9.95
-----------
Income (loss) from investment operations:
Net investment income................................................ 0.05
Net realized and unrealized losses on securities..................... (0.02)
-----------
Total income from investment operations................................ 0.03
-----------
Less dividends from net investment income.............................. (0.05)
-----------
Net change in net asset value.......................................... (0.02)
-----------
Net asset value per share, end of period............................... $ 9.93
===========
Total return........................................................... (0.05%)++
Ratios/Supplemental Data:
Net assets, end of period............................................ $ 999
Ratio of net expenses to average net assets.......................... 0.91%+
Ratio of net investment income to average net assets................. 4.58%+
Ratio of expenses to average net assets**............................ 2.22%+
Ratio of net investment income to average net assets**............... 3.27%+
Portfolio Turnover..................................................... 12%
</TABLE>

- ---------------

** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.

+ Annualized.

++ Represents total return for A Shares from March 1, 1996 to July 21, 1996
plus the total return for the K Share for the period July 22, 1996 to August
31, 1996. A share performance does not include deduction of the maximum
4.50% sales charge. K share performance will be lower than A share
performance due to the K shares' additional 0.50% distribution or
shareholder services fee.

(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.

See Notes to Financial Statements.

39
<PAGE> 42

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Financial Highlights(a)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED
AUGUST 31, ------------------------------------------------------------
1996(b) FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
(UNAUDITED) 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A SHARES
Net asset value per share,
beginning of period...................... $ 7.45 $ 7.12 $ 7.49 $ 7.51 $ 7.07
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.................... 0.18 0.37 0.38 0.38 0.43
Net realized and unrealized gains
(losses) on securities................. (0.21) 0.33 (0.37) 0.04 0.52
-------- -------- -------- -------- --------
Total income from investment operations... (0.03) 0.70 0.01 0.42 0.95
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income..... (0.18) (0.37) (0.38) (0.38) (0.43)
Distributions from net realized gains on
securities............................. -- -- -- (0.06) (0.08)
-------- -------- -------- -------- --------
Total dividends and distributions......... (0.18) (0.37) (0.38) (0.44) (0.51)
-------- -------- -------- -------- --------
Net change in net asset value per share... (0.21) 0.33 (0.37) (0.02) 0.44
-------- -------- -------- -------- --------
Net asset value per share, end of
period................................... $ 7.24 $ 7.45 $ 7.12 $ 7.49 $ 7.51
======== ======== ======== ======== ========
Total return (excludes sales charge)...... (0.38%)++ 10.12% 0.36% 5.65% 14.01%
Ratios/Supplemental Data:
Net assets, end of period (000).......... $ 210,581 $221,141 $194,601 $245,040 $189,419
Ratio of net expenses to average net
assets................................. 0.89%+ 0.94% 0.95% 0.96% 0.62%
Ratio of net investment income to average
net assets............................. 4.94%+ 5.11% 5.43% 4.96% 5.95%
Ratio of expenses to average net
assets*................................ 1.09%+ 1.14% 1.15% 1.11% 1.14%
Ratio of net investment income to average
net assets*............................ 4.74%+ 4.91% 5.23% 4.81% 5.43%
Portfolio turnover....................... 20% 57% 20% 15% 32%
</TABLE>

- ---------------

* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
+ Annualized.
++ Not annualized.
(a) Security Pacific National Bank served as investment adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
investment adviser commencing April 22, 1992.
(b) As of July 22, 1996, the Portfolio designated the existing series of shares
as "A" Shares.

See Notes to Financial Statements.

40
<PAGE> 43

PACIFIC HORIZON CALIFORNIA TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------

Financial Highlights
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST 31,
1996(a)
(UNAUDITED)
-----------
<S> <C>
K SHARES
Net asset value per share, beginning of year........................... $ 7.24
-----------
Income from investment operations:
Net investment income................................................ 0.04
-----------
Total income from investment operations................................ 0.04
-----------
Less dividends and distributions:
Dividends from net investment income................................. (0.04)
-----------
Total dividends and distributions...................................... (0.04)
-----------
Net change in net asset value per share................................ 0.00
-----------
Net asset value per share, end of year................................. $ 7.24
===========
Total return........................................................... (0.69%)++
Ratios/Supplemental Data:
Net assets, end of year.............................................. $ 1,000
Ratio of net expenses to average net assets.......................... 1.09%+
Ratio of net investment income to average net assets................. 4.86%+
Ratio of expenses to average net assets*............................. 1.45%+
Ratio of net investment income to average net assets*................ 4.50%+
Portfolio Turnover..................................................... 20%
</TABLE>

- ---------------

** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.

+ Annualized.

++ Represents total return for A Shares from March 1, 1996 to July 21, 1996
plus the total return for the K Shares for the period July 22, 1996 to
August 31, 1996. A share performance does not include deduction of the
maximum 4.50% sales charge. K share performance will be lower than A share
performance due to the K shares' additional 0.50% distribution or
shareholder services fee.

(a) For the period July 22, 1996 (commencement of operations) through August 31,
1996.

See Notes to Financial Statements.

41
<PAGE> 44

For more information, complete the following form and mail it to:

Pacific Horizon Funds
1230 Columbia Street, Suite 500
San Diego, CA 92101

...............................................................................
First Name Last Name

...............................................................................
Street Address

...............................................................................
City State Zip Code

...............................................................................
Area Code and Telephone Number

PLEASE CHECK ONE OF THE TWO BOXES BELOW SO WE CAN BETTER MEET YOUR NEED FOR
SERVICE.
[ ] A broker assisted me with the purchase of my Pacific Horizon Fund.

...............................................................................
Name of Broker

...............................................................................
Name of Brokerage Firm

[ ] I purchased my Pacific Horizon Fund without the assistance of a broker.

Please send me a free investing kit on the Pacific Horizon Fund(s) checked
below. The kit includes a prospectus, which has more complete information on
the Fund(s) such as charges and expenses. Read the prospectus carefully
before investing or sending money.

PACIFIC HORIZON FUNDS

<TABLE>
<S> <C>
[ ] International Equity Fund [ ] Intermediate Bond Fund
[ ] Aggressive Growth Fund [ ] U.S. Government Securities Fund
[ ] Blue Chip Fund [ ] Short-Term Government Fund
[ ] Capital Income Fund [ ] National Municipal Bond Fund
[ ] Asset Allocation Fund [ ] California Tax-Exempt Bond Fund
[ ] Corporate Bond Fund
Money Market Funds
[ ] Prime Fund [ ] Treasury Only Fund
[ ] Treasury Fund [ ] Tax-Exempt Money Fund
[ ] Government Fund [ ] California Tax-Exempt Money Market Fund
</TABLE>

Additional Comments:
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 45

[PACIFIC HORIZON FUNDS logo]

Concord Financial Group, Inc., Distributor

TXI-0004