<PAGE> 1
As filed with the Securities and Exchange Commission on November 13, 1996
Registration Nos. 2-81110/811-4293
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Post-Effective Amendment No. 51 /x/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 53 /x/
PACIFIC HORIZON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, OH 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (800) 332-3863
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940, as amended. The Registrant has filed its Rule 24f-2 Notice relating to
such shares for Registrant's most recent fiscal year on April 29, 1996.
<PAGE> 2
PACIFIC HORIZON FUNDS, INC.
Class A, B and K Shares of the
International Equity Fund
Form N-1A Item Prospectus Caption
Part A
1. Cover Page.......................... Cover Page
2. Synopsis............................ Expense Summary
3. Condensed Financial Information..... Financial Highlights;
Measuring Performance
4. General Description of Registrant... Description of Shares; Cover
Page; Fund Investments; Types
of Investments; Fundamental
Limitations; Other Investment
Practices and Considerations
5. Management of the Fund.............. The Business of the Fund
5.A. Management's Discussion of
Fund Performance.................. *
6. Capital Stock and Other
Securities........................ Description of Shares;
Dividend and Distribution
Policies; Tax Information
7. Purchase of Securities Being
Offered............................ How to Buy Shares; Shareholder
Services; The Business of the
Fund; Plan Payments; Measuring
Performance
8. Redemption or Repurchase............ How to Sell Shares;
Shareholder Services; Plan
Payments
9. Pending Legal Proceedings........... *
* Item inapplicable or answer negative.
<PAGE> 3
PROSPECTUS
January __, 1997
PACIFIC HORIZON INTERNATIONAL EQUITY FUND
Investment Portfolio Offered by Pacific Horizon Funds, Inc.
The PACIFIC HORIZON INTERNATIONAL EQUITY FUND (the "Fund") is a diversified
mutual fund whose investment objective is to seek long-term capital growth
primarily through investments in foreign equity securities.
This Prospectus describes three classes of shares. A Shares are sold with a
front-end sales charge. B Shares are sold with a contingent deferred sales
charge. K Shares are not subject to either a front-end sales charge or a
contingent deferred sales charge.
The Fund is offered by Pacific Horizon Funds, Inc. (the "Company"), an open-end,
series management investment company. Bank of America National Trust and Savings
Association ("Bank of America" or the "investment adviser") serves as the Fund's
investment adviser. Based in San Francisco, California, Bank of America and its
affiliates have over $48 billion under management, including over $13 billion
in mutual funds. Wellington Management Company, LLP ("Wellington Management")
serves as the sub-adviser to the Fund.
This Prospectus describes concisely the information about the Fund and the
Company that you should know before investing. Please read it carefully and
retain it for future reference.
More information about the Fund is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call 800-332-3863. The Statement of Additional Information,
as it may be revised from time to time, is dated January __, 1997 and is
incorporated by reference into this Prospectus.
Shares of the Fund are not bank deposits or obligations of, or guaranteed or
endorsed by, Bank of America or any of its affiliates and are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. Investment in the Fund involves investment
risk, including the possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
<PAGE> 4
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission in Washington, D.C. under the Securities Act
of 1933.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in the Statement
of Additional Information and the Fund's official sales literature, in
connection with the offering of the Fund's shares and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or its distributor. This Prospectus does not constitute an offer
by the Fund or by the distributor to sell, or a solicitation of any offer to
buy, any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Fund or the distributor to make such offer in such
jurisdiction.
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<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY................................................................. 5
FINANCIAL HIGHLIGHTS............................................................ 9
FUND INVESTMENTS................................................................ 13
Investment Objective................................................... 13
Types Of Investments................................................... 13
Fundamental Limitations................................................ 16
Other Investment Practices And Considerations.......................... 16
SHAREHOLDER GUIDE............................................................... 21
How To Buy Shares...................................................... 21
What Is My Minimum Investment In The Fund?.................... 21
What Alternative Sales Arrangements Are Available?............ 22
How Are Shares Priced?........................................ 23
How Do I Decide Whether To Buy A, B or K Shares?.............. 29
How Can I Buy Shares?......................................... 30
What Price Will I Receive When I Buy Shares?.................. 32
What Else Should I Know To Make A Purchase?................... 33
How To Sell Shares..................................................... 33
How Do I Redeem My Shares?.................................... 33
What NAV Will I Receive For Shares I Want To Sell?............ 35
What Kind Of Paperwork Is Involved In Selling Shares?......... 36
How Quickly Can I Receive My Redemption Proceeds?............. 36
Do I Have Any Reinstatement Privileges After I Have Redeemed
Shares?..................................................... 36
DIVIDEND AND DISTRIBUTION POLICIES.............................................. 37
SHAREHOLDER SERVICES............................................................ 37
Can I Use The Fund In My Retirement Plan?.............................. 38
Can I Exchange My Investment From One Fund To Another?................. 38
What Is TeleTrade?..................................................... 40
Can I Arrange To Have Automatic Investments Made On A Regular Basis?... 40
What Is Dollar Cost Averaging And How Can I Implement It?.............. 41
Can I Arrange Periodic Withdrawals?.................................... 41
Can My Dividends From The Fund Be Invested In Other Funds?............. 42
Is There A Salary Deduction Plan Available?............................ 42
THE BUSINESS OF THE FUND........................................................ 42
Fund Management........................................................ 42
Service Providers............................................. 43
TAX INFORMATION................................................................. 46
MEASURING PERFORMANCE........................................................... 48
DESCRIPTION OF SHARES........................................................... 49
PLAN PAYMENTS................................................................... 50
</TABLE>
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Distributor: Investment Adviser:
Concord Financial Group, Inc. Bank of America National Trust and
3435 Stelzer Road Savings Association
Columbus, OH 43219-3035 555 California Street
San Francisco, CA 94104
SubAdviser:
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
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EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund. The Fund offers three classes of shares. A Shares are
offered at net asset value plus a front-end sales charge (see page 22 of the
Prospectus for an explanation of net asset value per share) and are subject to a
shareholder servicing fee. B Shares are offered at net asset value without a
front-end sales charge but are subject to a contingent deferred sales charge
plus distribution and shareholder servicing fees. K Shares are offered at net
asset value with neither a front-end sales charge nor a contingent deferred
sales charge, but are subject to distribution, administrative servicing and
shareholder servicing fees. B Shares of the Fund held for 8 years will convert
to A Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES include payments by the Fund for portfolio
management, maintenance of shareholder accounts, general administration,
distribution (in the case of B and K Shares only), shareholder servicing,
accounting and other services.
Below is a summary of the shareholder transaction expenses imposed by the Fund
for A, B and K Shares and their estimated operating expenses for the first
twelve months of operations. Actual expenses may vary. A hypothetical example
based on the summary is also shown.
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<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES A Shares B Shares K Shares
-------- -------- --------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None None(2)
Sales Load Imposed on Reinvested Dividends None None None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase
price or redemption proceeds, whichever
is lower) None(1) 5.00% None
Redemption Fees None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)' 0.30% 0.30% 0.30%
12b-1 Fee (After Fee Waivers)* 0% 0.75% 0.50%*
Administrative Services Fee (After Fee
Waivers)* 0% 0% 0.50%*
Shareholder Services Fee* 0.25% 0.25% 0.25%*
Total of all 12b-1 Fees or Administrative
Services Fees and Shareholder Services Fees
for K Shares (After Fee Waivers)* 0.75%*
Other Expenses (After Expense Reimbursements)+ 0.95% 0.95% 0.95%
---- ---- ----
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements)+ 1.50% 2.25% 2.00%
==== ==== ====
</TABLE>
- --------
(1) There is no front-end sales load on A Shares you purchase if you have
either a combined purchase of A Shares of the Company of $1,000,000 or
more or if the aggregate value of A Shares that you beneficially own in
any Pacific Horizon Fund or Time Horizon Fund, another open-end
investment company managed by Bank of America (a "Time Horizon Fund"),
equals or exceeds $1,000,000 ("Large Purchase Exemption"). A Shares
purchased under the Large Purchase Exemption (except A Shares purchased
under the Daily Advantage(R) or Advantage Plus(TM) Programs) are
subject to a contingent deferred sales charge of 1.00% and 0.50%,
respectively, on redemptions within one and two years after purchase.
The contingent deferred sales charge is paid to Concord Financial
Group, Inc. (the "Distributor"). A Shares cannot be purchased under the
Large Purchase Exemption if there is another no-load exemption
available. Accordingly, A Shares purchased under another no-load
exemption are not subject to a contingent deferred sales charge.
Although no front-end sales load will be paid on shares purchased under
the Large Purchase Exemption, the Distributor will compensate brokers
whose customers purchase such shares at the following rates: 1.00% of
the amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter.
(2) Bank of America will compensate Seafirst Investment Services, Inc.
("SIS") and BA Investment Services, Inc. ("BAIS") (BAIS and SIS are
collectively referred to herein as "Affiliated Brokers") for their
customers who have invested in the Fund and are participants in the
Daily Advantage(R) Program. The Affiliated Brokers will be compensated
by Bank of America at the rate of 1.00% of the amount under $3 million,
0.50% of the next $47 million and 0.25% thereafter of combined Pacific
Horizon Funds' and Time Horizon Funds' K Shares in each Daily
Advantage(R) Program.
+ Absent fee waivers and/or expense reimbursement, management fees for
each class of the Fund would be 0.95% of the average net assets
(annualized); "Other Expenses" for the Fund's A, B and K Shares are
estimated to be 1.22%, 1.22% and 1.22%, respectively, of average net
assets (annualized); and "Total Operating Expenses" for the Fund's A, B
and K Shares are estimated to be 2.42%, 3.17% and 2.92% of average net
assets (annualized), respectively.
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<PAGE> 9
* Absent fee waivers, 12b-1 fees or administrative services fees would be
0.75% or 0.75%, respectively, of the average net assets (annualized) of
the Fund's K shares. The total of all 12b-1 fees, administrative
services fees and shareholder services fees may not exceed, in the
aggregate, the annual rate of 1.00% of the average net assets of the
Fund's K Shares. However, it is expected that during the current fiscal
year, such fees will not exceed 0.75% of the average net assets of the
Fund's K Shares. Because of the Rule 12b-1, administrative and/or
shareholder services fees paid by the Fund as shown in the above table,
long-term B and K shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. For a further
description of shareholder transaction expenses and the Fund's
operating expenses, see the sections entitled "Shareholder Guide", "The
Business of the Fund" and "Plan Payments" below.
EXAMPLE: Assume the annual return is 5% and operating expenses are the
same as those stated above. For every $1,000 you invest, here is how
much you would have paid in total expenses if you closed your account
after the number of years indicated:
<TABLE>
<CAPTION>
After 1 Yr After 3 Yrs
---------- -----------
<S> <C> <C>
A Shares(1) $60 $90
B Shares
Assuming complete
redemption at
end of period(2) $73 $100
Assuming no redemption $23 $ 70
K Shares $20 $ 63
</TABLE>
(1) Assumes deduction at time of purchase of maximum applicable
front-end sales charge but does not assume deduction at redemption of maximum
applicable contingent deferred sales charge under the Large Purchase Exemption.
(2) Assumes deduction at redemption of maximum applicable contingent
deferred sales charge.
Note: The preceding operating expenses and example should not be considered a
representation of future investment returns and operating expenses. The Fund
is new and the above figures are estimates for the first twelve months of
operations only. Actual investment returns and operating expenses may be more or
less than those shown.
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<PAGE> 10
This expense information is provided to help you understand the expenses you
would bear either directly (as with transaction expenses) or indirectly (as with
annual operating expenses) as a Fund shareholder.
Management fees consist of:
- an investment advisory fee payable at the annual rate of 0.75%
of the Fund's average daily net assets; and
- an administration fee payable at the annual rate of 0.20% of
the Fund's average daily net assets .
Currently, the most restrictive expense limitation limits the Fund's aggregate
annual expenses (including management fees ) to 2.5% of the first $30 million
of the Fund's average daily net assets, 2% of the next $70 million and 1.5% of
the Fund's remaining average daily net assets.
The alternative sales arrangements permit you to choose the method of purchasing
shares that is most beneficial given the amount of the purchase, the length of
time you expect to hold the shares and other circumstances. You should determine
whether under your particular circumstances it is more advantageous to incur a
front-end sales charge and thereafter be subject to annual fees under a
Shareholder Services Plan, with respect to A Shares; have the entire initial
purchase price invested in the Fund with the investment thereafter being subject
to annual fees under a Distribution and Services Plan and a contingent deferred
sales charge upon redemption within the first six years of investment, with
respect to B Shares; or incur neither a front-end sales charge nor a contingent
deferred sales charge, but incur fees under a Distribution Plan and/or an
Administrative and Shareholder Services Plan, with respect to K Shares. K
Shares, however, are only available for investment by: (a) businesses or other
organizations that participate in the Daily Advantage(R) Program sponsored by
Bank of America; (b) individuals investing proceeds from a redemption of shares
from another open-end investment company on which such individual paid a
front-end sales load if (i) such redemption occurred within 30 days prior to the
purchase order, and (ii) such other open-end investment company was not
distributed and advised by Concord Financial Group, Inc. and Bank of America,
respectively, or their affiliates; and (c) accounts opened for IRA rollovers
from a 401(k) plan in which the assets were held in any Pacific Horizon or Time
Horizon Fund and subsequent purchases into an IRA rollover account opened as
described above, so long as the original IRA rollover account remains open on
the Company's books. See the section entitled "How to Buy Shares" below.
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<PAGE> 11
FINANCIAL HIGHLIGHTS
The table below shows certain information concerning the investment results for
the Fund for the period indicated. The Fund commenced operations on May 13, 1996
by offering a single series of shares known as A Shares, and began offering K
Shares on July 22, 1996. Prior to September 1, 1996, the Fund operated as part
of a master-feeder structure and invested all of its assets in a diversified
investment portfolio of an open-end, management investment company (the "Master
Portfolio") which had an identical investment objective. On September 1, 1996,
the Fund withdrew its assets from the Master Portfolio and invested them
directly in portfolio securities. During the period shown, the Fund did not
offer B Shares.
The financial data included in this table has been derived from unaudited
financial statements and notes which are incorporated by reference into the
Statement of Additional Information. The Financial Highlights should be read in
conjunction with such financial statements and notes thereto. Further
information about the performance of the Fund is available in the semi-annual
report to shareholders. Both the Statement of Additional Information and the
semi-annual report to shareholders may be obtained from the Fund free of charge
by calling 800-332-3863.
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<PAGE> 12
Selected data for an A Share of common stock outstanding throughout the period
indicated:
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1996
(UNAUDITED)(A)
---------------
<S> <C>
Net asset value per share, Beginning
of Period.................................................. $10.00
Income from Investment Operations:
Net investment income...................................... 01
Net realized and unrealized
losses on investments.................................... (0.29)
Total loss from investment
operations............................................... (0.28)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income........................................ --
Distributions to shareholders in excess of
net investment income.................................... --
Net change in net asset value.............................. (0.28)
Net asset value per share, End of Period................... $9.72
Total Return................................................. (2.80%)+
Ratios/supplemental data:
Net assets, End of Period (000).............................. $9,189
Ratio of net expenses to average net assets**................ 0.75%++
Ratio of net investment income to
average net assets**....................................... 0.65%++
</TABLE>
* For the period May 13, 1996 (commencement of operations) through August
31, 1996.
** Reflects the Fund's proportionate share of the International Equity
Portfolio (the "Portfolio") of Master Investment Trust, Series I
expenses and fee waivers and expense reimbursements by the Portfolio's
investment adviser and administrator and the Fund's Administrator and
Distributor. Such fee waivers and expense reimbursements had the effect
of reducing the ratio of expenses to average net assets and increasing
the ratio of net investment income to average net assets by 10.04%, for
the period ended August 31, 1996. Prior to September 1, 1996, the Fund
invested all its assets in the Portfolio.
+ Unannualized and does not include the effect of the maximum 4.50% sales
charge.
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<PAGE> 13
++ Annualized.
(a) As of July 22, 1996, the Company designated the existing series of
Shares as "A" Shares.
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<PAGE> 14
Selected data for a K Share of common stock outstanding throughout the period
indicated:
<TABLE>
<CAPTION>
For the
Period Ended
August 31,
1996
(Unaudited)*
------------
<S> <C>
K SHARES
Net asset value, beginning of period.............................. $ 9.76
Income from Investment Operations:
Net investment income........................................... --
Net realized and unrealized gain (loss) on investments.......... (0.05)
Total income (loss) from investment operations.................. (0.05)
Less Dividends and Distributions:
Dividends to shareholders from net investment income............ --
Dividends to shareholders in excess of net investment income.... --
Net change in net asset value..................................... (0.05)
Net asset value, end of period.................................... $ 9.71
Total return...................................................... (0.05%)+
Ratios/Supplement Data:
Net assets, end of period....................................... $ 989
Ratio of net expenses to average net assets**................... 1.25%++
Ratio of net investment income to average net assets**.......... 0.15++
</TABLE>
* For the period July 22, 1996 (commencement of operations) through
August 31, 1996.
+ Unannualized.
++ Annualized.
** Reflects the Fund's proportionate share of the Portfolio's expenses and
fee waivers and expense reimbursements by the Portfolio's investment
advisor and administrator and the Fund's Administrator and Distributor.
Such fee waivers and expense
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<PAGE> 15
reimbursements had the effect of reducing the ratio of expenses to
average net assets and increasing the ratio of net investment income to
average net assets by 10.04% for the period ended August 31, 1996.
Prior to September 1, 1996, the Fund invested all its assets in the
Portfolio.
FUND INVESTMENTS
INVESTMENT OBJECTIVE
The Pacific Horizon International Equity Fund seeks long-term capital growth by
investing primarily in foreign equity securities. The Fund may be appropriate
for investors who want to diversify their investments into foreign equity
markets and who are prepared to accept the risks entailed in such investments.
WHILE THE FUND STRIVES TO ATTAIN ITS INVESTMENT OBJECTIVE, THERE CAN BE NO
ASSURANCE THAT IT WILL BE ABLE TO DO SO.
TYPES OF INVESTMENTS
IN GENERAL. During normal market conditions, the Fund will invest at least 80%
of its total assets in equity securities of companies that are domiciled or have
their principal activities in countries outside the United States. Normally, the
Fund will invest in equity securities of companies in at least three different
foreign countries. The domicile or the location of the principal activities of a
company will be the country under whose laws the company is organized, in which
the principal trading market for the equity securities issued by the company is
located, or in which the company has over half of its assets or derives over
half of its revenues or profits. Equity securities in which the Fund may
invest consist of common stocks, preferred stocks, securities convertible into
common stocks or preferred stocks, and warrants to purchase such securities.
The Fund may invest up to 20% of its total assets (at the time of purchase) in
convertible bonds and debt securities. These debt obligations include U.S.
Government and foreign government securities and corporate debt securities,
including Samurai and Yankee bonds and Euro-bonds. The Fund will limit its
purchases of debt securities to investment grade obligations. "Investment grade"
debt refers to those securities rated within one of the four highest ratings
categories by Moody's Investors Service, Inc. ("Moody's") or by Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Duff & Phelps Credit Co.
("D&P"), or Fitch Investors Service, Inc. ("Fitch"), or, if unrated, deemed by
Bank of America or Wellington Management to be of equivalent quality. Securities
rated in the lowest category of investment grade, Baa by Moody's or BBB by S&P,
D&P or Fitch may have speculative characteristics.
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<PAGE> 16
In the event that the rating of any security held by the Fund falls below the
required rating, the Fund will not be obligated to dispose of such security
and may continue to hold the security if, in the opinion of Bank of America or
Wellington Management, such investment is considered appropriate under the
circumstances.
The Fund may also invest, without limitation, in securities of foreign issuers
in the form of American Depository Receipts ("ADRs") or other similar securities
evidencing ownership of underlying securities issued by foreign issuers. ADRs
purchased for the Fund will be included as part of the 80% of assets in
foreign equity securities. These securities may not necessarily be denominated
in the same currency as the securities underlying the ADRs. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying foreign securities. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets.
During temporary defensive periods when Bank of America or Wellington
Management believe such a position is warranted by uncertain or unusual market
conditions, the Fund may invest without limit in securities issued or
guaranteed by the U.S. Government (and its agencies and instrumentalities),
foreign or domestic money market instruments and investment grade debt
securities, or may hold its assets in cash (U.S. dollars, foreign currencies or
multinational currency units).
RISK FACTORS. Although investing in any mutual fund has certain inherent risks,
an investment in the Fund may have even greater risks than investments in most
other types of mutual funds. The Fund is not a complete investment program, and
it may not be appropriate for an investor if he or she cannot bear financially
the loss of at least a significant portion of his or her investment. The Fund's
net asset value per share is subject to rapid and substantial changes because
greater risk is assumed in seeking the Fund's objective.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers carry certain risks not ordinarily associated with
investments in securities of domestic issuers. Such risks include future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.
Because the Fund will invest heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will, to the extent the Fund does not adequately hedge against such
fluctuations, affect the value of securities in the Fund so far as U.S.
investors are concerned. Foreign currency exchange rates are determined by
forces of supply and demand on the foreign exchange markets and the regulatory
control of the exchanges on which the currencies trade. These forces are
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<PAGE> 17
themselves affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. Costs are incurred in connection with conversions between various
currencies.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to, or as
uniform as, those of U.S.-based companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than U.S.
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable U.S.-based companies. There
is generally less government supervision and regulation of foreign exchanges,
brokers and issuers than there is in the United States. The Fund may have
greater difficulty taking appropriate legal action in a foreign court than in a
United States court.
The expense ratio of the Fund can be expected to be higher than that of funds
investing in domestic securities. The costs attributable to investing abroad are
usually higher for several reasons, such as the higher cost of investment
research, higher cost of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
Interest and dividends payable on the Fund's foreign portfolio securities may be
subject to foreign withholding taxes. To the extent such taxes are not offset by
credits or deductions allowed to investors under U.S. federal income tax
provisions, they may reduce the net return to the Funds' shareholders. See "Tax
Information."
ADDITIONAL INVESTMENTS. When not invested in the securities described above, the
Fund may invest in other types of securities subject to the limitations
described previously.
The Fund may purchase bank obligations including certificates of deposit and
bankers' acceptances issued by domestic or foreign banks or financial
institutions that have total assets of more than $2.5 billion. The Fund may
also make interest-bearing savings deposits in commercial banks in amounts not
exceeding 5% of its total assets.
Commercial paper rated in the top rating category by S&P, Moody's, D&P or Fitch
and unrated commercial paper determined to be of comparable quality by Bank of
America or Wellington Management may also be purchased.
As noted above, the Fund may purchase obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Obligations of some of
these agencies and instrumentalities, such as the Small Business Administration
or the Maritime Administration, are backed by the full faith and credit of the
U.S. Government; others, like the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and still others, including the Student Loan
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<PAGE> 18
Marketing Association, are backed solely by the issuer's credit. There is no
assurance that the U.S. Government would support a U.S. Government-sponsored
entity if it was not required to do so by law.
FUNDAMENTAL LIMITATIONS
The investment objective of the Fund may not be changed without a vote by the
holders of a majority of the outstanding shares of the Fund . Policies
requiring such a vote to effect a change are known as "fundamental." Included in
the Fund's fundamental investment limitations is the restriction that the
Fund may not borrow money for the purpose of obtaining investment leverage or
issue senior securities (as defined in the Investment Company Act of 1940),
provided that the Fund may borrow from banks for temporary purposes and in an
amount not exceeding 10% of the value of the total assets of the Fund ; or
mortgage, pledge or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of its total assets at the time of such borrowing.
This restriction shall not apply to (a) the sale of portfolio securities
accompanied by a simultaneous agreement as to their repurchase, or (b)
transactions in currency, options, futures contracts and options on futures
contracts, or forward commitment transactions.
A complete list of the fundamental investment limitations is set out in full in
the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
OPTIONS. The Fund may write covered put and call options and purchase put and
call options on U.S. or foreign securities that are traded on United States and
foreign securities exchanges and in over-the-counter markets.
Call options written by the Fund give the holder the right to buy the
underlying security from the Fund at a stated exercise price upon exercising
the option at any time prior to its expiration. A call option written by the
Fund is "covered" if the Fund owns or has an absolute right (such as by
conversion) to the underlying security covered by the call. A call option is
also covered if the Fund holds a call on the same security and in the same
principal amount as the call written and the exercise price of the call held is
(i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, government securities or other high grade debt
obligations in a segregated account with its custodian.
Put options written by the Fund give the holder the right to sell the
underlying security to the Fund at a stated exercise price. A put option
written by the Fund is "covered" if the Fund maintains cash or high grade
debt obligations with a value equal to the exercise price
-16-
<PAGE> 19
in a segregated account with its custodian, or holds a put on the same security
and in the same principal amount as the put written and the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The premium paid by the purchaser of an option will generally reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand, and current interest rates.
The risks of transactions in options on foreign securities exchanges are similar
to the risks of investing in foreign securities. In addition, a foreign exchange
may impose different exercise and settlement terms and procedures and margin
requirements than a U.S. exchange.
The Fund may purchase put options to hedge against a decline in the value of
its portfolio. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option plus transaction costs. The Fund may
purchase call options to hedge against an increase in the price of securities
that the Fund anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit, if any, realized
by the Fund upon exercise of the option. Unless the price of the underlying
security rises sufficiently, the call option may expire worthless to the Fund.
The Fund's options transactions will be limited as follows: a) not more than 5%
of the total assets of the Fund may be invested in options; b) the obligations
of the Fund under put options written by the Fund may not exceed 50% of the
Fund's net assets; and c) the aggregate premiums on all options purchased by the
Fund may not exceed 25% of the Fund's net assets.
The Fund may buy put and call options on various stock indices. In contrast to
an option on a particular security, an option on a stock index provides the
holder with the right to make or receive a cash settlement upon exercise of the
option.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write put and call
options on foreign currencies to increase the Fund's gross income and for the
purpose of protecting against declines in the United States dollar value of
foreign currency-denominated portfolio securities and against increases in the
United States dollar cost of such securities to be acquired. As with other kinds
of options, however, writing an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the Fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. Purchasing an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, the Fund may
forfeit the entire amount of the premium paid plus related transaction costs.
Options on foreign currencies written or purchased by the Fund may be traded
on United States and foreign exchanges or over-the-
-17-
<PAGE> 20
counter. There is no specific percentage limitation on the Fund's investments in
options on foreign currencies.
STOCK INDEX, INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS AND OPTIONS.
The Fund may purchase and sell stock index, interest rate and foreign currency
futures contracts (as well as purchase related options) in an effort to hedge
against changes in the value of securities that the Fund holds in its
portfolio or which it intends to purchase, or as a substitute for purchasing or
selling the underlying security. Such changes could occur as a result of market
conditions or fluctuating currency exchange rates. These transactions will only
be entered into when deemed appropriate by Bank of America or Wellington
Management to reduce the risks inherent in the management of the Fund.
The Fund may not purchase or sell a futures contract or purchase a related
option unless immediately after any such transaction the sum of the aggregate
amount of initial margin deposits on its existing futures positions and the
amount of premiums paid for related options does not exceed 5% of the Fund's
total assets (after taking into account certain technical adjustments).
More information regarding futures contracts and related options can be found in
Appendix A to the Statement of Additional Information.
POTENTIAL RISKS OF OPTIONS AND FUTURES. The successful use of the foregoing
investment techniques depends on the ability of Bank of America or Wellington
Management to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Fund may not achieve the anticipated benefits of futures contracts or options or
may realize losses and thus be in a worse position than if such strategies had
not been used. Unlike many exchange-traded futures contracts and options on
futures contracts, there are no daily price fluctuation limits with respect to
options on currencies, and adverse market movements could therefore continue to
an unlimited extent over a period of time. In addition, the correlation between
movements in the prices of such instruments and movements in the price of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses. The Fund's ability to dispose of its positions
in futures contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Therefore, no assurance can
be given that the Fund will be able to utilize these instruments effectively
for the purposes set forth above. In order to prevent leverage in connection
with the purchase of futures contracts or call options thereon by the Fund, an
amount of cash, cash equivalents or liquid high grade debt securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
Furthermore, the Fund's ability to engage in options and futures transactions
may be limited by tax considerations.
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<PAGE> 21
REPURCHASE AGREEMENTS. The Fund may buy securities subject to the seller's
agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Fund will enter into
repurchase agreements only with financial institutions (such as banks and
broker-dealers) deemed creditworthy by Bank of America or Wellington Management,
under guidelines approved by the Fund's Board of Directors. It is intended
that such agreements will not have maturities longer than 60 days. During the
term of any repurchase agreement, the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Bank of America or Wellington Management then continually
monitors that value. Nonetheless, should the seller default on its obligations
under the agreement, the Fund would be exposed to possible loss due to adverse
market action or delays connected with the disposition of the underlying
obligations. Repurchase agreements are considered to be loans under the
Investment Company Act of 1940 (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow money for temporary
purposes by entering into reverse repurchase agreements. Under these agreements
the Fund sells portfolio securities to financial institutions (such as banks
and broker-dealers) and agrees to buy them back at an agreed upon time and
price. When the Fund enters into a reverse repurchase agreement, it places in
a separate custodial account either liquid assets or other high grade debt
securities that have a value equal to or greater than the repurchase price. The
account is then continuously monitored by Bank of America or Wellington
Management to make sure that an appropriate value is maintained. Reverse
repurchase agreements involve the risk that the value of portfolio securities
the Fund relinquishes may decline below the price the Fund must pay when the
transaction closes. Reverse repurchase agreements are considered to be
borrowings by the Fund under the 1940 Act. Borrowings may magnify the
potential for gain or loss on amounts invested resulting in an increase in the
speculative character of the Fund's outstanding shares. The Fund will only
enter into reverse repurchase agreements to avoid the need to sell portfolio
securities to meet redemption requests during unfavorable market conditions.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Fund
may purchase securities on a "when-issued" basis and purchase or sell securities
on a "forward commitment" basis. Additionally, the Fund may purchase or sell
securities on a "delayed settlement" basis. When-issued and forward commitment
transactions, which involve a commitment by the Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement refers to a transaction in the secondary
market that will settle some time in the future. These transactions involve the
risk that the price or yield obtained may be less favorable than the price or
yield available when the delivery takes place. The Fund will set aside in a
segregated account cash or liquid securities equal to the amount of any
when-issued, forward commitment or delayed settlement transactions. When-issued
purchases, forward commitments and delayed
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<PAGE> 22
settlements are not expected to exceed 25% of the Fund's total assets under
normal circumstances. These transactions will not be entered into for
speculative purposes, but primarily to hedge against anticipated changes in
interest rates.
SECURITIES LENDING. In order to earn additional income, the Fund may lend its
portfolio securities to financial institutions (such as banks and brokers) that
Bank of America or Wellington Management consider to be of good standing.
Borrowers of portfolio securities may not be affiliated directly or indirectly
with the Company or the Fund. If the financial institution should become
bankrupt, however, the Fund could experience delays in recovering its
securities. A securities loan will only be made when, in the judgment of Bank of
America or Wellington Management, the possible reward from the loan justifies
the possible risks. In addition, such loans will not be made if, as a result,
the value of securities loaned by the Fund exceeds 30% of its total assets.
Securities loans will be fully collateralized.
INVESTMENT COMPANY SECURITIES. The Fund may acquire shares of open and
closed-end investment companies, including companies that invest in foreign
issuers and money market mutual funds advised by Bank of America, subject to the
requirements of applicable securities laws. No more than 10% of the value of the
Fund's total assets will be invested in securities of other investment
companies, with no more than 5% invested in the securities of any one investment
company; except with respect to the investment in a money market mutual fund
advised by Bank of America, the Fund is permitted to invest the greater of 5%
of its net assets or $2.5 million. In addition, the Fund may hold no more than
3% of the outstanding voting stock of any other investment company. Although
these investment companies may have policies that differ from the Fund's
policies, their management and other types of expenses will be similar to those
borne by the Fund. When the Fund invests in another investment company, it
pays a pro rata portion of that company's expenses. Such expenses are in
addition to the expenses the Fund pays in connection with its own operations.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of the value of
its net assets (determined at the time of acquisition) in securities that are
illiquid. If, after the time of acquisition, events cause this limit to be
exceeded, the Fund will take steps to reduce the aggregate amount of illiquid
securities as soon as is reasonably practicable. The Fund intends that
investments in securities that are not registered under the Securities Act of
1933 but may be purchased by institutional buyers under Rule 144A and for which
a liquid trading market exists as determined by the Board of Directors, Bank
of America, or Wellington Management (pursuant to guidelines adopted by the
Board), will not be subject to the Fund's 15% limitation on illiquid
securities. This investment practice could have the effect of increasing the
level of illiquidity in the Fund during any period that institutional buyers
under Rule 144A become uninterested in purchasing these securities.
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<PAGE> 23
PORTFOLIO TRANSACTIONS. Investment decisions for the Fund are made
independently from those for other investment companies and accounts managed by
Bank of America or Wellington Management and their affiliated entities. Such
other investment companies and accounts may also invest in the same securities
as the Fund . When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another investment
company or account, available investments or opportunities for sales will be
equitably allocated pursuant to procedures of Bank of America or Wellington
Management. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
From time to time, the Fund may pay brokerage commissions to an affiliate of
the Fund's distributor on securities acquired by the Fund. In allocating
purchase and sale orders for investment securities, Bank of America or
Wellington Management may consider the sale of Fund shares by broker-dealers and
other financial institutions (including affiliates of Bank of America,
Wellington Management or the Fund's distributor to the extent permitted by law),
provided it believes the quality of the transaction and the price to the Fund
are not less favorable than what they would be with any other qualified firm.
PORTFOLIO TURNOVER. The Fund's investment practices may result in portfolio
turnover greater than that of other mutual fund portfolios. Turnover may require
payment of brokerage commissions, impose other transaction costs and could
increase substantially the amount of income received by the Fund that
constitutes taxable capital gains. To the extent capital gains are realized,
distributions from those gains may be ordinary income for federal tax purposes
(see "Tax Information"). The Fund's portfolio turnover rate is not expected to
exceed 75%, although portfolio turnover will not be a limiting factor in making
investment decisions for the Fund.
SHAREHOLDER GUIDE
THE FOLLOWING SECTION WILL PROVIDE YOU WITH ANSWERS
TO SOME OF THE MOST OFTEN-ASKED QUESTIONS REGARDING
BUYING AND SELLING THE FUND'S SHARES AND REGARDING THE FUND'S DIVIDENDS.
-21-
<PAGE> 24
HOW TO BUY SHARES
WHAT IS MY MINIMUM INVESTMENT IN THE FUND?
Generally, there is a minimum investment requirement of $500 for initial
purchases and $50 for subsequent purchases, although these amounts may be
altered in certain circumstances as shown below.
INVESTMENT MINIMUMS FOR SPECIFIC TYPES OF ACCOUNTS
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT INVESTMENT
------------------ ---------------------
<S> <C> <C>
REGULAR ACCOUNT $500* $50
AUTOMATIC INVESTMENT PLAN $50 $50
IRAS, SEP-IRAS (ONE PARTICIPANT) $500 No minimum
SPOUSAL IRAS** $250 No minimum
SEP-IRAs $2,500 No minimum
(more than one participant)
</TABLE>
* The minimum investment is $100 for purchases made through Bank of America's
trust and agency accounts or a Service Organization (defined below) whose
clients have made aggregate minimum purchases of $1,000,000. The minimum
investment is $200 for BankAmericard holders with an appropriate award
certificate from BankAmeriChoice Program.
** A regular IRA must be opened in conjunction with this account.
WHAT ALTERNATIVE SALES ARRANGEMENTS ARE AVAILABLE?
The Fund issues three classes of shares. A Shares are sold to investors choosing
the front-end sales charge alternative unless an exemption to the sales charge
is otherwise available. B Shares are sold to investors choosing the deferred
sales charge alternative. K Shares are neither subject to a front-end sales
charge nor a contingent deferred sales charge. K Shares,
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<PAGE> 25
however, are sold only to: (a) businesses and other organizations that
participate in the Daily Advantage(R) Program sponsored by Bank of America; (b)
individuals investing proceeds from a redemption of shares from another open-end
investment company on which such individual paid a front-end sales load if (i)
such redemption occurred within 30 days prior to the purchase order, and (ii)
such other open-end investment company was not distributed and advised by
Concord Financial Group, Inc. and Bank of America, respectively, or their
affiliates; and (c) accounts opened for IRA rollovers from a 401(k) plan in
which the assets were held in any Pacific Horizon or Time Horizon Fund and
subsequent purchases into an IRA rollover account opened as described above, so
long as the original IRA rollover account remains open on the Company's books.
The three classes of shares in the Fund represent interests in the same
portfolio of investments of the Fund, have the same rights and are identical in
all respects except as discussed below. A Shares bear the expenses of a
Shareholder Services Plan. B Shares bear the expenses of a Distribution and
Services Plan and have exclusive voting rights with respect to the Distribution
and Services Plan and have exclusive voting rights with respect to the
Shareholder Services Plan. B Shares also bear the expenses of the deferred sales
charge arrangements and any expenses resulting from such arrangements. K Shares
bear the expenses of a Distribution Plan and/or Administrative and Shareholder
Services Plan and have exclusive voting rights with respect to such Plans. The
three classes also have different exchange privileges, as described below. The
net income attributable to A, B and K Shares and the dividends payable on A, B
and K Shares will be reduced by the amount of the: (a) Shareholder Services Plan
fees attributable to A Shares, (b) Distribution and Services Plan fees
attributable to B Shares, (c) Distribution Plan fees and/or Administrative and
Shareholder Services Plan fees attributable to K Shares, respectively, and (d)
the incremental expenses associated with such Plans. Lastly, B Shares of the
Fund held for 8 years will automatically convert into A Shares of the Fund.
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon each
class' net asset value per share plus a front-end sales load on A Shares. Each
class calculates its net asset value ("NAV") as follows:
NAV = (Value of Assets Attributable to the Class) - (Liabilities Attributable
to the Class)
Number of Outstanding Shares of the Class
Net asset value is determined as of 4:00 p.m. Eastern time on days the New
York Stock Exchange (the "Exchange") is open.
The Fund's investments are valued at market value or, where market quotations
are not readily available, at fair value as determined in good faith by the
Fund pursuant to procedures adopted by the Fund's Board of Directors.
Short-term debt securities are valued at amortized cost,
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<PAGE> 26
which approximates market value. Trading in foreign securities is generally
completed prior to the end of regular trading on the Exchange. Trading may occur
in foreign securities, however, on Saturdays and U.S. holidays and at other
times when the Exchange is closed. As a result, there may be delays in
reflecting changes in the market values of foreign securities in the calculation
of the net asset value per share of the Fund on days when net asset value is not
calculated and on which shareholders of the Fund cannot redeem due to changes in
values of securities traded in foreign markets. For further information about
valuing securities, see the Statement of Additional Information. For price
information call (800) 346-2087.
The per share net asset values of A, B and K Shares will diverge due to the
different distribution and other expenses borne by the classes.
A SHARES SALES LOAD. The front-end sales load ("front-end sales load," "sales
load," "front-end sales charge," or "sales charge") for the A Shares of the Fund
begins at 4.50% and may decrease as the amount you invest increases, as shown in
the following chart:
<TABLE>
<CAPTION>
As a % of As a % of Dealer's
offering net asset reallowance
price value as a % of
Amount of Transaction offering price*
<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.75 3.90 3.35
$250,000 but less than $500,000 2.50 2.56 2.20
$500,000 but less than $750,000 2.00 2.04 1.75
$750,000 but less than $1,000,000 1.00 1.01 0.90
$1,000,000 or more** 0.00 0.00 0.00
</TABLE>
* Dealer's reallowance may be changed periodically.
** See "Large Purchase Exemption" below for a description of the contingent
deferred sales charge.
From time to time, the Fund's distributor will make or allow additional payments
or promotional incentives in the form of cash or other compensation such as
trips to sales seminars, tickets to sporting and other entertainment events and
gifts of merchandise to firms that sell shares of the Fund.
LARGE PURCHASE EXEMPTION. The contingent deferred sales load discussed under the
Large Purchase Exemption does not apply to A Shares purchased under the Daily
Advantage(R) or Advantage Plus(TM) Programs. To the extent that no other A Share
no-load exemption is available,
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<PAGE> 27
the foregoing schedule of sales loads does not apply to purchases of A Shares of
$1,000,000 or more or to purchases of A Shares if the aggregate value of the A
Shares that you beneficially own in any Pacific Horizon Fund or Time Horizon
Fund equals or exceeds $1,000,000. If you accumulate $1,000,000 or more of A
Shares, on any additional purchase of A Shares, the contingent deferred sales
load described below will apply to such A Shares when they are redeemed. In
addition, if a customer purchases $1,000,000 or more of A Shares and redeems
such shares, a contingent deferred sales load will be imposed as follows:
<TABLE>
<CAPTION>
Number of Years Applicable Contingent
Elapsed Since Purchase Deferred Sales Load
---------------------- ---------------------
<S> <C>
1 year 1.0%
2 years 0.5%
3 years None
</TABLE>
The contingent deferred sales load is imposed on the lesser of the current
market value or the cost of the shares being redeemed. This means that this
charge will not be imposed upon increases in net asset value above the initial
purchase price or upon reinvested dividends. In determining whether a contingent
deferred sales charge is applicable to a redemption of such shares, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in net asset value of your holdings of
shares above the total amount of payments for the purchase of shares during the
preceding 2 years; then of amounts representing the cost of shares held beyond
the applicable contingent deferred sales charge period; and finally, of amounts
representing the cost of the shares held for the longest period of time. In
addition, no contingent deferred sales load will be imposed on redeemed A Shares
if a front-end sales load had been previously imposed on such shares. Although
no front-end sales load will be paid on Large Purchase Exemptions, the
Distributor will compensate brokers whose customers purchase shares at the
following rates: 1.00% of the amount under $3 million, 0.50% of the next $47
million and 0.25% thereafter.
B SHARES CONTINGENT DEFERRED SALES CHARGE. B Shares may be purchased at net
asset value per share without the imposition of a sales charge at the time of
purchase. The Fund's distributor compensates broker-dealers that have entered
into a selling agreement with the distributor from its own funds at the time the
shares are purchased. The proceeds of the contingent deferred sales charges and
the ongoing Distribution and Services Plan fees described below are used to
reimburse the Fund's distributor for its expenses, including the compensation of
broker-dealers.
B Shares that are redeemed within 6 years of purchase are subject to the
contingent deferred sales charge at the rates set forth below, charged as a
percentage of the lesser of the current market value or the cost of the shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. B Shares will convert to A Shares on the first business day of
the month following the eighth
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<PAGE> 28
anniversary of the date of purchase unless the B Shares have been exchanged for
Pacific Horizon Shares of the Pacific Horizon Prime Fund.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Number of Years (as a percentage of dollar
Elapsed Since Purchase* amount to the charge)
- ----------------------- ---------------------
<S> <C>
Less than one.................... 5.0%
More than one, but less
than or equal to two........... 4.0%
More than two, but less
than or equal to three......... 3.0%
More than three, but less
than or equal to four.......... 3.0%
More than four, but less
than or equal to five.......... 2.0%
More than five, but less
than or equal to six........... 1.0%
After six years ................. None
</TABLE>
- ---------------------------------
* The time period during which Pacific Horizon Shares of the Pacific
Horizon Prime Fund acquired through an exchange are held is not
included when the amount of the contingent deferred sales charge is
calculated.
In determining whether a contingent deferred sales charge is applicable to a
redemption of B Shares, the calculation will be made in a manner that results in
the lowest possible rate. It will be assumed that the redemption is made first
of amounts representing B Shares acquired pursuant to the reinvestment of
dividends and distributions; then of amounts representing the increase in net
asset value of your holdings of B Shares above the total amount of payments for
the purchase of B Shares during the preceding 6 years; then of amounts
representing the cost of B Shares held beyond the applicable contingent deferred
sales charge period; and finally, of amounts representing the cost of the B
Shares held for the longest period of time.
As an example, assume that you purchased 100 shares at $10 per share (at a cost
of $1,000), that you have not exchanged for Pacific Horizon Shares of the
Pacific Horizon Prime Fund, that in the third year after purchase the net asset
value per share is $12, and that during the three-year period you had acquired
10 additional shares through dividend reinvestment. If at such
-26-
<PAGE> 29
time you make your first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge because of dividend reinvestment. With respect
to the remaining 40 shares, the charge is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
3.00% (the applicable rate in the third year after purchase).
K SHARES. Bank of America will compensate Affiliated Brokers for their customers
who invested in the Fund and are participants in the Daily Advantage(R) Program.
The Affiliated Brokers will be compensated by Bank of America at the rate of
1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter of combined Pacific Horizon Funds' and Time Horizon Funds' K Shares
in each Daily Advantage(R) Program.
WHEN NO FRONT-END SALES LOAD IS APPLIED. You pay no front-end sales load on the
following types of transactions:
- - reinvestment of dividends or distributions;
- - any purchase by an investor who was a shareholder of Seafirst Retirement Fund
on the date of such fund's reorganization into the Company;
- - any purchase of shares by a registered investment adviser purchasing shares
for its own account or for an account for which it is authorized to make
investment decisions;
- - accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary, provided appropriate notification of such status is given at the time
of investment;
- - any purchase of shares by clients of The Private Bank of Bank of America
Illinois or by Private Banking clients of the Seafirst Division of Bank of
America or by or on behalf of agency accounts administered by any bank or trust
company affiliate of Bank of America;
- - any purchase of shares through a discount broker-dealer that imposes a
transaction charge with respect to such purchase, provided you were the
beneficial owner of shares of the Fund (or any other fund in the Pacific Horizon
Family of Funds) prior to July 1, 1992, so long as your account remains open on
the Company's books;
- - accounts open as of July 1, 1996, which were exempt from front-end sales loads
at the time the accounts were opened and where those exemptions are no longer
available for new account holders, so long as the accounts remain open on the
Company's books;
- - any purchase of shares pursuant to the Reinstatement Privilege described
below; and
- - any purchase of shares pursuant to the Directed Distribution Plan described
below.
Additionally, some individuals are not required to pay a front-end sales load
when purchasing Fund shares, including:
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<PAGE> 30
- - members of the Company's Board of Directors;
- - U.S.-based employees and retirees (including employees who are U.S. citizens
but work abroad and retirees who are U.S. citizens but worked abroad) of Bank of
America or any of its affiliates, and their parents, spouses, minor children and
grandchildren, as well as members of the Board of Directors of Bank of America
or any of its affiliates;
- - registered representatives or full-time employees of broker-dealers having
agreements with the Fund's distributor pertaining to the sale of Fund shares
(and their spouses and minor children) to the extent permitted by such
organizations; and
- - holders of the BankAmericard with an appropriate award certificate from the
BankAmeriChoice Program (initial award only; a front-end sales load will apply
to subsequent purchases).
WHEN NO CONTINGENT DEFERRED SALES CHARGE IS APPLIED. To receive one of the first
three exemptions listed below, you must explain the status of your redemption at
the time you redeem your shares. The contingent deferred sales charge with
respect to B Shares or A Shares purchased under the Large Purchase Exemption is
not charged on (1) exchanges described under "Shareholder Services - Can I
Exchange My Investment From One Fund to Another?;" (2) redemptions in connection
with minimum required distributions from IRA accounts due to a shareholder
reaching age 70-1/2; (3) redemptions in connection with a shareholder's death or
disability (as defined in the Internal Revenue Code); and (4) involuntary
redemptions as a result of an account's net asset value remaining below $500
after sixty days' written notice. In addition, no contingent deferred sales
charge is charged on shares acquired through the reinvestment of dividends or
distributions.
RIGHTS OF ACCUMULATION. When buying A Shares in Pacific Horizon Funds, your
current aggregate investment determines the front-end sales load that you pay.
Your current aggregate investment is the accumulated combination of your
immediate investment along with the shares that you beneficially own in any
Pacific Horizon or Time Horizon Fund on which you paid a front-end sales load
(including shares that carry no sales load but were obtained through an exchange
and can be traced back to shares that were acquired with a sales load). You may
also aggregate your investment in Pacific Horizon Funds and Time Horizon Funds
in order to qualify for the Large Purchase Exemption.
To qualify for a reduced sales load on A Shares, you or your Service
Organization (which is an institution such as a bank or broker-dealer that has
entered into a selling and/or servicing agreement with the Fund's distributor)
must notify the Fund's transfer agent at the time of investment that a quantity
discount is applicable. Use of this service is subject to a check of appropriate
records, after which you will receive the lowest applicable sales charge. If you
want to participate you can so indicate on your Account Application or make a
subsequent written request to the Transfer Agent.
Example: Suppose you beneficially own A Shares carrying a sales load of the
Fund, the Pacific Horizon California Tax-Exempt Bond Fund, the Pacific Horizon
U.S. Government Securities
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<PAGE> 31
Fund, the Pacific Horizon Capital Income Fund and shares of the Company's money
market funds that can be traced back to the purchase of shares carrying a sales
load (or any combination thereof) with an aggregate current value of $90,000. If
you subsequently purchase additional A Shares of the Fund carrying a sales load
with a current value of $10,000, the sales load applicable to the subsequent
purchase would be reduced to 3.75% of the offering price.
LETTER OF INTENT. You may also obtain a reduced sales charge on A Shares by
means of a written Letter of Intent, which expresses your non-binding commitment
to invest in the aggregate $100,000 or more in shares of any Pacific Horizon
Fund within a period of 13 months, beginning up to 90 days prior to the date of
the Letter's execution. A Shares carrying a sales load purchased during that
period count as a credit toward completion of the Letter of Intent. Any
investments you make during the period receive the discounted sales load based
on the full amount of your investment commitment. When your commitment is
fulfilled, an adjustment will be made to reflect any reduced sales load
applicable to shares purchased during the 90-day period prior to the submission
of your Letter of Intent. Shares of Time Horizon Funds may be included when
determining reduced sales loads under the letter of intent program.
While signing a Letter of Intent does not bind you to purchase, or the Company
to sell, the full amount indicated at the sales load in effect at the time of
signing, you must complete the intended purchase to obtain the reduced sales
load. When you sign a Letter of Intent, the Company holds in escrow shares
purchased by you in an amount equal to 5% of the total amount of your
commitment. After you fulfill the terms of the Letter of Intent, the escrow will
be released.
If your aggregate investment exceeds the amount indicated in your Letter of
Intent, you will receive an adjustment which reflects the further reduced sales
load applicable to your excess investment. It will be in the form of additional
shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
If your aggregate investment is less than the amount you committed, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent will
redeem an appropriate number of shares held in escrow to realize the difference.
If you would like to participate, complete the Letter of Intent on your Account
Application. If you have any questions regarding the Letter of Intent, call
800-332-3863. Please read it carefully, as you will be bound by its terms.
HOW DO I DECIDE WHETHER TO BUY A, B OR K SHARES?
The alternative sales arrangements of the Fund permits you to choose the method
of purchasing shares that is most beneficial given the amount of the purchase,
the length of time you expect to hold the shares and other relevant
circumstances. You should determine whether under your particular circumstances
it is more advantageous to invest in A Shares and incur a front-end sales charge
and an ongoing Shareholder Services Plan fee; invest in B Shares and have the
entire
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initial purchase price invested in the Fund with the investment thereafter being
subject to a contingent deferred sales charge and ongoing Distribution and
Services Plan fees; or invest in K Shares and incur neither a front-end sales
charge nor a contingent deferred sales charge. K Shares do incur fees under a
Distribution Plan and/or an Administrative and Shareholder Services Plan. K
Shares of the Fund, however, are only available to: (a) businesses or other
organizations that participate in the Daily Advantage(R) Program sponsored by
Bank of America; (b) individuals investing proceeds from a redemption of shares
from another open-end investment company on which such individual paid a
front-end sales load if (i) such redemption occurred within 30 days prior to the
purchase order and (ii) such other open-end investment company was not
distributed and advised by Concord Financial Group, Inc. and Bank of America,
respectively, or their affiliates; and (c) accounts opened for IRA rollovers
from a 401(k) plan in which the assets were held in any Pacific Horizon or Time
Horizon Fund and subsequent purchases into an IRA rollover account opened as
described above, so long as the original IRA rollover account remains open on
the Company's books ("Qualified IRA Rollovers").
As an illustration, investors who qualify for a significantly reduced sales
load, as described above, might elect the front-end sales charge alternative (A
Shares) because similar sales charge reductions are not available for purchases
under the contingent deferred sales charge alternative (B Shares). Moreover, A
Shares would not be subject to ongoing Distribution and Services Plan fees, as
described below. However, because front-end sales charges are deducted at the
time of purchase, such investors who pay a front-end sales charge would not have
all their funds invested initially. The Company will not accept any order for B
Shares from an investor who is eligible to purchase A Shares without a sales
load or from an investor eligible to purchase K Shares.
Investors not qualifying for a reduced front-end sales charge who expect to
maintain their investment in the Fund for an extended period of time might also
elect the front-end sales charge alternative because over time the accumulated
continuing Distribution and Services Plan fees related to B Shares may exceed
the front-end sales charge and ongoing Shareholder Services Plan fees related to
A Shares. However, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
Distribution and Services Plan fees may be offset to the extent any return is
realized on the additional funds initially invested under the contingent
deferred sales charge alternative.
Certain investors might determine it to be more advantageous to have all their
funds invested initially in B Shares, although subject to continuing
Distribution and Services Plan fees and to a contingent deferred sales charge
for a 6-year period of time.
HOW CAN I BUY SHARES?
The chart below provides more information regarding some of the different
methods for investing in the Fund.
TO BUY SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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<PAGE> 33
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE FUND'S TRANSFER AGENT)
<TABLE>
<CAPTION>
Contact them directly Contact them directly
for instructions. for instructions.
<S> <C> <C>
THROUGH THE DISTRIBUTOR
(IF YOU ARE OR WILL BE THE SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
BY MAIL Complete Account Mail all subsequent
Application and mail investments to:
it with a check
(payable to Pacific Pacific Horizon Funds,
Horizon International Inc.
Equity Fund) to the P.O. Box 182090
address on the Account Columbus, OH 43218-2090
Application.
IN PERSON
Deliver Account Deliver your payment
BISYS Fund Services, Inc. Application and your directly to the address
3435 Stelzer Road payment directly to on the left.
Columbus, OH 43219-3035 the address on the
left.
BY WIRE Initial purchases of Contact the Fund's
shares into a new transfer agent at 800-
account may not be 346-2087 for complete
made by wire. wiring instructions.
Instruct your bank to
transmit immediately
available funds for
purchase of Fund shares
in your name.
Be sure to include your
name and your Fund
account number.
Consult your bank for information
on remitting funds by wire and
any associated bank charges.
</TABLE>
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<PAGE> 34
<TABLE>
<S> <C> <C>
BY TELETRADE TeleTrade Privileges Purchases may be made
(a service permitting may not be used to in the minimum amount
transfers of money from make an initial of $500 and the maximum
your checking, NOW or bank purchase. amount of $50,000 per
money market account) transaction as soon as
appropriate information
regarding your bank
account has been
established on your Fund
account. This information
may be provided on the
Account Application or in
a signature guaranteed
letter of instruction to
the Transfer Agent.
Signature guarantees are
discussed under "How to
Sell Shares."
Call 800-346-2087 to make
your purchase.
You should refer to the "Shareholder Services" section for
additional important information about the TeleTrade Privilege.
</TABLE>
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC INVESTMENTS AND
EXCHANGES, TO INVEST IN YOUR FUND ACCOUNT. PLEASE REFER TO THE SECTION ENTITLED
"SHAREHOLDER SERVICES" FOR MORE INFORMATION.
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?
Your shares will be purchased at the Fund's public offering price calculated at
the next 4:00 p.m. Eastern time after your purchase order is received in
proper form by the Fund's transfer agent, BISYS Fund Services, Inc. (the
"Transfer Agent"), at its Columbus office.
If you purchase shares through Bank of America, your broker or another Service
Organization, the entity involved is responsible for transmitting your order and
required funds to the Transfer Agent on a timely basis in accordance with the
procedures in this Prospectus. Share purchases (and redemptions) executed
through Bank of America or a Service Organization are executed only on days on
which the particular institution and the Fund are open for business. Purchase
orders received by a Service Organization in proper form by 4:00 p.m. Eastern
time on a business day will be effected at the public offering price calculated
at 4:00 p.m. Eastern time on that day, if the Service Organization transmits
your order to the Transfer Agent by the end of the Transfer Agent's business
day. Except as provided in the following two sentences, if the order is not
received in proper form by a Service Organization by 4:00 p.m. Eastern time or
not received by the Transfer Agent by the close of the Transfer Agent's business
day, the order will be based upon the next determined purchase price. The
Company may from time to time in its sole discretion appoint one or more
entities as the Fund's agent to receive irrevocable purchase and redemption
orders and to transmit them on a net basis to the Transfer Agent. In
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<PAGE> 35
these instances orders received by the entity by 4:00 p.m. Eastern time on a
business day will be effected as of 4:00 p.m. Eastern time that day if the
order is actually received by the Transfer Agent not later than the next
business morning accompanied by payment in federal funds.
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?
You must specify at the time of investment whether you are purchasing A, B or K
Shares. Certificates for shares will not be issued.
Federal regulations require you to provide a certified taxpayer identification
number upon opening or reopening an account.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. Please remember that the Company
reserves the right to reject any purchase order.
You should note that Bank of America, Service Organizations and registered
investment advisers may charge a separate fee or transaction charge to their
clients for providing them with administrative services related to their
investment in Fund shares. These fees could constitute a substantial portion of
smaller accounts and may not be in an investor's best interest. Bank of America
and Service Organizations may also impose minimum customer account and other
requirements in addition to those imposed by the Fund. If you purchase or redeem
shares directly from the Fund, you may do so without incurring any charges other
than those described in this Prospectus.
HOW TO SELL SHARES
HOW DO I REDEEM MY SHARES?
Pacific Horizon Funds, Inc. makes it easy to sell, or "redeem," shares. The
value of the shares you redeem may be more or less than your cost, depending on
the Fund's current net asset value.
If you purchased your shares through an account at Bank of America, your Broker
or another Service Organization, you may redeem all or part of your shares in
accordance with the instructions pertaining to that account. If you are also the
shareholder of record on the Company's books, you may redeem shares in
accordance with the procedures described in the chart below as well as those of
your account. To use the redemption methods described below, you must arrange
with Bank of America or your Service Organization for delivery of the required
application(s) to the Transfer Agent.
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<PAGE> 36
TO SELL SHARES
Through Bank of America, your Broker or another Service Organization
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE TRANSFER AGENT)
Contact them directly for instructions.
THROUGH THE DISTRIBUTOR
(IF YOU ARE A SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
BY MAIL
<TABLE>
<S> <C>
Pacific Horizon Send a signed, written request (each owner, including each
International joint owner, must sign) to the Transfer Agent.
Equity Fund
c/o Pacific Horizon
Funds, Inc.
P.O. Box 182089
Columbus, OH
43218-2089
IN PERSON
BISYS Fund Deliver your signed, written request (each owner, including
Services, Inc. each joint owner, must sign) to the address on the left.
3435 Stelzer Road
Columbus, OH
43219-3035
BY WIRE As soon as appropriate information regarding your bank
account has been established on your Fund account, you may
write, telephone or telegraph redemption requests to the
Transfer Agent, and redemption proceeds will be wired in
federal funds to the commercial bank you have specified.
Information regarding your bank account may be provided on
the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed in the section entitled "What
Kind Of Paperwork Is Involved In Selling Shares?".
Redemption proceeds will normally be wired the business day
after your request and any other necessary documents have been
received by the Transfer Agent.
Wire Privileges apply automatically unless you indicate on the
Account Application or in a subsequent written notice to the
Transfer Agent that you do not wish to have them.
Requests must be for at least $1,000 and may be subject to
limits on frequency and amount.
Wire Privileges may be modified or suspended at any time, and
are not available for shares issued in certificate form.
Contact your bank for information on any charges imposed by the
bank in connection with receipt of redemptions by wire.
</TABLE>
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<PAGE> 37
TO SELL SHARES
<TABLE>
<S> <C>
BY TELETRADE You may redeem Fund shares (minimum of $500 and maximum of
(a service $50,000 per transaction) by telephone after appropriate
permitting information regarding your bank account has been
transfers of money established on your Fund account. This information may be
to your checking, provided on the Account Application or in a signature
NOW or bank money guaranteed letter of instruction to the Transfer Agent.
market account) Signature guarantee requirements are discussed in the
section entitled "What Kind Of Paperwork Is Involved In
Selling Shares?".
Redemption orders may be placed by calling 800-346-2087.
TeleTrade Privileges apply automatically unless you
indicate on the Account Application or in a
subsequent written notice to the Transfer
Agent that you do not wish to have them.
You should refer to the "Shareholder Services" section for
additional important information about the TeleTrade
Privilege.
</TABLE>
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND
AUTOMATIC WITHDRAWALS, ARE ALSO AVAILABLE. PLEASE REFER TO
THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE INFORMATION.
WHAT NAV WILL I RECEIVE FOR SHARES I WANT TO SELL?
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Transfer Agent at its Columbus
office. Although the Fund itself imposes no charge when A Shares are redeemed
(except pursuant to the Large Purchase Exemption described above), if you
purchase shares through Bank of America or a Service Organization, they may
charge a fee for providing certain services in connection with investments in
Fund shares.
When you redeem your B Shares within 6 years of purchase (or longer if your
shares have been exchanged for Pacific Horizon Shares of the Pacific Horizon
Prime Fund), you may be subject to a contingent deferred sales charge as
described above.
The Fund imposes no charge when K Shares are redeemed.
The Company reserves the right to redeem accounts (other than 401(k), IRA and
non-working spousal IRA accounts) involuntarily if, after sixty days' written
notice, the account's net asset value remains below a $500 minimum balance. The
contingent deferred sales charge will not be imposed upon such involuntary
redemptions.
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<PAGE> 38
WHAT KIND OF PAPERWORK IS INVOLVED IN SELLING SHARES?
Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming A, B
or K Shares. If you own both A or K and B Shares of the Fund, A or K Shares will
be redeemed first unless you request otherwise. Certain types of redemption
requests will need to include a signature guarantee. Signature guarantees must
accompany redemption requests for (i) an amount in excess of $50,000 per day,
(ii) any amount if the redemption proceeds are to be sent somewhere other than
the address of record on the Company's books, or (iii) an amount of $50,000 or
less if the address of record has not been on the Company's books for sixty
days.
You may obtain a signature guarantee from: (i) a bank which is a member of the
FDIC; (ii) a trust company; (iii) a member firm of a national securities
exchange; or (iv) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." The Transfer Agent will not
accept guarantees from notaries public.
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?
The Company will make payment for all shares redeemed after the Transfer Agent
receives a request in proper form, except as provided by the rules of the
Securities and Exchange Commission. If the shares to be redeemed have been
purchased by check or by TeleTrade, the Company will, upon the clearance of the
purchase check or TeleTrade payment, mail the redemption proceeds within seven
business days. This does not apply to situations where the Fund receives payment
in cash or immediately available funds for the purchase of shares. The Company
may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend the recordation of the transfer of shares) for
such periods as are permitted under the 1940 Act.
Bank of America and the Service Organizations are responsible for transmitting
redemption orders and crediting their customers' accounts with redemption
proceeds on a timely basis.
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER I HAVE REDEEMED SHARES?
You may reinvest all or any portion of your redemption proceeds in shares of the
Fund, in shares of the same class of the Fund out of which you redeemed, in like
shares of another Fund in the Pacific Horizon Family of Funds or in like shares
of any investment portfolio of Time Horizon Funds within 90 days of your
redemption trade date without paying a sales load. Upon such a reinvestment, the
Fund's distributor will credit to your account any contingent deferred sales
charge imposed on any redeemed B Shares, A Shares subject to the Large
Purchase Exemption or any Pacific Horizon Shares of the Pacific Horizon Prime
Fund. Shares so
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<PAGE> 39
reinvested will be purchased at a price equal to the net asset value next
determined after the Transfer Agent receives a reinstatement request and payment
in proper form.
If you wish to use this Privilege, you must submit a written reinstatement
request to the Transfer Agent stating that you are eligible to use the
Privilege. The reinstatement request and payment must be received within 90 days
of the trade date of the redemption. Currently, there are no restrictions on the
number of times you may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
DIVIDEND AND DISTRIBUTION POLICIES
Shareholders of the Fund are entitled to dividends and distributions arising
from the net investment income and net realized gains, if any, earned on
investments in the Fund which are allocable to the Fund. The Fund's net income
and net realized capital gains (if any) are distributed at least annually.
You will automatically receive dividends and capital gain distributions in
additional shares of the same class of shares of the Fund for which the dividend
was declared without a sales load unless you: (i) elect in writing to receive
payment in cash; or (ii) elect to participate in the Directed Distribution Plan
described in the section entitled "Can My Dividends From A Fund Be Invested In
Other Funds?"
To elect to receive payment in cash, or to revoke such election, you must do so
in writing to the Transfer Agent, at P.O. Box 80221, Los Angeles, California
90080-9909. The election or revocation will become effective with respect to
dividends paid after it is received by the Transfer Agent.
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<PAGE> 40
SHAREHOLDER SERVICES
PACIFIC HORIZON FUNDS, INC. PROVIDES A VARIETY OF WAYS TO MAKE MANAGING YOUR
INVESTMENTS MORE CONVENIENT.
Some or all of the following services and privileges as well as others described
in this Prospectus may not be available for, or may have different conditions
imposed on them than as described in this Prospectus with respect to, certain
clients of Bank of America and particular Service Organizations. Consult these
entities for more information.
CAN I USE THE FUND IN MY RETIREMENT PLAN?
The Company makes available Individual Retirement Accounts ("IRAs"), including
IRAs set up under a Simplified Employee Pension Plan ("SEP-IRAs") and IRA
"Rollover Accounts."
YOUR INVESTMENTS GROW TAX DEFERRED UNTIL WITHDRAWAL AT RETIREMENT AND IN MANY
CASES THE INITIAL INVESTMENT IS TAX DEDUCTIBLE.
The contingent deferred sales charge with respect to B Shares and A Shares
subject to the Large Purchase Exemption will not be charged on redemptions in
connection with minimum required distributions from an IRA due to a shareholder
having reached age 70-1/2. For details, contact the Fund's distributor at
800-332-3863. Investors should also read the IRA Disclosure Statement and the
Bank Custodial Agreement for further details on eligibility, service fees and
tax implications, and should consult their tax advisers.
Additionally, K Shares are available to businesses and other organizations that
participate in the Daily Advantage(R) Program sponsored by Bank of America and
to Qualified IRA Rollovers.
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<PAGE> 41
CAN I EXCHANGE MY INVESTMENT FROM ONE
FUND TO ANOTHER?
As a shareholder, you have the privilege of exchanging your shares for: like
shares of another Pacific Horizon Fund, or like shares of any Time Horizon Fund,
provided that such other shares may be legally sold in your state of residence.
Specifically, A Shares may be exchanged for other A Shares, B Shares may be
exchanged for other B Shares, and K Shares may be exchanged for other K Shares.
NO ADDITIONAL SALES LOAD WILL BE INCURRED WHEN EXCHANGING A SHARES PURCHASED
WITH A SALES LOAD FOR A SHARES OF ANOTHER LOAD FUND OF THE COMPANY OR TIME
HORIZON FUNDS. B SHARES MAY BE EXCHANGED FOR B SHARES OR FOR PACIFIC HORIZON
SHARES OF THE PACIFIC HORIZON PRIME FUND WITHOUT THE PAYMENT OF ANY CONTINGENT
DEFERRED SALES CHARGE AT THE TIME THE EXCHANGE IS MADE. IN ADDITION, PACIFIC
HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND THAT WERE ACQUIRED THROUGH AN
EXCHANGE OF B SHARES, MAY BE EXCHANGED FOR B SHARES WITHOUT THE PAYMENT OF ANY
CONTINGENT DEFERRED SALES CHARGE AT THE TIME THE EXCHANGE IS MADE. IN
DETERMINING THE HOLDING PERIOD FOR CALCULATING THE CONTINGENT DEFERRED SALES
CHARGE PAYABLE UPON REDEMPTION OF B SHARES, THE HOLDING PERIOD OF THE SHARES
ORIGINALLY HELD WILL BE ADDED TO THE HOLDING PERIOD OF THE SHARES ACQUIRED
THROUGH THE EXCHANGE UNLESS THE SHARES ACQUIRED THROUGH THE EXCHANGE ARE PACIFIC
HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND. THE TIME PERIOD DURING WHICH
PACIFIC HORIZON SHARES OF THE PACIFIC HORIZON PRIME FUND ACQUIRED THROUGH AN
EXCHANGE ARE HELD IS NOT INCLUDED WHEN THE AMOUNT OF THE CONTINGENT DEFERRED
SALES CHARGE IS CALCULATED.
Neither a contingent deferred sales load nor a front-end sales load will be
imposed if a shareholder who has entered a Fund under the Large Purchase
Exemption exchanges shares between Funds of the Company or Time Horizon Funds.
However, shares acquired in the exchange will remain subject to the contingent
deferred sales load discussed above. The contingent deferred sales load is
calculated as a percentage of the lesser of the current market value or the cost
of the shares being redeemed. This means that this charge will not be imposed
upon increases in net asset value above the initial purchase price or upon
reinvested dividends. In determining whether a contingent deferred sales charge
is applicable to a redemption of such shares, the calculation will be made in a
manner that results in the lowest possible rate. It will be assumed that the
redemption is made first of amounts representing shares acquired pursuant to the
reinvestment of dividends and distributions; then of amounts representing the
increase in net asset value of your holdings of shares above the total amount of
payments for the purchase of shares during the preceding 2 years; then of
amounts representing the cost of shares held beyond the applicable contingent
deferred sales charge period; and finally, of amounts representing the cost of
the shares held for the longest period of time.
An investment in the Fund automatically entitles you to use this Privilege,
unless you indicate on the Account Application or in a subsequent letter to the
Transfer Agent that you do not wish to use this Privilege.
-39-
<PAGE> 42
Fund shares being exchanged must have a current value of at least $500 and are
subject to the minimum initial investment requirements of the particular fund
into which the exchange is being made. You may obtain prospectuses regarding the
funds into which you wish to make an exchange from your Service Organization or
the Fund's distributor.
You may provide exchange instructions by telephone by calling the Transfer Agent
at 800-346- 2087. (See the section below entitled "What Is TeleTrade?" for a
description of the Company's policy regarding responsibility for telephone
instructions.) You may also send exchange instructions in writing by following
directions set forth previously under "How to Sell Shares."
An exchange is considered a sale of shares of a Fund and the purchase of shares
of another Fund and may result in a capital gain or loss for federal income tax
purposes.
If you would like more information on making an exchange, please read the
Statement of Additional Information and consult your Service Organization or the
Fund's distributor.
The Fund reserves the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice of
any material modification to or termination of the Exchange Privilege will be
given to shareholders except where notice is not required under the regulations
of the Securities and Exchange Commission.
WHAT IS TELETRADE?
TELETRADE IS A SERVICE WHICH ALLOWS YOU TO AUTHORIZE ELECTRONIC TRANSFERS OF
MONEY TO PURCHASE SHARES IN OR REDEEM SHARES FROM AN ESTABLISHED FUND ACCOUNT.
THE SERVICE MAY BE USED LIKE AN "ELECTRONIC CHECK" TO MOVE MONEY BETWEEN AN
ACCOUNT AT A FINANCIAL INSTITUTION AND A FUND ACCOUNT WITH A SINGLE TELEPHONE
CALL.
Purchase and redemption proceeds with respect to TeleTrade transactions will be
transferred between your Fund account and the checking, NOW or bank money market
account designated by you. Only an account maintained at a domestic financial
institution that is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the public offering price next
determined after the Transfer Agent receives payment for the transaction.
Redemption proceeds will be on deposit in your account at your financial
institution generally two business days after the redemption request is received
by the Transfer Agent. You may also request receipt of your redemption proceeds
by check, which will only be payable to the registered owners of your Fund
account and will be sent only to the address of record.
You should note that the Transfer Agent may act upon a telephone redemption
request (including a telephone wire redemption request) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Neither the Company nor any of its service
contractors will be liable for any loss or expense caused by acting upon
telephone
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<PAGE> 43
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable, including requesting certain personal
or account information to confirm the identity of the shareholder. If you should
experience difficulty in contacting the Transfer Agent to place telephone
redemptions (including telephone wire redemptions), for example because of
unusual market activity, you are urged to consider redeeming your shares by mail
or in person.
The Company may modify the TeleTrade Privilege at any time or charge a service
fee upon notice to shareholders. No such fee currently is contemplated.
CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS
MADE ON A REGULAR BASIS?
YOU MAY ARRANGE, THROUGH THE AUTOMATIC INVESTMENT PROGRAM, FOR SYSTEMATIC
INVESTMENTS IN YOUR FUND ACCOUNT IN AMOUNTS OF $50 OR MORE BY DIRECTLY DEBITING
YOUR ACCOUNT AT YOUR FINANCIAL INSTITUTION. At your option, your checking, NOW
or bank money market account designated by you will be debited in the specified
amount, and Fund shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only accounts maintained at a
domestic financial institution which permits automatic withdrawals and is an
Automated Clearing House member are eligible. The Automatic Investment Program
is one means by which you may use Dollar Cost Averaging in making investments.
WHAT IS DOLLAR COST AVERAGING
AND HOW CAN I IMPLEMENT IT?
DOLLAR COST AVERAGING INVOLVES INVESTING A FIXED DOLLAR AMOUNT AT REGULAR
PREDETERMINED INTERVALS. BECAUSE MORE SHARES ARE BOUGHT DURING PERIODS WITH
LOWER SHARE PRICES AND FEWER SHARES ARE BOUGHT WHEN THE PRICE IS HIGHER, YOUR
AVERAGE COST PER SHARE MAY BE REDUCED. You may also implement Dollar Cost
Averaging on your own initiative or through other entities.
In order to be effective, Dollar Cost Averaging should be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while you may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if you ultimately redeem
your shares at a price that is lower than their purchase price.
To establish an Automatic Investment Account that uses the Dollar Cost Averaging
method, check the appropriate box and supply the necessary information on the
Account Application or in a subsequent written request to the Transfer Agent.
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<PAGE> 44
You may cancel this Privilege or change the amount of purchase at any time by
mailing written notification to the Transfer Agent.
Notification will be effective three business days following receipt. The Fund
may modify or terminate this Privilege at any time or charge a service fee,
although no such fee currently is contemplated.
CAN I ARRANGE PERIODIC WITHDRAWALS?
IF YOU ARE A SHAREHOLDER WITH A FUND ACCOUNT VALUED AT $5,000 OR MORE, YOU MAY
WITHDRAW AMOUNTS IN MULTIPLES OF $50 FROM YOUR ACCOUNT ON A MONTHLY, QUARTERLY,
SEMI-ANNUAL OR ANNUAL BASIS THROUGH THE AUTOMATIC WITHDRAWAL PLAN.
At your option, monthly, quarterly, semi-annual or annual withdrawals will be
made on either the first or fifteenth day of the particular month selected. To
participate in this Plan, check the appropriate box and supply the necessary
information on the Account Application or in a subsequent signature guaranteed
written request to the Transfer Agent. Purchases of additional shares
concurrently with withdrawals are ordinarily not advantageous because of the
Fund's sales load. Use of this Plan may also be disadvantageous for B Shares or
A Shares subject to the Large Purchase Exemption due to the potential need to
pay a contingent deferred sales charge.
CAN MY DIVIDENDS FROM THE FUND BE INVESTED
IN OTHER FUNDS?
You may elect to have your dividends, capital gains distributions, or both
("distribution proceeds") received from a non-retirement Fund account
automatically invested in shares of any other investment portfolio of the
Company, or in like shares of any Time Horizon Fund, provided such shares are
held in a non-retirement account. To participate in this program, known as the
Directed Distribution Plan, check the appropriate box and supply the necessary
information on the Account Application or subsequently send a written request to
the Transfer Agent. Participants in the Directed Distribution Plan are subject
to the minimum initial investment requirements of the particular fund involved.
Investments will be made at a price equal to the net asset value of the
purchased shares next determined after receipt of the distribution proceeds by
the Transfer Agent.
There are no subsequent investment requirements for accounts to which
distribution proceeds are directed nor are service fees currently charged for
effecting these transactions.
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IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
YOU MAY PURCHASE FUND SHARES BY HAVING PAYMENTS AUTOMATICALLY DEPOSITED INTO
YOUR FUND ACCOUNT (MINIMUM OF $50 AND MAXIMUM OF $50,000 PER TRANSACTION) IF YOU
RECEIVE A FEDERAL SALARY, SOCIAL SECURITY OR CERTAIN VETERAN'S, MILITARY OR
OTHER PAYMENTS FROM THE FEDERAL GOVERNMENT. Subject to these limitations, you
may deposit as much of your payments as you wish.
For instructions on how to enroll in this Direct Deposit Program, call the
Transfer Agent at 800- 346-2087.
Note: Death or legal incapacity will terminate participation in the Program. You
may also choose at any time to terminate your participation by notifying the
appropriate federal agency in writing. Further, the Fund may terminate your
participation after 30 days' notice.
THE BUSINESS OF THE FUND
FUND MANAGEMENT
The business affairs of Pacific Horizon Funds, Inc. are managed under the
general supervision of its Board of Directors. Information about the Directors
and Officers of the Company is included in the Statement of Additional
Information under "Management."
EXPENSES
Operating expenses borne by the Fund include taxes, fees and expenses of the
directors, and officers, investment advisory, administration, custodial and
transfer agency fees, certain insurance premiums, outside auditing and legal
expenses, cost of shareholder reports and meetings and any extraordinary
expenses. Fund expenses also include Securities and Exchange Commission fees,
state securities qualification fees, cost of preparing and printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing shareholders, and certain shareholder servicing fees.
Except as noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services, and the Fund bears the
expenses incurred in their operation.
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<PAGE> 46
SERVICE PROVIDERS
INVESTMENT ADVISER
Bank of America serves as Investment Adviser of the Fund. Bank of America is a
subsidiary of BankAmerica Corporation, a registered bank holding company. Its
principal offices are located at 555 California Street, San Francisco,
California 94104.
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking, business
credit and thrift offices in major U.S. cities. In addition, it has branches,
corporate offices and representative offices in 36 foreign countries.
In its advisory agreement, Bank of America has agreed to manage the Fund's
investments and to be responsible for, place orders for, and make decisions with
respect to, all purchases and sales of the Fund's securities. The advisory
agreement also provides that Bank of America may, in its discretion, provide
advisory services through its own employees or employees of one or more of its
affiliates that are under the common control of Bank of America's parent,
BankAmerica Corporation, provided such employees are under the management of
Bank of America. Bank of America may also employ a sub-adviser provided that
Bank of America remains fully responsible to the Fund for the acts and
omissions of the sub-adviser. In addition, notwithstanding any such employment
or association, Bank of America shall itself (a) establish and monitor general
investment criteria and policies for the Fund, (b) review and analyze on a
periodic basis the Fund's portfolio holdings and transactions in order to
determine their appropriateness in light of the Fund's shareholder base, and (c)
review and analyze on a periodic basis the policies established by any
sub-adviser for the Fund with respect to the placement of orders for the
purchase and sale of portfolio securities.
Since the commencement of operations of the Fund, E. Keith Wirtz has been the
manager of the Fund. Mr. Wirtz is a senior vice president and chief investment
officer of Bank of America, his employer since 1992. Previously, he was trust
investment manager with Security Pacific Bank for a ten year period. Mr. Wirtz
is a Chartered Financial Analyst.
For the services provided and expenses assumed under the advisory agreement,
Bank of America is entitled to receive a fee at the annual rate of 0.75% of the
Fund's average daily net assets. This fee is higher than that paid by other
investment companies but is comparable to fees paid by other investment
companies with similar investment objectives and policies. This amount may be
reduced pursuant to undertakings by Bank of America. (See the information below
under "Fee Waivers").
In addition, Bank of America and its affiliates may be entitled to fees under
the Shareholder Services Plan, Distribution and Services Plan, Distribution Plan
and Administrative and
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<PAGE> 47
Shareholder Services Plan as described under "Plan Payments" below, and may
receive fees charged directly to their accounts in connection with investments
in Fund shares.
SUB-ADVISER
Wellington Management Company, LLP, ("Wellington Management") a Massachusetts
limited liability partnership with principal offices at 75 State Street, Boston,
Massachusetts 02109 , provides sub-advisory services to the Fund. Subject to the
oversight and supervision of the Adviser and the Company's Board of Directors,
the Sub-Adviser will provide a continuous investment program for the Fund,
including investment research and management with respect to all securities,
investments, cash and cash equivalents in the Fund. Wellington Management will
from time to time determine what securities and other investments will be
purchased, retained or sold by the Fund.
Wellington Management is entitled to a fee, payable by the Adviser, for its
services and expenses incurred with respect to the Fund. The fee is computed
daily and paid monthly at the following annual rates (as a percentage of the
Fund's average daily net assets), which vary according to the level of fund
assets: 0.40% on the Fund's first $50 million of average daily net assets, 0.30%
on the next $100 million, 0.25% on the next $350 million and 0.20% of the Fund's
average daily net assets in excess of $500 million.
Since January 1, 1997, the International Equity Fund has been managed by
Wellington Management's Global Equity Strategy Group, a group of global
portfolio managers and senior investment professionals headed by Trond
Skramstad. Mr. Skramstad joined Wellington Management in 1993 as the firm's
Director of International Equity Investments. Prior to joining Wellington
Management, Mr. Skramstad was a Principal at Scudder, Stevens & Clark, Inc.
ADMINISTRATOR
The BISYS Group, Inc. ("BISYS") serves as Administrator of the Fund . Its
offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035 and 150
Clove Road, Little Falls, New Jersey 07424. Prior to November 1, 1996, Concord
Holding Corporation ("Concord"), an indirect, wholly-owned subsidiary of BISYS
served as administrator.
Under its administration agreements with the Company , BISYS has agreed to: pay
the costs of maintaining the offices of the Company ; provide a facility to
receive purchase and redemption orders; provide statistical and research data,
data processing services, and clerical services; coordinate the preparation of
reports to shareholders of the Fund and the Securities and Exchange Commission;
prepare tax returns; maintain the registration or qualification of the Fund's
shares for sale under state securities laws; maintain books and records of the
Fund ; calculate the net asset value of the Fund ; calculate the dividends and
capital gains distributions paid to shareholders and generally assist in all
aspects of the operations of the Fund.
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For its services as administrator, BISYS is entitled to receive an
administration fee from the Fund at the annual rate of 0.20% of the Fund's
average daily net assets . This amount may be reduced pursuant to undertakings
by BISYS. (See the information below under "Fee Waivers").
Pursuant to the authority granted in its administration agreements, BISYS or a
subcontractor has entered into an agreement with PFPC, Inc. ("PFPC") under which
PFPC and an off-shore affiliate of PFPC perform certain of the services listed
above, e.g., calculating the net asset value of the Fund , calculating
dividends and capital gains distributions to shareholders, and maintaining the
books and records of the Fund . The Fund bears all fees and expenses charged
by PFPC for these services.
DISTRIBUTOR
The Fund's shares are sold on a continuous basis by Concord Financial Group,
Inc. (the "Distributor"). The Distributor is an indirect, wholly owned
subsidiary of BISYS and is located at 3435 Stelzer Road, Columbus, Ohio
43219-3035.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, National Association, Broad and Chestnut Streets, Philadelphia,
Pennsylvania, 19101 serves as the Custodian of the Fund . BISYS Fund Services,
Inc., a wholly-owned subsidiary of BISYS, is the transfer and dividend
disbursing agent of the Fund and is located at 3435 Stelzer Road, Columbus, Ohio
43219-3035.
FEE WAIVERS
Except as noted in this Prospectus, the service contractors bear all expenses in
connection with the performance of their services, and the Fund bears the
expenses incurred in its operations. Expenses can be reduced by voluntary fee
waivers and expense reimbursements by Bank of America and other service
providers as well as by certain expense limitations imposed by state securities
regulators. Periodically, during the course of the Fund's fiscal year, Bank of
America, BISYS and/or the Distributor may prospectively choose not to receive
fee payments and/or may assume certain Fund expenses as a result of
competitive pressures and in order to preserve and protect the business and
reputation of BISYS and Bank of America. However, the service providers retain
the ability to discontinue such fee waivers and/or expense reimbursements at any
time.
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TAX INFORMATION
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING
THE FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
MADE TO YOU. YOU SHOULD SAVE YOUR ACCOUNT STATEMENTS BECAUSE THEY
CONTAIN INFORMATION YOU WILL NEED TO CALCULATE YOUR
CAPITAL GAINS OR LOSSES UPON YOUR ULTIMATE SALE OR
EXCHANGE OF SHARES IN THE FUND.
As with any investment, you should consider the tax implications of an
investment in the Fund. The following is only a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Consult your tax adviser with specific reference to your own tax situation.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code, as amended (the "Code"), for the current taxable year,
and the Fund intends that it will so qualify in future years as long as such
qualification is in the best interests of its shareholders. As a result of this
qualification, the Fund generally is not required to pay federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Distributions (whether received in cash or additional shares) derived from
ordinary income and/or the excess of net short-term capital gains over net
long-term capital loss are taxable to you as ordinary income. It is not
anticipated that any such distribution from the Fund will qualify for the
dividends received deduction allowed to corporations.
Any distribution you receive comprised of the excess of net long-term capital
gains over net short-term capital losses ("capital gain dividend") will be taxed
as a long-term capital gain no matter how long you have held Fund shares. Such
dividends are not eligible for the dividends received deduction allowed to
corporations.
A distribution paid to you by the Fund in January of a particular year will be
deemed for tax purposes to have been received by you on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a specified date in October, November or December of that preceding
year. If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, will be
taxable to you.
You may realize a taxable capital gain (or loss) upon redemption or exchange of
Fund shares, depending upon the tax basis of your shares and their price at the
time of such redemption or exchange. If you hold Fund shares for six months or
less and during that time receive a capital
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<PAGE> 50
gain dividend on those shares, any loss realized on the sale or exchange of
those shares will be treated as a long-term capital loss to the extent of the
capital gain dividend.
Generally, you may include sales loads incurred in the purchase of Fund shares
in your tax basis when determining your gain (or loss) on a redemption or
exchange of these shares. However, if you exchange such shares for shares of
another investment portfolio of the Company within 90 days of the purchase and
are able to reduce the sales load on the new shares through the Exchange
Privilege, the reduction may not be included in the tax basis of your exchanged
shares for the purpose of calculating your gain or loss from the exchange. It
may be included in the tax basis of the new shares, subject to this same
limitation.
Certain interest income and dividends earned by the Fund from foreign
securities is expected to be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. The Fund may make this
election. As a consequence, the amount of these foreign taxes paid by the Fund
will be included in the income of the Fund's shareholders pro rata (in addition
to taxable distributions actually received by them), and a shareholder will be
entitled either (a) to credit their proportionate amount of such taxes against
his U.S. federal income tax liabilities, or (b) if they itemize their
deductions, to deduct such proportionate amounts from their U.S. income.
Certain realized gains or losses on the sale or retirement of foreign bonds held
by the Fund, to the extent attributable to fluctuations in currency or
exchange rates, as well as other gains or losses attributable to exchange rate
fluctuations, are typically treated as ordinary income or loss. Such income or
loss may increase or decrease (or possibly eliminate) income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, income available for distribution is decreased or
eliminated, all or a portion of the dividends declared by the Fund may be
treated for federal income tax purposes as a return of capital, or, in some
circumstances, as capital gains. Generally, your tax basis in your Fund shares
will be reduced to the extent that an amount distributed to you is treated as a
return of capital.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of the dividends paid to any investor (i) who has provided either
an incorrect Social Security Number or Taxpayer Identification Number or no
number at all, (ii) who is subject to withholding by the Internal Revenue
Service for failure properly to include on this return payments of interest or
dividends, or (iii) who has failed to certify to the Fund, when required to do
so, that he is not subject to backup withholding or that he is an "exempt
recipient."
State and Local Taxes
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You should consult your tax adviser regarding state and local tax consequences
which may differ from the federal tax consequences described above.
MEASURING PERFORMANCE
THE FUND'S PERFORMANCE MAY BE QUOTED IN TERMS OF AVERAGE
ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN. PERFORMANCE
INFORMATION IS HISTORICAL AND IS NOT INTENDED TO INDICATE FUTURE RESULTS.
Average annual total return reflects the average annual percentage change in
value of an investment in the Fund over the period being measured, while
aggregate total return reflects the total percentage change in value over the
period being measured.
Periodically, the Fund's total return (calculated on an average annual total
return and/or an aggregate total return basis for various periods) may be quoted
in advertisements or in communications to shareholders. Both methods of
calculating total return assume dividends and capital gains distributions made
by the Fund during the period are reinvested in Fund shares, and include the
maximum front-end sales charge for A Shares and the applicable contingent
deferred sales charge for B Shares. The Fund may also advertise total return
data without reflecting the sales load imposed on the purchase of Fund shares in
accordance with the rules of the Securities and Exchange Commission. Quotations
that do not reflect the sales load will, of course, be higher than quotations
that do reflect sales loads.
The Fund may compare its total return to that of other mutual funds with similar
investment objectives and to stock and other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor mutual fund performance. For example, the Fund's total return may
be compared to data prepared by: Lipper Analytical Services, Inc.; Mutual Fund
Forecaster; Morningstar; Micropal; Wiesenberger Investment Companies Services;
or CDA Investment Technologies, Inc.
Total return data as reported in national financial publications such as Money,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in local or
regional publications, may also be used in comparing Fund performance. The
Fund's total return also may be compared to indices such as: the Europe, Asia
and Far East Index ("EAFE"); the Dow Jones Industrial Average; the Financial
Times World Stock Index; the Lipper International Fund Index; the Standard &
Poor's 500 Stock Index; the Wilshire 5000 Equity Indexes; or the Consumer Price
Index.
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Since the Fund's performance will fluctuate, it should not be compared with bank
deposits, savings accounts and similar investments that often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments in a portfolio, portfolio
maturity, operating expenses and market conditions. Not included in the Fund's
calculations of total return are fees charged by Bank of America and Service
Organizations directly to their customer accounts in connection with investments
in the Fund (e.g. account maintenance fees, compensating balance requirements or
fees based upon account transactions, assets or income).
DESCRIPTION OF SHARES
THE COMPANY IS A MARYLAND CORPORATION THAT WAS ORGANIZED ON OCTOBER 27, 1982.
ABOUT THE COMPANY
THE COMPANY'S CHARTER AUTHORIZES THE BOARD OF DIRECTORS TO ISSUE UP TO TWO
HUNDRED BILLION FULL AND FRACTIONAL SHARES OF CAPITAL STOCK ($.001 PAR VALUE PER
SHARE) AND TO CLASSIFY AND RECLASSIFY ANY AUTHORIZED AND UNISSUED SHARES INTO
ONE OR MORE CLASSES OF SHARES.
The Board of Directors has authorized the issuance of 40 million shares of Class
T Common Stock, 60 million shares of Class T--Special Series 3 Common Stock and
50 million shares of Class T--Special Series 5 Common Stock, representing
interests in the Fund; and additional classes of shares representing interests
in other investment portfolios of the Company. Class T Common Stock are the "A"
Shares; Class T--Special Series 3 Common Stock are the "B" Shares and Class
T--Special Series 5 Common Stock are the "K" Shares. The Board of Directors may
similarly classify or reclassify any class of shares (including unissued Class T
Common Stock, Class T--Special Series 3 Common Stock or Class T--Special Series
5 Common Stock) into one or more series. For more information about the
Company's other portfolios, contact the Company at the telephone number listed
on the inside cover page.
Shares representing interests in the Fund are entitled to participate in the
dividends and distributions declared by the Board of Directors and in the net
distributable assets of the Fund upon liquidation. Fund shares have no
preemptive rights and only such conversion and exchange rights as the Board may
grant in its discretion. When issued for payment as described in this
Prospectus, Fund shares will be fully paid and non-assessable.
VOTING RIGHTS
SHAREHOLDERS ARE ENTITLED TO ONE VOTE FOR EACH FULL SHARE HELD AND FRACTIONAL
VOTES FOR FRACTIONAL SHARES HELD. Fund shares have cumulative voting rights to
the extent that may be required by applicable law. Additionally, shareholders
will vote in the aggregate and not by
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class or series, except as required by law (or when permitted by the Board of
Directors). Only A Shares will vote on matters relating solely to A Shares, B
Shares will vote on matters relating solely to B Shares, and K Shares will vote
on matters relating solely to K Shares. The Fund does not presently intend to
hold annual meetings of shareholders to elect directors or for other business
unless and until such time as less than a majority of the directors holding
office has been elected by the shareholders. At that time, the directors then in
office will call a shareholders' meeting for the election of directors. Under
certain circumstances, however, shareholders have the right to call a
shareholder meeting to consider the removal of one or more directors. Such
meetings will be held when requested by the shareholders of 10% or more of the
Company's outstanding shares of common stock. The Fund will assist in
shareholder communications in such matters to the extent required by law and the
Company's undertaking with the Securities and Exchange Commission.
PLAN PAYMENTS
THE COMPANY HAS ADOPTED A SHAREHOLDER SERVICES PLAN (THE
"PLAN") FOR A SHARES, A DISTRIBUTION AND SERVICES PLAN
FOR B SHARES, AND A DISTRIBUTION PLAN AND AN
ADMINISTRATIVE AND SHAREHOLDER SERVICES PLAN FOR K SHARES.
The Company has adopted a Shareholder Services Plan for A Shares, under which
the A Shares of the Fund reimburse the Distributor for shareholder servicing
fees the Distributor pays to Service Organizations. The Company has also adopted
a Distribution and Services Plan pursuant to Rule 12b-1 under the 1940 Act,
under which the B Shares of the Fund reimburse the Distributor for services
rendered and costs incurred in connection with distribution of the B Shares and
for shareholder servicing fees the Distributor pays to Service Organizations.
The Company has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act under which the K Shares of the Fund reimburse the Distributor for
services rendered and costs incurred in connection with distribution of the K
Shares. The Company has also adopted an Administrative and Shareholder Services
Plan for K Shares, under which K Shares of the Fund reimburse the Distributor
for administrative and shareholder servicing fees the Distributor pays to
Service Organizations.
SHAREHOLDER SERVICES PLAN
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of Fund shares,
such as: establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
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Under the Plan, payments by the Fund for shareholder servicing expenses may not
exceed 0.25% (annualized) of the average daily net assets of the Fund's A
Shares. Excluded from this calculation, however, are all shares acquired via a
transfer of assets from trust and agency accounts at Bank of America. This
amount may be reduced pursuant to undertakings by the Distributor.
If in any month the Distributor is due more monies than are immediately payable
because of the percentage limitation described above, the unpaid amount is
"carried forward" from month to month while the Plan is in effect until such
time when it may be paid. However, any "carried forward" amounts will not be
payable beyond the fiscal year during which the amounts are accrued. No
interest, carrying or other finance charge is borne by the Fund with respect to
the amount "carried forward."
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. If a bank were
prohibited from acting as a Service Organization, its shareholder clients would
be permitted to remain Company shareholders and alternative means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Company might occur and a shareholder serviced by such bank
might no longer be able to avail itself of the automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
DISTRIBUTION AND SERVICES PLAN, DISTRIBUTION PLAN AND ADMINISTRATIVE AND
SHAREHOLDER SERVICES PLAN
Under the Distribution and Services Plan and Distribution Plan, the Fund pays
the Distributor for distribution expenses primarily intended to result in the
sale of the Fund's B and K Shares and with respect to B Shares, for shareholder
servicing expenses. Such distribution expenses include expenses incurred in
connection with advertising and marketing the Fund's B and K Shares; payments to
Service Organizations for assistance in connection with the distribution of B
and K Shares; and expenses incurred in connection with preparing, printing and
distributing prospectuses for the Fund (except those used for regulatory
purposes, for solicitation or distribution to existing or potential A
shareholders, or for distribution to existing B and K shareholders of the Fund)
and in implementing and operating the Distribution and Services Plan and
Distribution Plan.
Shareholder servicing expenses under the Distribution and Services Plan and
Administrative and Shareholder Services Plan include, but are not limited to,
expenses incurred in connection with shareholder services provided by the
Distributor and payments to Service Organizations for the provision of support
services with respect to the beneficial owners of B and K Shares, such as
assisting clients in processing exchange and redemption requests and in changing
dividend options and account descriptions and responding to client inquiries
concerning their investments. Administrative servicing expenses under the
Administrative Services Plan include, but are not
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<PAGE> 55
limited to, expenses incurred in connection with administrative services
provided by the Distributor and payments to Service Organizations for the
provision of administrative services to beneficial owners of K Shares such as
establishing and maintaining accounts and records relating to their clients who
invest in K Shares, providing information to the Fund necessary for accounting
or sub-accounting; and providing statements periodically to clients showing
their position in K Shares.
Under the Distribution and Services Plan and Distribution Plan, payments by the
Fund for distribution expenses may not exceed 0.75% (annualized), of the average
daily net assets of the Fund's B or K Shares. Under the Distribution and
Services Plan and Administrative and Shareholder Services Plan, payments for
shareholder servicing expenses may not exceed 0.25% (annualized) of the average
daily net assets of the Fund's B or K Shares. Under the Administrative and
Shareholder Services Plan, payments for administrative servicing expenses may
not exceed 0.75% (annualized) of the average daily net assets of the Fund's K
Shares. The total of all 12b-1 fees, administrative services fees and
shareholder services fees may not exceed, in the aggregate, the annual rate of
1.00% of the average daily net assets of the Fund's K Shares. These amounts may
be reduced pursuant to undertakings by the Distributor. Payments for
distribution expenses under the Distribution and Services Plan and Distribution
Plan are subject to Rule 12b-1 under the 1940 Act.
The Company will obtain a representation from the Service Organizations (and
from Bank of America and Concord) that they are or will be licensed as dealers
as required by applicable law or will not engage in activities which would
require them to be so licensed.
----------------------------------------------------
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PACIFIC HORIZON FUNDS, INC.
Class A, B and K Shares of the
International Equity Fund
--------------------------------
<TABLE>
<CAPTION>
Part B
Item No. Heading
- -------- -------
<S> <C>
10. Cover Page..................................... Cover Page
11. Table of Contents.............................. Table of Contents
12. General Information and History................ The Company
13. Investment Objectives and Policies............. Investment Objectives and
Policies
14. Management of the Fund......................... Management
15. Control Persons and Principal Holders of ...... Management; Miscellaneous
Securities
16. Investment Advisory and Other Services ........ Management; Investment
Adviser; Sub-Adviser;
Administrator; Distributor and
Plan Payments; Custodian,
Accounting Agent and Transfer
Agent
17. Brokerage Allocation and Other Practices ...... Portfolio Transactions
18. Capital Stock and Other Securities............. General Information;
Description of Shares
19. Purchase, Redemption and Pricing of ........... Additional Purchase and
Securities Being Offered Redemption Information
20. Tax Status..................................... Additional Information
Concerning Taxes
21. Underwriters................................... Management; Distributor and
Plan Payments
22. Calculation of Performance Data................ Total Return
</TABLE>
PART C
Information to be included in Part C is set forth under the appropriate Item, so
numbered in Part C to this Registration Statement.
<PAGE> 57
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
INTERNATIONAL EQUITY FUND
JANUARY __, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY........................................... 2
INVESTMENT OBJECTIVES AND POLICIES.................... 2
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........ 22
ADDITIONAL INFORMATION CONCERNING TAXES............... 30
MANAGEMENT............................................ 33
GENERAL INFORMATION................................... 54
Appendix A............................................ A-1
</TABLE>
This Statement of Additional Information applies to A, B and K Shares
of the Pacific Horizon International Equity Fund (the "Fund") of the Company.
This Statement of Additional Information is meant to be read in conjunction with
the Prospectus dated January __, 1997, as it may from time to time be
revised (the "Prospectus"), and is incorporated by reference in its entirety
into the Prospectus. Because this Statement of Additional Information is not
itself a prospectus, no investment in either A, B or K Shares of the Fund
should be made solely upon the information contained herein. Copies of the
Prospectus relating to the Fund may be obtained by calling Concord Financial
Group, Inc. at 800-332-3863. Capitalized terms used but not defined herein have
the same meaning as in the Prospectus.
<PAGE> 58
THE COMPANY
The Company was organized on October 27, 1982 as a Maryland
corporation. The Fund commenced operations on May 13, 1996 by offering a
single series of shares known as A Shares, and began offering K Shares on July
22, 1996. As of the date of this Statement of Additional Information, no B
Shares were issued or outstanding. Prior to September 1, 1996, the Fund operated
as part of a master-feeder structure and invested all of its assets in a
diversified investment portfolio of an open-end, management investment company
(the "Master Portfolio") which had an identical investment objective. On
September 1, 1996, the Fund withdrew its assets from the Master Portfolio and
invested them directly in portfolio securities.
The Company also offers other investment portfolios which are
described in separate Prospectuses and Statements of Additional Information. For
information concerning these other portfolios contact the Distributor at the
telephone number stated on the cover page of this Statement of Additional
Information.
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus describes the investment objective of the Fund.
The following information supplements and should be read in conjunction with the
descriptions of the investment objective and policies in the Prospectus.
PORTFOLIO TRANSACTIONS
The portfolio turnover rate described in the Prospectus is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover may vary greatly from year to year as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares and by requirements which enable the Company to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions.
Subject to the general control of the Company's Board of
Directors Bank of America National Trust and Savings Association ("Bank of
America" or the "investment adviser") is responsible for, makes decisions with
respect to, and places orders for all purchases and sales of portfolio
securities for the Fund. Wellington Management Company ("Wellington Management"
or the "sub-adviser") serves as the Fund's sub-adviser. References in this
Statement of Additional Information to Bank of America's actions and
responsibilities with respect to the Fund
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<PAGE> 59
shall be deemed to include Wellington Management unless the context clearly
indicates otherwise.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price includes
an undisclosed commission or mark-up. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
In executing portfolio transactions and selecting brokers or
dealers, it is the Fund's policy to seek the best overall terms available. The
Investment Advisory Agreement between the Company and Bank of America, and
the Sub-Advisory Agreement with Wellington Management, provide that, in
assessing the best overall terms available for any transaction, Bank of America
or Wellington Management shall consider factors they deem relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In addition, the Investment Advisory and Sub-Advisory
Agreements authorize Bank of America and Wellington Management, subject to the
approval of the Board, to cause the Fund to pay a broker-dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker-dealer for effecting the same transaction,
provided that such commission is deemed reasonable in terms of either that
particular transaction or the overall responsibilities of Bank of America or
Wellington Management to the Company or the Fund. No prior approval of the Board
is required so long as the broker or dealer selected by Bank of America or
Wellington obtains best price and execution on a particular transaction.
Brokerage and research services may include: (1) advice as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities or purchasers or sellers of securities; and
(2) analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Company or the Fund may be the primary beneficiary of the brokerage or
research
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<PAGE> 60
services received as a result of portfolio transactions effected for such other
accounts or investment companies.
Brokerage and research services so received are in addition to
and not in lieu of services required to be performed by Bank of America or
Wellington Management and do not reduce the advisory fee payable to Bank of
America. Such services may be useful to Bank of America or Wellington Management
in serving both the Company, the Fund and other clients and, conversely,
services obtained by the placement of business of other clients may be useful to
both Bank of America or Wellington Management in carrying out their
obligations to the Company and the Fund. In connection with their
investment management services with respect to the Fund, Bank of America or
Wellington Management will not acquire certificates of deposit or other
securities issued by them or their affiliates, and will give no preference
to certificates of deposit or other securities issued by Service Organizations.
In addition, portfolio securities in general will be purchased from and sold to
affiliates of the Company, the Fund, Bank of America, Wellington Management,
the Distributor and their affiliates acting as principal, underwriter, syndicate
member, market-maker, dealer, broker or in any similar capacity, provided such
purchase, sale or dealing is permitted under the Investment Company Act of 1940
(the "1940 Act") and the rules thereunder.
The Fund may participate, if and when practicable, in
bidding for the purchase of securities of the U.S. Government and its agencies
and instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice only when Bank of America or Wellington Management, in
their sole discretion, subject to guidelines adopted by the Board of Directors
of the Company, believes such practice to be in the interest of the Fund.
To the extent permitted by law, Bank of America or Wellington
Management may aggregate the securities to be sold or purchased on behalf of the
Fund with those to be sold or purchased for other investment companies or
common trust funds in order to obtain best execution.
The Company is required to identify any securities of its
regular brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or
their parents held by the Company as of the close of its most recent fiscal
year. As of February 29, 1996: (a) the Treasury Fund held the following
securities, Repurchase Agreement with Dean Witter, Reynolds, Inc. in the
principal amount of $130,000,000; Repurchase Agreement with Goldman Sachs & Co.
in the principal amount of $375,000,000; Repurchase Agreement with Merrill Lynch
& Co., Inc. in the principal amount of $130,000,000; and Repurchase Agreement
with Morgan Stanley, Inc.
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<PAGE> 61
in the principal amount of $130,000,000; (b) the Government Fund held the
following securities, Repurchase Agreement with Morgan Stanley Group in the
principal amount of $20,000,000; (c) the Prime Fund held the following
securities, Merrill Lynch & Co., Inc. commercial paper in the principal amount
of $50,000,000; Bear Stearns Cos., Inc. monthly variable rate obligation in the
principal amount of $100,000,000; Merrill Lynch & Co., Inc. monthly variable
rate obligation in the principal amount of $50,000,000; Merrill Lynch & Co.,
Inc. quarterly variable rate obligation in the principal amount of $50,000,000;
Merrill Lynch & Co., Inc. quarterly variable rate obligation in the principal
amount of $50,000,000; Dean Witter Discover & Co. quarterly variable rate
obligation in the principal amount of $50,000,000; Goldman Sachs Group L.P.
master note in the principal amount of $220,000,000; Morgan Stanley Group, Inc.
master note in the principal amount of $200,000,000, Repurchase Agreement with
Dean Witter Reynolds, Inc. in the principal amount of $105,000,000; Repurchase
Agreement with Morgan Stanley Group, Inc. in the principal amount of
$105,000,000; Repurchase Agreement with Morgan Stanley Group, Inc. in the
principal amount of $105,000,000; (d) the U.S. Government Securities Fund held
the following securities, Merrill Lynch & Co., Inc. commercial paper in the
principal amount of $3,000,000; (e) the Corporate Bond master portfolio held
the following securities, Goldman Sachs Group LP corporate obligation in the
principal amount of $1,500,000; and Lehman Brothers corporate obligation in the
principal amount of $1,000,000; (f) the Intermediate Bond master portfolio
held the following securities, Morgan Stanley Group medium term note in the
amount of $2,000,000 and Merrill Lynch Mtg. Inv. Inc. $16,000; (g) the Blue Chip
master portfolio held the following securities, Dean Witter common stock in
the principal amount of $2,821,875; and (h) the Asset Allocation master
portfolio held the following securities, Dean Witter common stock in the
principal amount of $1,085,750; Lehman Brothers corporate obligations in the
principal amount of $1,000,000; Morgan Stanley Group medium term note in the
principal amount of $1,500,000; Merrill Lynch & Co., Inc. collateralized
mortgage obligation in the principal amount of $8,000; and Merrill Lynch
commercial paper in the principal amount of $3,500,000.
Merrill Lynch & Co., Inc., Goldman, Sachs & Co., Bear Stearns
Co., Inc., Morgan Stanley & Co. Incorporated, Lehman Brothers, Inc., Dean Witter
Reynolds, Inc. and Paine Webber are considered to be regular brokers and dealers
of the Company.
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<PAGE> 62
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT
INFORMATION
The following discussion supplements the descriptions of such
investments in the Prospectus.
Bank Certificates of Deposit, Bankers' Acceptances and Time
Deposits. Certificates of deposit, bankers' acceptances and time deposits are
eligible investments for the Fund. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' Acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Certificates of Deposit and Bankers Acceptances
may only be purchased from domestic or foreign banks and financial institutions
having total assets at the time of purchase in excess of $2.5 billion (including
assets of both domestic and foreign branches). Time deposits are non-negotiable
deposits maintained at a banking institution for a specified period of time at a
specified interest rate.
Instruments issued by foreign banks or financial institutions
may be subject to investment risks that are different in some respects than the
risks associated with instruments issued by those U.S. domestic issuers. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different
governmental regulations with respect to the amount and types of loans which may
be made and interest rates which may be charged. In addition, the profitability
of the banking industry is dependent largely upon the availability and cost of
funds for the purpose of financing lending operations under prevailing money
market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an
important part in the operations of the banking industry.
As a result of federal and state laws and regulations,
domestic banks are, among other things, required to maintain specified levels of
reserves, limited in the amount which they can loan to a single borrower, and
subject to other regulations
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<PAGE> 63
designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations.
Commercial Paper and Short-Term Notes. The investment policies
of the Fund permit investment in commercial paper and short-term notes.
Commercial paper consists of unsecured promissory notes issued by corporations.
Except as noted below with respect to variable and floating rate instruments,
issues of commercial paper and short-term notes will normally have maturities of
less than 9 months and fixed rates of return, although such instruments may have
maturities of up to one year.
Commercial paper and short-term notes will consist of issues
rated at the time of purchase A- 1 or higher by Standard & Poor's Ratings
Group, Division of McGraw Hill ("S&P"), Prime- 1 or higher by Moody's Investors
Service, Inc. ("Moody's"), or similarly rated by another nationally recognized
statistical rating organization ("NRSRO") ; or if unrated, will be determined
by Bank of America or Wellington Management to be of comparable quality under
procedures established by the Board.
Other Investment Companies. In connection with the management
of its daily cash position, the Fund may invest in the securities of a money
market mutual fund (including money market mutual funds advised by Bank of
America). The Fund is permitted to invest up to 5% of the value of its total
assets in the securities of a money market mutual fund; except that with
respect to the investment in a money market mutual fund advised by Bank of
America, the Fund is permitted to invest the greater of 5% of its net assets
or $2.5 million. However, no more than 10% of the Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate.
Additionally, the Fund may acquire shares of open and closed-end investment
companies. Securities of other investment companies will be acquired within
the limits prescribed by the 1940 Act and the Fund's fundamental investment
limitations. As a shareholder of another investment company, the Fund would
bear along with other shareholders, its pro-rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the advisory and other expenses that the Fund bears directly in connection
with its own operations.
The 1940 Act generally prohibits the Fund from investing
more than 5% of the value of its total assets in any one investment company, or
more than 10% of the value of its total assets in investment companies as a
group, and also restricts its investment in any investment company to 3% of the
voting securities of such investment company. In addition, no more than 10% of
the outstanding voting stock of any one investment company may be owned in the
aggregate by the Fund
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<PAGE> 64
and any other investment company advised by the investment adviser.
Repurchase Agreements. The Fund is permitted to enter into
repurchase agreements with respect to its portfolio securities. Pursuant to such
agreements, the Fund acquires securities from financial institutions such as
banks and broker-dealers which are deemed to be creditworthy subject to the
seller's agreement to repurchase and the agreement of the Fund to resell such
securities at a mutually agreed upon date and price. Although securities subject
to a repurchase agreement may bear maturities exceeding ten years, the Fund
intends only to enter into repurchase agreements having maturities not exceeding
60 days. Repurchase agreements maturing in more than seven days are considered
illiquid investments and investments in such repurchase agreements along with
any other illiquid securities will not exceed 15% of the net assets of the
Fund. The Fund is not permitted to enter into repurchase agreements with Bank of
America , Wellington Management or their affiliates, and will give no
preference to repurchase agreements with Service Organizations. The repurchase
price generally equals the price paid by the Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the underlying portfolio security). Securities subject to repurchase
agreements will be held by the Fund's custodian or sub-custodian or in the
Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to deliver instruments the value of which is 102% of
the repurchase price (excluding accrued interest), provided that notwithstanding
such requirement, the investment adviser or subadviser shall require that the
value of the collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, shall be equal to or greater
than the resale price (including interest) provided in the agreement. If the
seller defaulted on its repurchase obligation, the Fund would suffer a loss
because of adverse market action or to the extent that the proceeds from a sale
of the underlying securities were less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans by the Fund under the 1940
Act.
U.S. Government Obligations. The Fund is permitted to make
investments in U.S. Government obligations. Such obligations include Treasury
bills, certificates of indebtedness, notes and bonds, and issues of such
entities as the Government National Mortgage Association, Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration,
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<PAGE> 65
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation,
and the Student Loan Marketing Association. Treasury bills have maturities of
one year or less, Treasury notes have maturities of one to ten years and
Treasury bonds generally have maturities of more than ten years. Some of these
obligations, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government sponsored
instrumentalities if it is not obligated to do so by law.
Variable and Floating Rate Instruments. The Fund may acquire
variable and floating rate instruments . The actual yield on variable and
floating rate instruments varies not only as a result of variations in the lives
of the underlying securities, but also as a result of changes in prevailing
interest rates. Such instruments are frequently not rated by credit rating
agencies. However, in determining the creditworthiness of unrated variable and
floating rate instruments and their eligibility for purchase by the Fund, Bank
of America or Wellington Management will consider the earning power, cash flow
and other liquidity ratios of the issuers of such instruments (which include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. An active secondary market may
not exist with respect to particular variable or floating rate instruments
purchased by the Fund. The absence of such an active secondary market could
make it difficult to dispose of a variable or floating rate instrument in the
event the issuer of the instrument defaulted on its payment obligation or during
periods that the Fund is not entitled to exercise its demand rights, and the
Fund could, for these or other reasons, suffer a loss to the extent of the
default. Investments in illiquid variable and floating rate instruments
(instruments which are not payable upon seven days' notice and do not have
active trading markets) are subject to a 15% of net assets limitation on
illiquid securities. Variable and floating rate instruments may be secured by
bank letters of credit.
Convertible Securities. The Fund may invest in convertible
securities. Convertible securities entitle the holder to receive interest paid
or accrued on debt or the dividend paid on preferred stock until the convertible
securities mature or are redeemed, converted or exchanged. Prior to
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<PAGE> 66
conversion, convertible securities have characteristics similar to ordinary debt
securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
In selecting convertible securities for the Fund, the
investment adviser and sub-adviser will consider, among other factors, their
evaluation of the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the potential for
capital appreciation of the securities and the underlying stocks; the prices of
the securities relative to other comparable securities and to the underlying
stocks; whether the securities are entitled to the benefits of sinking funds or
other protective conditions; diversification of the Fund as to issuers; and
whether the securities are rated by Moody's, S&P, Duff & Phelps Credit Co.
("D&P") or Fitch Investors Service, Inc. ("Fitch") and, if so, the ratings
assigned.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and their conversion value (their worth, at market value, if
converted into the underlying stock). The investment value of convertible
securities is influenced by changes in interest rates, with investment value
declining as interest rates rise and increasing as interest rates decline, and
by the credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
stock. If the conversion value is low relative to the investment value, the
price of the convertible securities is governed principally by their investment
value. To the extent the market price of the underlying stock approaches or
exceeds the conversion price, the price of the convertible securities will be
increasingly influenced by their conversion value. In addition, convertible
securities generally sell at a premium over their conversion value determined by
the extent to which investors place value on the right to acquire the underlying
stock while holding fixed income securities.
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<PAGE> 67
Reverse Repurchase Agreements. As described in the
Prospectus, the Fund is permitted to borrow funds for temporary purposes by
entering into reverse repurchase agreements with such financial institutions as
banks and broker-dealers in accordance with the investment limitations described
therein. Whenever the Fund enters into a reverse repurchase agreement, it
will place in a segregated account maintained with its custodian liquid assets
such as cash, U.S. Government securities or other liquid high grade debt
securities having a value equal to the repurchase price (including accrued
interest), and Bank of America or Wellington Management will subsequently
continuously monitor the account for maintenance of such equivalent value. The
Fund intends to enter into reverse repurchase agreements to avoid otherwise
having to sell securities during unfavorable market conditions in order to meet
redemptions. Reverse repurchase agreements are considered to be borrowings by
the Fund under the 1940 Act.
Options Trading. The Fund may, under certain circumstances and
in accordance with investment limitations described in its Prospectus, engage in
options trading. Such options may relate to U.S. and foreign securities or to
various stock indices. In addition, the Fund may acquire options relating to
foreign currencies in order to hedge against changes in exchange rates. Such
options may be traded on U.S. exchanges, over-the-counter, and on foreign
exchanges to the extent permitted by law.
Options trading is a highly specialized activity which entails
greater than ordinary investment risks. Regardless of how much the market price
of the underlying security, index or currency increases or decreases, the option
buyer's risk is limited to the amount of the original premium paid for the
purchase of the option. However, options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. A listed call option for a particular
security or amount of currency gives the purchaser of the option the right to
buy from a clearing corporation, and a writer has the obligation to sell to the
clearing corporation the underlying security or currency amount at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security or currency. The premium paid to the writer is
in consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security or amount of currency at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price of the security or currency. In contrast to an option on a
particular security, an option on a stock index provides the holder with the
right to make or receive a cash settlement upon
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<PAGE> 68
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple. Unlisted options are not subject to the protections afforded purchases
of options listed by the Options Clearing Corporation, which performs the
obligations of its members who fail to do so in connection with the purchase or
sale of options. Furthermore, it is the position of the staff of the SEC that
over-the-counter options are illiquid. To the extent that the Fund invests in
options that are illiquid (including over-the-counter options), such investment
will be subject to the Fund's limitations on illiquid securities.
The Fund will continue to receive interest or dividend
income on the securities underlying such puts until they are exercised by the
Fund. Any losses realized by the Fund in connection with its purchase of put
options will be limited to the premiums paid by the Fund for the options plus
any transaction costs. A gain or loss may be wholly or partially offset by a
change in the value of the underlying security which the Fund owns.
The Fund is permitted to write call options if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if the Fund maintains with its custodian cash or
cash equivalents equal to the contract value. A call option is also covered if
the Fund holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its custodian.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an
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<PAGE> 69
exercise notice at any time prior to the expiration of its obligation as a
writer.
If the Fund desires to sell a particular security it owns on
which it has written an option, the Fund will seek to effect a closing
purchase transaction prior to, or concurrently with, the sale of the security.
In order to close out a covered call option position, the Fund will enter into
a "closing purchase transaction" - the purchase of a call option on a security
or stock index with the same exercise price and expiration date as the call
option which it previously wrote on the same security or index.
When the Fund purchases a put or call option, the premium
paid by it is recorded as an asset of the Fund. When the Fund writes an
option, an amount equal to the net premium (the premium less the commission)
received by the Fund is included in the liability section of the statement of
assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded option
is the last sale price or, in the absence of a sale, the average of the closing
bid and asked prices. If an option purchased by the Fund expires unexercised,
the Fund realizes a loss equal to the premium paid. If the Fund enters into
a closing sale transaction on an option purchased by it, the Fund will realize
a gain if the premium received by it on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. Moreover, because
increases in the market price of an option will generally reflect (although not
necessarily in direct proportion) increases in the market price of the
underlying security any loss resulting from a closing purchase transaction is
likely to be offset in whole or in part by appreciation of the underlying
security if such security is owned by the Fund. If an option written by the
Fund expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by the Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indices. For example,
there are significant differences between the securities, currencies and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-counter or on a
national securities exchange
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("Exchange") may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a wellconceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Futures. The Fund may engage in futures contracts. A futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the value of a specified obligation or stock index (which
assigns relative values to the common stocks included in the index) at the close
of the last trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying securities
is normally made. The Fund may not purchase or sell futures contracts and
purchase related options unless immediately after any such transaction the
aggregate initial margin that is required to be posted by the Fund under the
rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Fund on its open futures options
positions, does not exceed 5% of the Fund's total assets, after taking into
account any unrealized profits and losses on the Fund's open contracts and
excluding the amount that a futures option is "in-the-money" at the time of
purchase. An option to buy a futures contract is "in-the-money" if the then
current purchase price of the contract that is subject to the option is less
than the exercise or strike price; an option to sell a futures contract is
"in-the-money" if the exercise or strike price exceeds the then current purchase
price of the contract that is the subject of the option.
Successful use of futures contracts by the Fund is subject
to Bank of America's or Wellington Management's ability to predict correctly
movements in the direction of the stock
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market or interest rates. There are several risks in connection with the use of
futures contracts by the Fund as a hedging devise. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the futures contract may move more than or less than the price of
the securities being hedged. If the price of the futures contract moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by the
loss on the futures contract. If the price of the futures contract moves more
than the price of the hedged securities, the Fund involved will experience
either a loss or gain on the futures contract which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge.
It is also possible that, where the Fund has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also
experience a decline in value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash market
and movements in the price of futures contracts, a correct forecast of general
market trends or interest rate movements by Bank of America or Wellington
Management may still not result in a successful hedging transaction over a short
time frame.
Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures
contracts. Although the Fund intends to purchase or sell futures contracts
only on exchanges or boards of trade where there appear to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
In such event, it may not be possible to close a futures investment position,
and in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. The liquidity of a
secondary market in a futures contract may in addition be adversely
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affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures contract price during a
single trading day. Once the daily limit has been reached in the contract, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open futures positions.
For additional information concerning Futures and options
thereon, please see Appendix B to this Statement of Additional Information.
Options on Futures Contracts. The acquisition of put and call
options on a futures contract will give the Fund the right (but not the
obligation), for a specified price, to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's
assets. By writing a call option, the Fund becomes obligated, in exchange for
the premium, to sell a futures contact, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, which may partially offset an increase in the price of
securities that the Fund intends to purchase. However, the Fund becomes
obligated to purchase a futures contact, which may have a value lower than the
exercise price. Thus, the loss incurred by the Fund in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. The Fund will incur transaction costs in connection with the writing
of options on futures.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option on the same
series. There is no guarantee that such closing transactions can be effected.
The Fund's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
Foreign Investments. In considering whether to invest in the
securities of a foreign company, Bank of America or Wellington Management
consider such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social
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conditions of the country or countries where the company is located.
The Fund may purchase debt obligations issued or guaranteed
by governments (including states, provinces or municipalities) of countries
other than the United States, or by their agencies, authorities or
instrumentalities. The Fund also may invest in bonds of supranational entities
. A supranational entity is an entity established or financially supported by
the national governments of one or more countries to promote reconstruction or
development. Examples of supranational entities include, among others, the
International Bank for Reconstruction and Development (the "World Bank"), the
European Economic Community, the European Coal and Steel Community, the European
Investment Bank, the Inter-American Development Bank, the Export-Import Bank
and the Asian Development Bank. The Fund also may purchase debt obligations
of foreign corporations or financial institutions, such as Yankee bonds
(dollar-denominated bonds sold in the United States by nonU.S. issuers), Samurai
bonds (yen-denominated bonds sold in Japan by non-Japanese issuers and Euro
bonds (bonds not issued in the country (and possibly currency of the country) of
the issuer). The Fund's investments will be allocated among securities
denominated in the currencies of a number of foreign countries and, within each
such country, among different types of debt securities. The percentage of assets
invested in securities of a particular country or denominated in a particular
currency will vary in accordance with Bank of America's or Wellington
Management's assessment of the country's gross domestic product, purchasing
power parity and market capitalization and the relationship of a country's
currency to the United States dollar. Fundamental economic strength, credit
quality and interest rate trends will be the principal factors considered by
Bank of America or Wellington Management in determining whether to increase or
decrease the emphasis placed upon a particular type of security within the
Fund.
Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Fund endeavors to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct
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such transactions. Such delays in settlement could result in temporary periods
when a portion of the assets of the Fund are uninvested and no return is
earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines
in value of the portfolio securities, or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth or gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Investments in foreign securities involve certain inherent
risks, such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
Foreign brokerage commissions and custodian fees are generally higher than in
the United States. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries.
When-Issued Securities, Forward Commitments and Delayed
Settlements. The Fund may agree to purchase securities on a "when-issued," and
"forward commitment" or "delayed settlement" basis. When the Fund agrees to
purchase securities on a "whenissued," "forward commitment" or "delayed
settlement" basis, its custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, the Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the commitment. It may be
expected that the net assets of the Fund will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. The Fund does not intend to engage in these
transactions for speculative purposes but primarily in order to hedge against
anticipated changes in interest rates. Because the Fund will
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set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, its liquidity and the ability of the
investment adviser and sub-adviser to manage it may be affected in the event the
forward commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 25% of the value of the Fund's assets.
The Fund will purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss.
When the Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in the Fund's incurring a
loss or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a whenissued
purchase, forward commitment to purchase securities, or a delayed settlement and
any subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees
to purchase the securities. The Fund does not earn interest on the securities
it has committed to purchase until they are paid for and delivered on the
settlement date.
Securities Lending. The Fund may lend securities. Such loans
will be secured by cash or securities of the U.S. Government and its agencies
and instrumentalities. The collateral must be at all times equal to at least
the market value of the securities loaned and is "marked to market" daily. The
Fund will continue to receive interest or dividends on the securities it loans,
and will also earn interest on the investment of any cash collateral. Cash
collateral may be invested in short-term U.S. Government securities, U.S.
Treasury Notes, certificates of deposit, other high-grade, short-term
obligations or interest-bearing cash equivalents. Although voting rights, or
rights to consent, attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if a material event affecting the investment is to occur.
Illiquid Securities. It is possible that unregistered
securities purchased by the Fund, in reliance upon Rule 144A
under the Securities Act of 1933 (the "1933 Act") could have the
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effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
ADDITIONAL INFORMATION
The investment adviser's and sub-adviser's own investment
portfolios may include bank certificates of deposit, bankers' acceptances,
corporate debt obligations, equity securities and other investments any of which
may also be purchased by the Fund. The Fund may also invest in securities,
interests or obligations of companies or entities which have a deposit, loan,
commercial banking or other business relationship with Bank of America or any of
its affiliates (including outstanding loans to such issuers which may be repaid
in whole or in part with the proceeds of securities purchased by the Fund).
OTHER INVESTMENT LIMITATIONS
The Prospectus for the Fund sets forth certain fundamental
policies that may not be changed with respect to the Fund without the
affirmative vote of the holders of the majority of the Fund's outstanding
shares (as defined below under "GENERAL INFORMATION - Miscellaneous"). The
following is a complete list of the Fund's fundamental policies which may not
be changed for the Fund without such a vote of shareholders.
THE FUND MAY NOT:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result more than 5% of
its total assets will be invested in the securities of any one issuer, except
that up to 25% of its total assets may be invested without regard to this 5%
limitation; provided that all of the assets of the Fund may be invested in
the Master Portfolio or another investment company.
2. Underwrite the securities of other issuers, provided that
all of the assets of the Fund may be invested in the Master Portfolio or
another investment company.
3. Purchase or sell real estate, except that the Fund may,
to the extent appropriate to its investment objective, invest in securities and
instruments guaranteed by agencies or instrumentalities of the U.S. Government
and securities issued by companies which invest in real estate or interests
therein.
4. Purchase securities on margin (except for such short-term
credits as may be necessary for the clearance of transactions), make short sales
of securities or maintain a short position. For this purpose, the deposit or
payment for initial
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or maintenance margin in connection with futures contracts is not considered to
be the purchase or sale of a security on margin.
5. Write or sell puts, calls, straddles, spreads or
combinations thereof, except that it may engage in options transactions.
6. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs, except that:
(a) it may, to the extent appropriate to its investment objective, invest in
securities issued by companies which purchase or sell commodities or commodity
contracts or which invest in such programs; and (b) it may purchase and sell
futures contracts and options on futures contracts.
7. Purchase securities of other investment companies to the
extent prohibited by the 1940 Act.
8. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in obligations issued or guaranteed by the federal
government and its agencies and instrumentalities; (b) each utility (such as
gas, gas transmission, electric and telephone service) will be considered a
single industry for purposes of this policy; and (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents.
9. Purchase securities of any issuer if as a result it would
own more than 10% of the voting securities of such issuer; provided that all of
the assets of the Fund may be invested in the Master Portfolio or another
investment company.
10. Borrow money for the purpose of obtaining investment
leverage or issue senior securities (as defined in the 1940 Act), provided that
the Fund may borrow from banks for temporary purposes and in an amount not
exceeding 10% of the value of the total assets of the Fund; or mortgage,
pledge or hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of its total assets at the time of such borrowing. This restriction
shall not apply to (a) the sale of portfolio securities accompanied by a
simultaneous agreement as to their repurchase, or (b) transactions in currency,
options, futures contracts and options on futures contracts, or forward
commitment transactions.
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11. Make loans, except investments in debt securities,
repurchase agreements and securities loans.
If a percentage restriction is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
For the purpose of investment limitation P. 8 in this
Statement of Additional Information the Fund treats, in accordance with the
current views of the staff of the SEC and as a matter of non-fundamental policy
that may be changed without a vote of shareholders, all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
* * *
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares, and how
such shares are priced, is included in the Prospectus. Additional information is
contained below.
Portfolio securities for which market quotations are readily
available (other than debt securities with remaining maturities of 60 days or
less) are valued at the last reported sale price or (if none is available) the
mean between the current quoted bid and asked prices provided by investment
dealers. Other securities and assets for which market quotations are not readily
available are valued at their fair value using methods determined under the
supervision of the Board. Debt securities with remaining maturities of 60 days
or less are valued on an amortized cost basis unless the Board determines that
such basis does not represent fair value at the time. Under this method, such
securities are valued initially at cost on the date of purchase or, in the case
of securities purchased with more than 60 days to maturity, are valued at their
market or fair value each day until the 61st day prior to maturity. Thereafter,
absent unusual circumstances, a constant proportionate amortization of any
discount or premium is assumed until maturity of the security.
A pricing service may be used to value certain portfolio
securities where the prices provided are believed to reflect the fair value of
such securities. In valuing securities the pricing service would normally take
into consideration such factors as yield, risk, quality, maturity, type of
issue, trading characteristics, special circumstances and other factors it deems
relevant in determining valuations for normal institutional-sized trading units
of debt securities and would not rely solely on quoted prices. The methods used
by the pricing service and the
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valuations so established will be utilized under the general supervision of the
Board. Valuation of options is described above under "Investment Objectives and
Policies - Options Trading."
SUPPLEMENTARY PURCHASE INFORMATION
For the purpose of applying the Right of Accumulation or
Letter of Intent privileges available to certain shareholders as described in
the Prospectus, the scale of sales loads applies to purchases made by any
"purchaser," which term includes an individual and/or spouse purchasing
securities for his, her or their own account or for the account of any minor
children; or a trustee or other fiduciary account (including a pension,
profit-sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Internal Revenue Code) although more than one
beneficiary is involved; or "a qualified group" which has been in existence for
more than six months and has not been organized for the purpose of buying
redeemable securities of a registered investment company at a discount, provided
that the purchases are made through a central administrator or a single dealer,
or by other means which result in economy of sales effort or expense. A
"qualified group" must have more than 10 members, must be available to arrange
for group meetings between representatives of the Fund and the members, and
must be able to arrange for mailings to members at reduced or no cost to the
Distributor. The value of shares eligible for the Right of Accumulation
privilege may also be used as a credit toward completion of the Letter of Intent
privilege. Such shares will be valued at their offering price prevailing on the
date of submission of the Letter of Intent. Distributions on shares held in
escrow pursuant to the Letter of Intent privilege will be credited to the
shareholder, but such shares are not eligible for the Fund's Exchange
Privilege.
On August 31, 1996, no B Shares of the Fund were issued and
outstanding. The computation of the hypothetical offering prices per share of
an A and K Share of the Fund based on the value of the Fund's net assets on
August 31, 1996 and the Fund's A and K Shares outstanding on such date are as
follows:
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INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
A SHARES K SHARES
-------- --------
<S> <C> <C>
Net Assets..... $9,188,711 $ 990
Outstanding
Securities..... 945,748 102
Net Asset Value
Per Share...... $ 9.72 $9.71
Sales Charge,
4.50 percent
of offering
price (4.71
percent of net
asset value
per share)..... $ 0.46 --
Maximum
Offering Price
to Public...... $ 10.18 $9.71
</TABLE>
SUPPLEMENTARY REDEMPTION INFORMATION
Shares in the Fund for which orders for wire redemption are
received on a business day before the close of regular trading hours on the New
York Stock Exchange (currently 4:00 p.m. Eastern time) will be redeemed as of
the close of regular trading hours on such Exchange and the proceeds of
redemption (less any applicable contingent deferred sales charge on B or A
Shares subject to the Large Purchase Exemption) will normally be wired in
federal funds on the next business day to the commercial bank specified by the
investor on the Account Application (or other bank of record on the investor's
file with the Transfer Agent). To qualify to use the wire redemption privilege,
the payment for Fund shares must be drawn on, and redemption proceeds paid to,
the same bank and account as designated on the Account Application (or other
bank of record as described above). If the proceeds of a particular redemption
are to be wired to another bank, the request must be in writing and signature
guaranteed. Shares for which orders for wire redemption are received after the
close of regular trading hours on the New York Stock Exchange (currently 4:00
p.m. Eastern time) or on a non-business day will be redeemed as of the close
of regular trading hours on such Exchange on the next day on which shares of
the particular Fund are priced and the proceeds (less any applicable contingent
deferred sales charge on B Shares or A Shares subject to the Large Purchase
Exemption) will
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normally be wired in federal funds on the next business day thereafter.
Redemption proceeds (less any applicable contingent deferred sales charge on B
Shares or A Shares subject to the Large Purchase Exemption) will be wired to a
correspondent member bank if the investor's designated bank is not a member of
the Federal Reserve System. Immediate notification by the correspondent bank to
the investor's bank is necessary to avoid a delay in crediting the funds to the
investor's bank account. Proceeds of less than $1,000 will be mailed to the
investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o Pacific
Horizon Funds, Inc., P.O. Box 80221, Los Angeles, California 90080-9909. Such
request must be signed by each shareholder, with each signature guaranteed as
described in the Prospectus. Guarantees must be signed by an authorized
signatory and "signature guaranteed" must appear with the signature. The
Transfer Agent may request further documentation from corporations, executors,
administrators, trustees or guardians, and will accept other suitable
verification arrangements from foreign investors, such as consular verification.
SUPPLEMENTARY PURCHASE AND REDEMPTION INFORMATION
In General. As described in the Prospectus, both A and B
Shares may be purchased directly by the public, by clients of Bank of America
through their qualified trust and agency accounts, or by clients of securities
dealers, financial institutions (including banks) and other industry
professionals, such as investment advisers, accountants and estate planning
firms that have entered into service and/or selling agreements with the
Distributor. (The Distributor, such institutions and professionals are
collectively referred to as "Service Organizations.") K Shares may only be
purchased by: (a) businesses or other organizations that participate in the
Daily Advantage(R) Program sponsored by Bank of America; (b) individuals
investing proceeds from a redemption of shares from another open-end investment
company on which such individual paid a front-end sales load if (i) such
redemption occurred within 30 days prior to the purchase order, and (ii) such
other open-end investment company was not distributed and advised by Concord
Financial Group, Inc. and Bank of America, respectively, or their affiliates;
and (c) accounts opened for IRA rollovers from a 401(k) plan in which the assets
were held in any Pacific Horizon or Time Horizon Fund and subsequent purchases
into an IRA rollover account opened as described above, so long as the original
IRA rollover account remains open. Bank of America and Service Organizations may
impose minimum customer account and
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other requirements in addition to those imposed by the Fund and described in
the Prospectus. Purchase orders will be effected only on business days.
A Shares in the Fund are sold with a sales load, except for
such exemptions as noted in the Prospectus. A Shares which are subject to the
Large Purchase Exemption are also subject to a contingent deferred sales load.
The contingent deferred sales load discussed under the Large Purchase Exemption
does not apply to A Shares under the Daily Advantage or Advantage Plus Programs.
The exemptions to the imposition of a sales load on A Shares are due to the
nature of the investors and/or the reduced sales efforts that will be necessary
in obtaining such investments. A Shares are also subject to a shareholder
servicing fee. B Shares are sold without a front-end sales load, but are subject
to a contingent deferred sales charge and an ongoing distribution and
shareholder servicing fee. K Shares are offered at net asset value with neither
a front-end sales charge, nor a contingent deferred sales charge. K Shares are
subject to a distribution plan fee and an administrative and shareholder
services fee. Service Organizations may be paid by the Distributor at the
Company's expense for shareholder services. Depending on the terms of the
particular account, Bank of America, its affiliates, and Service Organizations
also may charge their customers fees for automatic investment, redemption and
other services provided. Such fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Bank of America or the particular Service Organization is
responsible for providing information concerning these services and any charges
to any customer who must authorize the purchase of Fund shares prior to such
purchase.
Persons or organizations wishing to purchase Company shares
through their accounts at Bank of America or a Service Organization should
contact such entity directly for appropriate instructions.
Initial purchases of shares into a new account may not be made
by wire. However, persons wishing to make a subsequent purchase of Company
shares into an already existing account by wire should telephone the Transfer
Agent at (800) 346-2087. The investor's bank must be instructed to wire federal
funds to the Transfer Agent, referring in the wire to the particular Fund in
which such investment is to be made; the investor's portfolio account number;
and the investor's name.
The Transfer Agent may charge a fee to act as Custodian for
IRAs, payment of which could require the liquidation of shares. B Shares and A
Shares subject to the Large Purchase Exemption liquidated by the Transfer Agent
as fees for custodial services to IRA accounts will not be subject to the
contingent
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deferred sales charge. All fees charged are described in the appropriate form.
Shares may be purchased in connection with these plans only by direct remittance
to the Transfer Agent. Purchases for IRA accounts will be effective only when
payments received by the Transfer Agent are converted into federal funds.
Purchases for these plans may not be made in advance of receipt of funds.
For processing redemptions, the Transfer Agent may request
further documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the
TeleTrade Privilege, any request for a wire redemption will be effected as a
TeleTrade transaction through the Automated Clearing House (ACH) system unless
more prompt transmittal is specifically requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
Exchange Privilege. Shareholders in the Pacific Horizon Family
of Funds have an exchange privilege whereby they may exchange all or part of
their shares for like shares of another investment portfolio in the Pacific
Horizon Family of Funds or for like shares of an investment portfolio of Time
Horizon Funds. In addition, shareholders of the Fund may exchange B Shares for
Pacific Horizon Shares of the Pacific Horizon Prime Fund without the payment of
any contingent deferred sales charge at the time the exchange is made. By use of
the exchange privilege, the investor authorizes the Transfer Agent to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself or herself to be the investor and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding. The exchange privilege may be modified or terminated at any time upon
notice to shareholders. For federal income tax purposes, exchange transactions
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares exchanged is more or less than his
basis in such shares at the time of the transaction.
Exchange transactions described in Paragraphs A, B, C, D, E,
F, G and H below will be made on the basis of the relative net asset values per
share of the investment portfolios involved in the transaction.
-27-
<PAGE> 84
A. A Shares of any investment portfolio purchased with a sales
load, as well as additional shares acquired through
reinvestment of dividends or distributions on such shares, may
be exchanged without a sales load for other A Shares of any
other investment portfolio in the Pacific Horizon Family of
Funds or for like shares of the Time Horizon Funds.
B. B Shares acquired pursuant to an exchange transaction
will continue to be subject to a contingent deferred
sales charge. However, B Shares that have been
acquired through an exchange of B Shares may be
exchanged for other B Shares or for like shares of Time
Horizon Funds without the payment of a contingent
deferred sales charge at the time of exchange. Except
as noted in D below, in determining the holding period
for calculating the contingent deferred sales charge
payable on redemption of B Shares, the holding period
of the shares originally held will be added to the
holding period of the shares acquired through exchange.
C. A Shares subject to the Large Purchase Exemption
acquired pursuant to an exchange transaction will
continue to be subject to any applicable contingent
deferred sales charge. However, A Shares subject to
the Large Purchase Exemption that have been acquired
through an exchange of A Shares may be exchanged for
other A Shares or for like shares of Time Horizon Funds
without the payment of a contingent deferred sales
charge at the time of exchange. In determining the
holding period for calculating the contingent deferred
sales charge payable on redemption of A Shares, the
holding period of the shares originally held will be
added to the holding period of the shares acquired
through exchange.
D. B Shares may be exchanged for Pacific Horizon Shares of
the Pacific Horizon Prime Fund ("Prime Shares") without
paying a contingent deferred sales charge. At the time
of such an exchange, a shareholder's holding period for
calculating the contingent deferred sales charge
payable on redemption of B Shares of a Fund will cease
to accumulate. If the shareholder subsequently
exchanges the shares back into B Shares of a Fund, the
holding period accumulation on the shares will resume
as of the time when the exchange was made into the
Prime Shares. In the event that a shareholder wishes
to redeem Prime Shares acquired by exchange for
B Shares of a Fund, the contingent deferred sales
charge applicable to the accumulated B Shares of a Fund
holding period prior to the exchange into the Prime
Shares will be charged.
-28-
<PAGE> 85
E. A or B Shares of any investment portfolio in the
Pacific Horizon Family of Funds or like shares of the
Time Horizon Funds acquired by a previous exchange
transaction involving shares on which a sales load has
directly or indirectly been paid (e.g. A Shares
purchased with a sales load or issued in connection
with an exchange transaction involving A Shares that
had been purchased with a sales load), as well as
additional shares acquired through reinvestment of
dividends or distributions on such shares, may be
redeemed and the proceeds used to purchase without a
sales load A or B Shares, as the case may be, of any
other investment portfolio within 90 days of your
redemption trade date. To accomplish an exchange
transaction under the provisions of this paragraph,
investors must notify the Transfer Agent of their prior
ownership of shares and their account number.
F. A Shares of any investment portfolio in the Pacific Horizon
Family of Funds may be exchanged without a sales load for
shares of any other investment portfolio in the Pacific
Horizon Family of Funds that is offered without a sales load.
G. A Shares of any investment portfolio in the Pacific Horizon
Family of Funds purchased without a sales load may be
exchanged without a sales load for A Shares in any other
portfolio in the Pacific Horizon Family of Funds.
H. K Shares of any investment portfolio in the Pacific Horizon
Family of Funds may be exchanged without a sales load for
other K Shares of any other investment portfolio in the
Pacific Horizon Family of Funds or for like shares of the Time
Horizon Funds.
Except as stated above, a sales load will be imposed when
shares of any investment portfolio in the Pacific Horizon Family of Funds that
were purchased or otherwise acquired without a sales load are exchanged for A
Shares of another investment portfolio in the Pacific Horizon Family or for like
shares of the Time Horizon Funds which are sold with a sales load.
Exchange requests received on a business day prior to the time
shares of the investment portfolios involved in the request are priced will be
processed on the date of receipt. "Processing" a request means that shares in
the investment portfolio from which the shareholder is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new investment portfolio into which the shareholder is
investing will also normally be purchased at the net asset value per share next
determined
-29-
<PAGE> 86
coincident to or after the time of redemption. Exchange requests received on a
business day after the time shares of the investment portfolios involved in the
request are priced will be processed on the next business day in the manner
described above.
Miscellaneous. Certificates for shares will not be issued.
Depending on the terms of the customer account at Bank of
America or a Service Organization, certain purchasers may arrange with the
Company's custodian for sub-accounting services paid by the Company without
direct charge to the purchaser.
A "business day" for purposes of processing share purchases
and redemptions received by the Transfer Agent at its Columbus office is a day
on which the New York Stock Exchange is open for trading. In 1997, the
holidays on which the New York Stock Exchange is closed are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Company may suspend the right of redemption or postpone
the date of payment for shares during any period when (a) trading on the New
York Stock Exchange is restricted by applicable rules and regulations of the
SEC; (b) the New York Stock Exchange is closed for other than customary weekend
and holiday closings; (c) the SEC has by order permitted such suspension; or (d)
an emergency exists as determined by the SEC. (The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.)
The Company's Charter permits its Board of Directors to
require a shareholder to redeem involuntarily shares in the Fund if the
balance held of record by the shareholder drops below $500 and such shareholder
does not increase such balance to $500 or more upon 60 days' notice. The
contingent deferred sales charge with respect to B or A Shares subject to the
Large Purchase Exemption is not charged on involuntary redemptions. The Company
will not require a shareholder to redeem shares of the Fund if the balance
held of record by the shareholder is less than $500 solely because of a decline
in the net asset value of the Fund's shares. The Company may also redeem shares
involuntarily if such redemption is appropriate to carry out the Company's
responsibilities under the 1940 Act.
If the Company's Board of Directors determines that conditions
exist which make payment of redemption proceeds wholly in cash unwise or
undesirable, the Company may make payment wholly or partly in securities or
other property. In such an event, a shareholder would incur transaction costs
in selling the securities or other property. The Company has committed that it
-30-
<PAGE> 87
will pay all redemption requests by a shareholder of record in cash, limited in
amount with respect to each shareholder during any ninety-day period to the
lesser of $250,000 or 1% of the net asset value at the beginning of such period.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL
The Fund will be treated as a separate corporate entity
under the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
qualify as a "regulated investment company." By following this policy, the
Fund expects to eliminate or reduce to a nominal amount the federal income taxes
to which it may be subject. If for any taxable year the Fund does not qualify
for the special federal tax treatment afforded regulated investment companies,
all of the Fund's taxable income would be subject to tax at regular corporate
rates (without any deduction for distributions to shareholders). In such event,
the Fund's dividend distributions to shareholders would be taxable as ordinary
income to the extent of the current and accumulated earnings and profits of the
Fund and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that the Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
(if any) and 90% of its tax-exempt income (if any) net of certain deductions for
each taxable year. In general, the Fund's investment company taxable income
will be its taxable income, including dividends and interest, and the excess of
net short-term capital gain over net long-term capital loss, if any, subject
to certain adjustments and excluding the excess of net long-term capital gain
for the taxable year over the net short-term capital loss for such year if
any. The Fund will be taxed on its undistributed investment company taxable
income, if any. As stated, the Fund intends to distribute at least 90% of
its investment company taxable income if any for each taxable year. To the
extent the Fund distributes such income (whether in cash or additional shares),
it will be taxable to shareholders as ordinary income.
The Fund will not be treated as a regulated investment
company under the Code if 30% or more of the Fund's gross income for a taxable
year is derived from gains realized on the sale or other disposition of the
following investments held for less than three months: (1) stock and securities
(as defined in section 2(a)(36) of the 1940 Act); (2) options, futures and
forward contracts other than those on foreign currencies; and (3) foreign
currencies (and options, futures and forward contracts on
-31-
<PAGE> 88
foreign currencies) that are not directly related to the Fund's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities) (the "Short-Short test"). Interest (including
original issue discount and accrued market discount) received by the Fund upon
maturity or disposition of a security held for less than three months will not
be treated as gross income derived from the sale or other disposition of such
security within the meaning of this requirement. However, any other income which
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose. With respect
to covered call options, if the call is exercised by the holder, the premium and
the price received on exercise constitute the proceeds of sale, and the
difference between the proceeds and the cost of the securities subject to the
call is capital gain or loss. Premiums from expired call options written by
the Fund and net gain from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and any loss on
closing purchase transactions is treated as short-term capital loss. See
Appendix B -"Accounting and Tax Treatment" -- for a general discussion of the
federal tax treatment of futures contracts, related options thereon and other
financial instruments, including their treatment under the Short-Short test.
Any distribution of the excess of net long-term capital gains
over net short-term capital loss is taxable to shareholders as long-term
capital gain, regardless of how long the shareholder has held Fund shares and
whether such gain is received in cash or additional Fund shares. The Fund will
designate such a distribution as a capital gain dividend in a written notice
mailed to shareholders after the close of the Fund's taxable year. It should be
noted that, upon the sale or exchange of Fund shares, if the shareholder has not
held such shares for more than six months, any loss on the sale or exchange of
those shares will be treated as long-term capital loss to the extent of the
capital gain dividends received with respect to those shares.
Ordinary income of individuals is taxable at a maximum
marginal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains is taxable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35%.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail to currently distribute specific percentages of
their ordinary taxable income and capital gain net income (excess of net capital
gain over net capital loss).
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<PAGE> 89
The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
The Company will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders (i) who have failed to provide a correct tax
identification number in the manner required, (ii) who are subject to
withholding by the Internal Revenue Service for failure to properly include on
their return payments of taxable interest or dividends or (iii) who have failed
to certify to the Company that they are not subject to backup withholding or
that they are "exempt recipients."
OTHER INFORMATION
Depending upon the extent of activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Fund may be subject to the tax laws of such states or
localities.
Income distributions may be taxable to shareholders under
state or local law as dividend income even though all or a portion of such
distributions may be derived from interest on tax-exempt obligations or U.S.
government obligations which, if realized directly, would be exempt from such
income taxes. Shareholders are advised to consult their tax advisers concerning
the application of state and local taxes.
The foregoing discussion is based on tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed by legislative or administrative
action. This discussion is only a summary of some of the important tax
considerations generally affecting purchasers of Fund shares. No attempt is made
to present a detailed explanation of the federal income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential purchasers of Fund shares
should consult their tax advisers with specific reference to their own tax
situation.
-33-
<PAGE> 90
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
The directors and officers of the Company, their addresses,
ages, and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------------- ---------------------
<S> <C> <C> <C>
Thomas M. Collins 62 Director Of counsel, law firm of
McDermott & Trayner McDermott & Trayner;
225 S. Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April,
1993); Chairman of the
Board and Trustee, Master
Investment Trust, Series I
and Master Investment
Trust, Series II
(registered investment
companies) (since 1993);
President and Chairman of
the Board of Pacific
Horizon Funds, Inc. (1982
to August 31, 1995) former
Director, Bunker Hill
Income Securities, Inc.
(registered investment
company) through 1991.
Douglas B. Fletcher 70 Vice Chairman Chairman of the Board
Fletcher Capital of the Board and Chief Executive
Advisors Incorporated Officer, Fletcher
4 Upper Newport Plaza Capital Advisors,
Suite 100 Incorporated,
Newport Beach, CA 92660-2629 (registered
investment adviser) 1991 to
date; Partner, Newport
Partners (private venture
capital firm), 1981 to
date; Chairman of the Board
and Chief Executive
Officer, First Pacific
Advisors, Inc. (registered
investment adviser) and
seven investment companies
under its management, prior
to 1983; former Allied
Member, New York Stock
Exchange; Chairman of the
Board of FPA Paramount
Fund, Inc. through 1984;
Director, TIS Mortgage
Investment Company (real
estate
</TABLE>
-34-
<PAGE> 91
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------------- ---------------------
<S> <C> <C> <C>
investment trust);
Trustee and former Vice
Chairman of the Board,
Claremont McKenna
College; Chartered
Financial Analyst.
Robert E. Greeley 64 Director Chairman, Page Mill
Page Mill Asset Asset Management (a
Management private investment
433 California Street company) since 1991;
Suite 900 Manager, Corporate
San Francisco, CA 94104 Investments, Hewlett
Packard Company from 1979
to 1991; Trustee, Master
Investment Trust, Series I
and Master Investment
Trust, Series II (since
1993); Director, Morgan
Grenfell Small Cap Fund
(since 1986); former
Director, Bunker Hill
Income Securities, Inc.
(since 1989) (registered
investment companies);
former Trustee, SunAmerica
Fund Group (previously
Equitec Siebel Fund Group)
from 1984 to 1992.
Kermit O. Hanson 79 Director Vice Chairman of the
17760 14th Ave., N.W. Advisory Board, 1988 to date,
Shoreline, WA 98177 Executive Director, 1977 to
1988, Pacific Rim Bankers
Program (a non-profit
educational institution);
Dean Emeritus, 1981 to
date, Dean, 1964-81,
Graduate School of Business
Administration, University
of Washington; Director,
Washington Federal Savings
& Loan Association;
Trustee, Seafirst
Retirement Funds (since
1993) (registered
investment company).
</TABLE>
-35-
<PAGE> 92
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------------- ---------------------
<S> <C> <C> <C>
Cornelius J. Pings* 66 Chairman of President, Association
Association of American the Board and of American
Universities President Universities, February
One DuPont Circle 1993 to date; Provost,
Suite 730 1982 to January
Washington, DC 20036 1993, Senior Vice
President for Academic
Affairs, 1981 to January
1993, University of
Southern California;
Trustee, Master Investment
Trust, Series I and Master
Investment Trust, Series II
(since 1995).
J. David Huber 49 Executive Employee of BISYS Fund
BISYS Fund Services Vice President Services, Inc., June
3435 Stelzer Road 1987 to present;
Columbus, OH 43219 President of Master
Investment Trust, Series
I, Master Investment
Trust, Series II and
Seafirst Retirement
Funds (since 1996).
Irimga McKay 35 Vice Senior Vice President,
1230 Columbia Street President July 1993 to date, prior
5th Floor thereto First Vice
La Jolla, CA 92037 President of the
Administrator and
Distributor, November 1988
to July 1993; Vice
President, Master
Investment Trust, Series II
and Seafirst Retirement
Funds (since 1993);
Regional Vice President,
Continental Equities, June
1987 to November 1988;
Assistant Wholesaler, VMS
Realty Partners (a real
estate limited
partnership), May 1986 to
June 1987.
Michael Brascetta 37 Vice President Senior Vice President
BISYS Fund Services of Shareholder
3435 Stelzer Road Services, BISYS Fund
Columbus, OH 43219 Services, Inc., April
1996 to present;
Employee, The Vanguard
Group, 1981 to April 1996.
</TABLE>
-36-
<PAGE> 93
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------------- ---------------------
<S> <C> <C> <C>
Stephanie L. Blaha 37 Vice President Director of Client
BISYS Fund Services Services of the
3435 Stelzer Road Administrator, March
Columbus, OH 43219 1995 to date, prior
thereto Assistant Vice
President of the
Administrator and
Distributor, October 1991
to March 1995; Vice
President, Seafirst
Retirement Funds, Master
Investment Trust, Series I
and Master Investment
Trust, Series II (since
1996); Account Manager,
AT&T American Transtech,
Mutual Fund Division, July
1989 to October 1991.
Kevin L. Martin 35 Treasurer Vice President, Fund
BISYS Fund Services Accounting BISYS
3435 Stelzer Road Fund Services, Inc.
Columbus, OH 43219 February 1996 to Present;
Treasurer, Seafirst
Retirement Funds and Master
Investment Trust, Series II
(since 1996) Senior Audit
Manager, Ernst & Young LLP
(1984 to February 1996).
Lisa Ling 36 Assistant Employee, BISYS Fund
BISYS Fund Services Treasurer Services, Inc.,
3435 Stelzer Road November 1995 to present;
Columbus, OH 43219 Assistant Treasurer,
Master Investment Trust
Series II and Seafirst
Retirement Funds (since
1996); employee, Federated
Investors, October 1982 to
November 1995.
W. Bruce McConnel, III 53 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle &
Philadelphia National Bank Reath.
Building, Suite 1100
Philadelphia, PA 19107
</TABLE>
-37-
<PAGE> 94
<TABLE>
<CAPTION>
Position with
Name and Address Age Company Principal Occupations
- ---------------- --- ------------- ---------------------
<S> <C> <C> <C>
George O. Martinez 36 Assistant Senior Vice President
BISYS Fund Services Secretary and Director of Admini-
3435 Stelzer Road strative and Regulatory
Columbus, OH 43219 Services of the
Administrator, since April
1995; Assistant Secretary,
Seafirst Retirement Funds
and Master Investment
Trust, Series II (since
1995); prior thereto, Vice
President and Associate
General Counsel, Alliance
Capital Management, L.P.
Alaina V. Metz 28 Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and
3435 Stelzer Road Regulatory Services,
Columbus, OH 43219 BISYS Fund Services,
Inc., June 1995 to present;
Assistant Secretary of
Seafirst Retirement Funds
(since 1996); Supervisor,
Mutual Fund Legal
Department, Alliance
Capital Management, May
1989 to June 1995.
</TABLE>
* Dr. Pings is an "interested director" of the Company as defined in the
1940 Act.
The Audit Committee of the Board is comprised of all directors
and is chaired by Dr. Hanson. The Board does not have an Executive Committee.
Each director is entitled to receive an annual fee of $25,000
plus $1,000 for each day that a director participates in all or a part of a
Board meeting; the President receives an additional $20,000 per annum for his
services as President; Mr. Collins, in consideration of his years of service as
President and Chairman of the Board, receives an additional $40,000 per annum in
recognition of his years of service to the Company until February 28, 1997; each
member of a Committee of the Board is entitled to receive $1,000 for each
Committee meeting they participate in (whether or not held on the same day as a
Board meeting); and each Chairman of a Committee of the Board shall be entitled
to receive an annual retainer of $1,000 for his services as Chairman of the
Committee. The Fund, and each other fund of the Company, pays its
proportionate share of these amounts based on relative net asset values.
-38-
<PAGE> 95
For the fiscal year ended February 29, 1996, the Company paid
or accrued for the account of its directors as a group for services in all
capacities a total of $388,155; none of this amount was allocated to the Fund.
Each director is also reimbursed for out-of-pocket expenses incurred as a
director. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Company. As of the date of this Statement of
Additional Information, the directors and officers of the Company, as a group,
own less than 1% of the outstanding shares of each of the Company's investment
portfolios.
Under a retirement plan approved by the Board , including a
majority of its directors who are not "interested persons" of the Company, a
director who dies or resigns after five years of service is entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
director's retainer that was payable by the Company during the year of his/her
death or resignation, or (ii) 50% of the annual director's retainer then in
effect for directors of the Company during the year of such payment. A director
who dies or resigns after nine years of service is entitled to receive ten
annual payments each equal to the greater of: (i) 100% of the annual director's
retainer that was payable by the Company during the year of his/her death or
resignation, or (ii) 100% of the annual director's retainer then in effect for
directors of the Company during the year of such payment. Further, the amount
payable each year to a director who dies or resigns is increased by $1,000 for
each year of service that the director served as Chairman of the Board.
Years of service for purposes of calculating the benefit
described above are based upon service as a director or Chairman after February
28, 1994. Retirement benefits in which a director has become vested may not be
reduced by later Board action.
In lieu of receiving ten annual payments, a director may elect
to receive substantially equivalent benefits through a single-sum cash payment
of the present value of such benefits paid by the Company within 45 days of the
death or resignation of the director. The present value of such benefits is to
be calculated (i) based on the retainer that was payable by the Company during
the year of the director's death or resignation (and not on any retainer payable
to directors thereafter), and (ii) using the interest rate in effect as of the
date of the director's death or resignation by the Pension Benefit Guaranty
Corporation (or any successor thereto) for valuing immediate annuities under
terminating defined benefit pension plans. A director's election to receive a
single sum must be made in writing within the 30 calendar days after the date
the individual is first elected as a director.
-39-
<PAGE> 96
In addition to the foregoing, the Board of Directors may, in
its discretion and in recognition of a director's period of service before March
1, 1994 as a director and possibly as Chairman, authorize the Company to pay a
retirement benefit following the director's death or resignation (unless the
director has vested benefits as a result of completing nine years of service).
Any such action shall be approved by the Board and by a majority of the
directors who are not "interested persons" of the Company within 120 days
following the director's death or resignation and may be authorized as a single
sum cash payment or as not more than ten annual payments (beginning the first
anniversary of the director's date of death or resignation and continuing for
one or more anniversary date(s) thereafter). On August 31, 1996, Dr. Kenneth L.
Trefftzs retired from the Board of Directors. In honor of his years of service
to the Company, the Board of Directors designated Dr. Trefftzs as a "director
emeritus" of the Company. Additionally, in recognition of Dr. Trefftzs' years of
service to the Company prior to March 1, 1994 as director and Chairman of the
Company's Audit Committee, the Board of Directors, including a majority of the
directors who are not "interested persons" of the Company, authorized a single
sum cash payment retirement benefit of $60,000 payable January 1, 1997.
The obligation of the Company to pay benefits to a former
director is neither secured nor funded by the Company but shall be binding upon
its successors in interest. The payment of benefits under the retirement plan
has no priority or preference over the lawful claims of the Company's creditors
or shareholders, and the right to receive such payments is not assignable or
transferable by a director (or former director) other than by will, by the laws
of descent and distribution, or by the director's written designation of a
beneficiary.
-40-
<PAGE> 97
The following chart provides certain information for the fiscal year ended
February 29, 1996 about the fees received by directors of the Company as
directors and/or officers of the Company and as directors and/or trustees of the
Fund Complex:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION PART OF BENEFITS COMPLEX**
NAME OF PERSON/ FROM THE FUND UPON PAID TO
POSITION COMPANY EXPENSES* RETIREMENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins $76,215 $ 0 $ 0 $85,000
Director+
- ---------------------------------------------------------------------------------------------------------------------------------
Douglas B. Fletcher $28,555 $ 0 $ 0 $29,055
Vice Chairman of
the Board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert E. Greeley $31,395 $ 0 $ 0 $44,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Kermit O. Hanson $27,485 $ 0 $ 0 $32,055
Director
- ---------------------------------------------------------------------------------------------------------------------------------
Cornelius J. Pings $29,555 $ 0 $ 0 $30,055
President and
Chairman of the
Board++
- ---------------------------------------------------------------------------------------------------------------------------------
Kenneth L. Trefftzs $28,555 $ 0 $ 0 $29,055
Director+++
</TABLE>
- ------------------------------
* For the fiscal year ended February 29, 1996, the Company accrued on the
part of all of the directors an aggregate of $65,739 in retirement
benefits.
** The "Fund Complex" consists of the Company, Seafirst Retirement Funds,
Master Trust I, Master Trust II, Time Horizon Funds and World Horizon
Funds.
+ Mr. Collins was President and Chairman of the Board of the Company
until August 31, 1995.
++ Dr . Pings became President and Chairman of the Board of the Company
effective September 1, 1995. At February 29, 1996, $10,000, $3,500 and
$3,500 in deferred compensation was payable to Dr. Pings for services
as President of the Company, trustee of Master Trust I and trustee of
Master Trust II, respectively.
-41-
<PAGE> 98
+++ Dr. Trefftzs retired from the Board of the Company on August 31, 1996.
-42-
<PAGE> 99
INVESTMENT ADVISER
Bank of America is the successor by merger to Security Pacific
National Bank ("Security Pacific"), which previously served as investment
adviser to the Company since the commencement of its operations. Until
September 1, 1996, the Fund had no investment adviser since it sought to achieve
its objective by investing all of its assets in the Master Portfolio. Effective
September 1, 1996, Bank of America serves as the investment adviser for the
Fund. In the Investment Advisory Agreement with the Company, Bank of America
has agreed to provide investment advisory services as described in the
Prospectus. Bank of America has also agreed to pay all expenses incurred by it
in connection with its activities under its agreement other than the cost of
securities, including brokerage commissions, if any, purchased for the Fund.
In rendering its advisory services, Bank of America may utilize Bank officers
from one or more of the departments of the Bank which are authorized to exercise
the fiduciary powers of Bank of America with respect to the investment of trust
assets. In some cases, these officers may also serve as officers, and utilize
the facilities, of wholly-owned subsidiaries and other affiliates of Bank of
America or its parent corporation. In addition, the Investment Advisory
Agreement provides that Bank of America may, in its discretion, provide advisory
services through its own employees or employees of one or more of its affiliates
that are under the common control of Bank of America's parent, BankAmerica
Corporation; provided such employees are under the management of Bank of
America.
For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, the Fund has agreed to pay Bank of America
fees, accrued daily and payable monthly, at the annual rate of 0.75% of the
average daily net assets of the Fund. The fees payable to Bank of America are
not subject to reduction as the value of the Fund's net assets increases.
From time to time, Bank of America may prospectively waive fees or reimburse
the Fund for expenses voluntarily or as required by certain state securities
laws.
The Investment Advisory Agreement between Bank of America and
the Company will be in effect until October 31, 1997, and will continue in
effect from year to year thereafter only so long as such continuation is
approved at least annually by (i) the Board of Directors of the Company or the
vote of a "majority," as defined in the 1940 Act, of the outstanding voting
securities of the Fund, and (ii) a majority of those directors of the Company
who are not "interested persons," as defined in the 1940 Act, of any party to
the Investment Advisory Agreement, acting in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Agreement will
terminate automatically in the event of its "assignment," as defined in the 1940
Act. In addition, the Investment Advisory Agreement is
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terminable with respect to the Fund at any time without penalty upon 60 days'
written notice by the Board of Directors of the Company, by vote of the holders
of a majority of the Fund's outstanding voting securities, or by Bank of
America.
See "Management - Administrator" for instances where the
investment adviser is required to make expense reimbursements to the Fund.
The Investment Advisory Agreement provides that Bank of
America shall not be liable for any error of judgment or mistake of law or for
any loss suffered in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder.
Bank of America is authorized by the Investment Advisory
Agreement to employ or associate with itself such persons as it believes are
appropriate to assist it in the performance of its duties. Any such person is
required to be compensated by Bank of America, not by the Fund, and to be
approved by the shareholders of the Fund as required by the 1940 Act. As of
January 1, 1997, Bank of America has entered into a Sub-Advisory Agreement with
Wellington Management.
SUB-ADVISOR
Wellington Management, with principal offices at 75 State
Street, Boston, Massachusetts 02109, serves as sub-adviser to the Fund.
Wellington Management is a professional investment
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counselling firm that provides investment services to investment companies,
employee benefit plans, endowments, foundations, and other institutions and
individuals. As of September 30, 1996, Wellington Management had investment
management authority with respect to approximately $123.8 billion of assets. The
subadviser's predecessor organizations have provided investment advisory
services to investment companies since 1933 and to investment counseling clients
since 1960.
Under the Sub-Advisory Agreement dated January 1, 1997,
between Bank of America and Wellington Management, the SubAdviser, subject to
the oversight and supervision of the Adviser and the Company's Board of
Directors, provides a continuous investment program for the Fund, including
investment research and management with respect to all securities and
investments and cash equivalents in the Fund. The Sub-Adviser also determines
from time to time what securities and other investments will be purchased,
retained or sold by the Fund. The Sub-Advisory Agreement provides that Bank of
America will pay Wellington Management a monthly fee based on the average daily
net assets of the Fund, at the annual rate of 0.40% of the first $50 million of
the Fund's net assets, plus 0.30% of the next $100 million of the Fund's net
assets, plus 0.25% of the next $350 million of the Fund's net assets, plus 0.20%
of the Fund's net assets over $500 million.
Pursuant to the sub-advisory agreement, the Sub-Adviser is not liable
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the performance of the sub-advisory agreement, except
that the Sub-Adviser is liable to the Company and the Adviser for any loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or any loss resulting from willful misfeasance, bad
faith or negligence on the part of the SubAdviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
subadvisory agreement.
The sub-advisory agreement between Bank of America and Wellington
Management will be in effect until October 31, 1998 and continue in effect for
successive annual periods ending on October 31, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Company's Board of Directors who are not interested persons of
any party to the sub-advisory agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Company's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund. The Agreement may be terminated at any time, without the payment of any
penalty, by the Adviser or by the Company (in the case of the Company, by vote
of the Company's Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund) on sixty days' written notice to the Sub-Adviser,
or by the Sub-
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Adviser, on sixty days' written notice to the Company, provided that in each
such case, notice is given simultaneously to the Adviser. In addition, in the
event of the termination of the Investment Advisory Agreement with respect to
the Fund for any reason (whether by the Company, by the Adviser or by operation
of law) the sub-advisory agreement terminates upon the effective date of such
termination of the Investment Advisory Agreement.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
The Glass-Steagall Act, among other things, prohibits banks
from engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board of Governors") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and such
decision forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but do
not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board of Governors did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies.
Bank of America believes that if the question were properly
presented, a court should hold that Bank of America may perform the services for
the Fund contemplated by the Investment Advisory Agreement, the
Prospectus, and this Statement of Additional Information without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. It
should be noted, however, that there have been no cases deciding whether a
national bank may perform services comparable to those performed by Bank of
America and that future changes in either federal or state statutes and
regulations relating to permissible activities of banks or trust companies and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent Bank of America from continuing to perform such services for the
Fund or from continuing to purchase Fund shares for the accounts of its
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customers. (For a discussion of the Glass Steagall Act in connection with the
Company's Shareholder Service Plan, see "Plan Payments" in the Fund's
Prospectus.)
On the other hand, as described herein, the Fund is
currently distributed by Concord Financial Group, Inc., Concord Holding
Corporation, its parent, provides the Fund with administrative services. If
current restrictions under the Glass-Steagall Act preventing a bank from
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Company expects that Bank of America would consider
the possibility of offering to perform some or all of the services now provided
by Concord Holding Corporation or Concord Financial Group, Inc. From time to
time, legislation modifying such restriction has been introduced in Congress
which, if enacted, would permit a bank holding company to establish a non-bank
subsidiary having the authority to organize, sponsor and distribute shares of an
investment company. If this or similar legislation were enacted, the Company
expects that Bank of America's parent bank holding company would consider the
possibility of one of its non-bank subsidiaries offering to perform some or all
of the services now provided by Concord Holding Corporation or Concord Financial
Group, Inc. It is not possible, of course, to predict whether or in what form
such legislation might be enacted or the terms upon which Bank of America or
such a non-bank affiliate might offer to provide services for consideration by
the Company's Board of Directors.
ADMINISTRATOR
The BISYS Group, Inc. (the "Administrator" or "BISYS"), with
offices at 150 Clove Road, Little Falls, New Jersey 07424 and 3435 Stelzer Road,
Columbus, Ohio 43219 serves as administrator. The Administrator also serves as
administrator to several other investment companies. Prior to November 1, 1996,
Concord Holding Corporation, an indirect wholly owned subsidiary of BISYS served
as the Fund's Administrator.
The Administrator provides administrative services to the
Fund as described in the Fund's Prospectus pursuant to the Administration
Agreement for the Fund. The Company's Administration Agreement will continue in
effect until October 31, 1997 and thereafter will be extended for successive
periods of one year, provided that each such extension is specifically approved
by (a) vote of a majority of those members of the Company's Board of Directors
who are not interested persons of any party to the agreement, cast in person at
a meeting called for the purpose of voting on such approval, and (b) the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. The agreement is terminable at any time without
penalty by the Company's Board of Directors or by a vote of a majority of the
outstanding securities upon 60 days' notice to the
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Administrator, or by the Administrator upon 90 days' notice to the Company.
The Company has agreed to pay the Administrator a fee for
its services as Administrator, accrued daily and payable monthly, at the annual
rate of 0.20% of the average daily net assets of the Fund. The fees
payable to the Administrator are not subject to reduction as the value of the
Fund's net assets increase. From time to time, the Administrator may waive
fees or reimburse the Fund for expenses, either voluntarily or as required
by certain state securities laws.
If total expenses borne (directly or indirectly) by the Fund
in any fiscal year exceed the expense limitations imposed by applicable state
securities regulations, the Company may deduct from the payments to be made
with respect to the Fund to Bank of America and the Administrator,
respectively, or Bank of America and the Administrator each will bear, the
amount of such excess to the extent required by such regulations in proportion
to the fees otherwise payable to them for such year. Such amount, if any, will
be estimated, reconciled and effected or paid, as the case may be, on a monthly
basis. As of the date of this Statement of Additional Information, the most
restrictive expense limitation that may be applicable to the Company limits
aggregate annual expenses with respect to the Fund, including management and
advisory fees but excluding interest, taxes, brokerage commissions, and
certain other expenses, to 2-1/2% of the first $30 million of its average daily
net assets, 2% of the next $70 million, and 1-1/2% of its remaining average
daily net assets. During the course of the Company's fiscal year, the
Administrator and Bank of America may prospectively waive payment of fees and/or
assume certain expenses of the Fund as a result of competitive pressures and
in order to preserve and protect the
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business and reputation of the Administrator and Bank of America. This will have
the effect of increasing yield to investors at the time such fees are not
received or amounts are assumed and decreasing yield when such fees or amounts
are reimbursed.
The Administrator will bear all expenses in connection with
the performance of its services under the Administration Agreement with the
exception of the fees charged by PFPC, Inc. ("PFPC") for certain fund
accounting services which are borne by the Fund. See "GENERAL
INFORMATION--Custodian, Accounting Agent and Transfer Agent" below. Expenses
borne by the Fund include taxes, interest, brokerage fees and commissions, if
any, fees of Board members who are not officers, directors, partners, employees
or holders of 5% or more of the outstanding voting securities of Bank of America
or the Administrator or any of their affiliates, SEC fees and state securities
qualification fees, advisory fees, administration fees, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, costs of maintaining corporate existence,
costs attributable to investor services, including without limitation telephone
and personnel expenses, costs of preparing and printing prospectuses and
Statements of Additional Information for regulatory purposes, cost of
shareholder reports and corporate meetings and any extraordinary expenses.
Certain distribution and shareholder servicing fees in connection with the
Company's shares are also paid by the Company. See "Distributor and Plan
Payments."
The Administration Agreement provides that the Administrator
shall not be liable for any error of judgment or mistake of law or any loss
suffered by the Company or the Fund in connection with the performance of the
agreement, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties or from the reckless disregard by it
of its obligations and duties thereunder.
DISTRIBUTOR AND PLAN PAYMENTS
Concord Financial Group, Inc. (the "Distributor"), a wholly
owned subsidiary of the Administrator, acts as distributor of the shares of
the Company. Shares are sold on a continuous basis by the Distributor. The
Distributor has agreed to use its best efforts to solicit orders for the sale of
the Company's shares although it is not obliged to sell any particular amount
of shares. The distribution agreement shall continue in effect until October
31, 1996. Thereafter, if not terminated, the distribution agreement shall
continue automatically for successive terms of one year, provided that such
continuance is specifically approved at least annually (a) by a vote of a
majority of those members of the Board of Directors of the
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<PAGE> 106
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Directors of the Company
or by vote of a "majority of the outstanding voting securities" of the Fund as
to which the distribution agreement is effective; provided, however, that the
distribution agreement may be terminated by the Company at any time, without
the payment of any penalty, by vote of a majority of the entire Board of
Directors of the Company or by a vote of a "majority of the outstanding voting
securities" of the Fund on 60 days' written notice to the Distributor, or by
the Distributor at any time, without the payment of any penalty, on 90 days'
written notice to the Company. The agreement will automatically and
immediately terminate in the event of its "assignment."
The Shareholder Services Plan. The Distributor is entitled
to payment by the Company for certain shareholder servicing expenses in addition
to the sales loads on A Shares described above and in the Prospectus under the
Shareholder Services Plan (the "Plan") adopted by the Company for its A Shares.
Under the Plan for A Shares, the Company pays the Distributor, with respect to
the Fund for (a) non-distribution shareholder services provided by the
Distributor to Service Organizations and/or the beneficial owners of Fund
shares, including, but not limited to shareholder servicing provided by the
Distributor at facilities dedicated for use by the Company, provided such
shareholder servicing is not duplicative of the servicing otherwise provided on
behalf of the Fund, and (b) fees paid to Service Organizations (which may
include the Distributor itself) for the provision of support services for
shareholders for whom the Service Organization is the dealer of record or holder
of record or with whom the Service Organization has a servicing relationship
("Clients").
Support services provided by Service Organizations may
include, among other things: (i) establishing and maintaining accounts and
records relating to Clients that invest in Fund shares; (ii) processing dividend
and distribution payments from the Fund on behalf of Clients; (iii) providing
information periodically to Clients regarding their positions in shares; (iv)
arranging for bank wires; (v) responding to Client inquiries concerning their
investments in Fund shares; (vi) providing the information to the Fund
necessary for accounting or subaccounting; (vii) if required by law, forwarding
shareholder
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communications from the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Clients; (viii) assisting in processing exchange and redemption requests from
Clients; (ix) assisting Clients in changing dividend options, account
designations and addresses; and (x) providing such other similar services.
The Plan provides that the Distributor is entitled to
receive payments for expenses on a monthly basis, at an annual rate not
exceeding 0.25% of the average daily net assets of the A Shares of the Fund
during such month for shareholder servicing expenses. The calculation of the
Fund's average daily net assets for these purposes does not include assets held
in accounts opened via a transfer of assets from trust and agency accounts of
Bank of America. Further, payments made out of or charged against the assets of
the Fund must be in payment for expenses incurred on behalf of the Fund.
If in any month the Distributor expends or is due more monies
than can be immediately paid due to the percentage limitations described above,
the unpaid amount is carried forward from month to month while the Plan is in
effect until such time, if ever, when it can be paid in accordance with such
percentage limitations. Conversely, if in any month the Distributor does not
expend the entire amount then available under the Plan, and assuming that no
unpaid amounts have been carried forward and remain unpaid, then the amount not
expended will be a credit to be drawn upon by the Distributor to permit future
payment. However, any unpaid amounts or credits due under the Plan may not be
"carried forward" beyond the end of the fiscal year in which such amounts or
credits due are accrued.
Payments for shareholder service expenses under the Plan are
not subject to Rule 12b-1 (the "Rule") under the 1940 Act. Pursuant to the Plan,
the Distributor provides that a report of the amounts expended under the Plan,
and the purposes for which such expenditures were incurred, will be made to the
Board of Directors for its review at least quarterly. In addition, the Plan
provides that the selection and nomination of the directors of the Company who
are not "interested persons"
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thereof have been committed to the discretion of the directors who are neither
"interested persons" (as defined in the 1940 Act) of the Company nor have any
direct or indirect financial interest in the operation of the Plan (or related
servicing agreements) (the "Non-Interested Plan Directors").
The Company understands that Bank of America and/or some
Service Organizations may charge their clients a direct fee for administrative
and shareholder services in connection with the holding of A Shares. These fees
would be in addition to any amounts which might be received under the Plan.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
The Company's Board of Directors has concluded that the Plan
will benefit the Fund and its A shareholders. The Plan is subject to annual
reapproval by a majority of the NonInterested Plan Directors and is terminable
at any time with respect to the Fund by a vote of majority of such Directors
or by vote of the holders of a majority of the A Shares of the Fund . Any
agreement entered into pursuant to the Plan with a Service Organization is
terminable with respect to the Fund without penalty, at any time, by vote of
the holders of a majority of the Non-Interested Plan Directors, by vote of the
holders of a majority of the A Shares of the Fund, by the Distributor or by
the Service Organization. Each agreement will also terminate automatically in
the event of its assignment.
The Distribution and Services Plan, Distribution Plan, and
Administrative and Shareholder Services Plan. The Distributor is also entitled
to payment from the Company for distribution and service fees pursuant to the
Distribution and Services Plan adopted on behalf of the B Shares and for
distribution fees pursuant to the Distribution Plan adopted on behalf of K
Shares. Under the Distribution and Services Plan and Distribution Plan, the
Company may pay the Distributor for: (a) direct out-of-pocket promotional
expenses incurred by the Distributor in advertising and marketing B and K
Shares; (b) expenses incurred in connection with preparing, printing, mailing,
and distributing or publishing advertisements and sales literature for B and K
Shares; expenses incurred in connection with printing and mailing Prospectuses
and Statements of Additional Information to other than current B and K
shareholders; (c) periodic payments or commissions to one or more securities
dealers, brokers, financial institutions or other industry professionals, such
as investment advisors, accountants, and estate planning firms (severally, "a
Distribution Organization") with respect to the Fund's B and K Shares
beneficially owned by customers for whom the Distribution Organization is the
Distribution Organization of record or holder of record of such B and K Shares;
(d) the direct or indirect cost of financing the payments or expenses included
in (a) and (c) above; or (e) for such other services as may be construed, by any
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court or governmental agency or commission, including the SEC, to constitute
distribution services under the 1940 Act or rules and regulations thereunder.
With respect to K Shares, payments under the Distribution Plan are not intended
for distribution services to the extent they are not permitted under the
Employee Retirement Income Security Act of 1974, as amended.
Pursuant to the Distribution and Services Plan with respect to
B Shares and Administrative and Shareholder Services Plan with respect to K
Shares, the Company may also pay securities dealers, brokers, financial
institutions or other industry professionals, such as investment advisors,
accountants, and estate planning firms (severally, a "Service Organization") for
support services provided with respect to its Client's B and K Shares.
Administrative and shareholder services provided may include some or all of the
following: (i) processing dividend and distribution payments from the Fund on
behalf of its Clients; (ii) providing statements periodically to its Clients
showing their positions in B and K Shares; (iii) arranging for bank wires; (iv)
responding to routine Client inquiries concerning their investment; (v)
providing the information to the Fund necessary for accounting or
sub-accounting; (vi) if required by law, forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its Clients;
(vii) aggregating and processing purchase, exchange, and redemption requests
from its Clients and placing net purchase, exchange, and redemption orders for
its Clients; (viii) providing Clients with a service that invests the assets of
their accounts pursuant to specific or pre-authorized instructions; (ix)
establishing and maintaining accounts and records relating to Clients; (x)
assisting Clients in changing dividend options, account designations and
addresses; or (xi) other similar services if requested by the Company.
The Distribution and Services Plan provides that the
Distributor is entitled to receive payments on a monthly basis at an annual rate
not exceeding 1.00% of the average daily net assets during such month of the
outstanding B Shares. Not more than 0.25% of such net assets will be used to
compensate Service Organizations for personal services provided to B
shareholders, and/or the maintenance of such shareholders' accounts and not more
than 0.75% of such net assets of B Shares will be used for promotional and other
primary distribution activities.
The Distribution Plan provides that the Distributor is
entitled to receive payments on a monthly basis at an annual rate not exceeding
0.75% of the average daily net assets during such month of the outstanding K
Shares. In addition, under the Administrative and Shareholder Services Plan, the
Distributor is entitled to receive payments on a monthly basis for
administrative services and shareholder services at an annual rate not exceeding
0.75% and 0.25%, respectively, of the average
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daily net assets during such month of the outstanding K Shares. The total of all
12b-1 fees, administrative service and shareholder service fees may not exceed,
in the aggregate, the annual rate of 1.00% of the average daily net assets of
the Fund's K Shares.
Payments made out of or charged against the assets of a
particular class of shares of the Fund must be in payment for expenses
incurred on behalf of that class.
Payments for distribution expenses under the Distribution Plan
and Distribution and Services Plan (collectively, the "12b-1 Plans") are subject
to Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of [Company] shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1
Plans provide that a written report of the amounts expended under the 12b-1
Plans, and the purposes for which such expenditures were incurred, will be made
to the Board of Directors for its review at least quarterly. In addition, each
12b-1 Plan provides that it may not be amended to increase materially the
costs which the Fund may bear for distribution pursuant to the 12b-1 Plans
without shareholder approval and that other material amendments of the 12b-1
Plans must be approved by a majority of the Board of Directors, and by a
majority of the directors who are neither "interested persons" (as defined in
the 1940 Act) of the Company nor have any direct or indirect financial interest
in the operation of the 12b-1 Plans, or in any agreements entered into in
connection with the 12b-1 Plans, by vote cast in person at a meeting called for
the purpose of considering such amendments (the "Non-Interested Plan
Directors"). The selection and nomination of the directors of the Company who
are not "interested persons" of the Company have been committed to the
discretion of the Non-Interested Plan Directors.
The Company's Board of Directors has concluded that there is a
reasonable likelihood that the 12b-1 Plans and the Administrative and
Shareholder Services Plan will benefit the Fund and its B and K
shareholders. The 12b-1 Plans and the Administrative and Shareholder Services
Plan are subject to annual reapproval by a majority of the Company's Board of
Directors, including a majority of the Non-Interested Plan Directors and are
terminable without penalty at any time with respect to the Fund by a vote of a
majority of the NonInterested Plan Directors or by vote of the holders of a
majority of the outstanding B or K Shares of the Fund . Any agreement entered
into pursuant to the 12b-1 Plans and the Administrative and Shareholder Services
Plan with a Service Organization is terminable without penalty, at any time,
by vote of a majority of the Non-Interested Plan Directors, by vote of the
holders of a
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majority of the outstanding B or K Shares of the Fund, or by the Service
Organization. Each agreement will also terminate automatically in the event of
its assignment.
TOTAL RETURN
From time to time, the total return of the Fund may be
quoted in and compared to other mutual funds with similar investment objectives
in advertisements, shareholder reports or other communications to shareholders.
The Fund may also include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of the
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only
of the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or retirement planning), investment management techniques, policies or
investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Fund, as well as the views of the investment adviser and subadviser as to
current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to the Fund. The Fund may also include in
advertisements charts, graphs or drawings which illustrate the potential risks
and rewards of investment in various investment vehicles, including but not
limited to stocks, bonds, Treasury bills and shares of the Fund. In addition,
advertisements or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in the Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein. From time to time, the investment adviser may enter into alliances with
retirement plan sponsors, including The Legend Group, and the Fund may in its
advertisements or sales literature include a discussion of certain attributes or
benefits to be derived from its
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relationship with such retirement plan sponsors. With proper authorization,
the Fund may reprint articles (or excerpts) written regarding the Fund and
provide them to prospective shareholders. Performance information with respect
to the Fund is generally available by calling (800) 346-2087.
Total Return Calculations. The Fund computes its average
annual total returns separately for its separate share classes by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested in a particular share class to the ending
redeemable value of such investment in such class. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end
of the period covered by the
computation of a hypothetical $1,000
payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation,
expressed in terms of years.
The Fund computes its aggregate total returns separately for
its separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular share class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
ERV
aggregate total return = [(----- - 1)]
P
The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period. The ending redeemable
value (variable "ERV" in each formula) is determined by assuming complete
redemption of the hypothetical investment and the deduction of all nonrecurring
charges at the end of the period covered by the computations. In addition, the
Fund's average annual total return and aggregate
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total return quotations reflect the deduction of the maximum front-end sales
load charged in connection with the purchase of A Shares and the deduction of
any applicable contingent deferred sales charge with respect to B Shares.
Based on the foregoing calculations, the aggregate total
returns for the period beginning on May 13, 1996 to August 31, 1996 was -7.16%
for the A Shares and -2.90% for the K Shares of the Fund. Total return for the K
shares reflects the performance of the A Shares from May 13, 1996 to July 21,
1996. K Shares have distribution, administrative and/or shareholder services of
1.00% while A Shares have shareholder servicing expenses of 0.25%. Had K Shares'
expenses been reflected in the performance of the A Shares during the period May
13, 1996 to July 21, 1996, performance would be reduced.
The Fund may also advertise total return data without
reflecting sales charges in accordance with the rules of the SEC. Quotations
which do not reflect such sales charges will, of course, be higher than
quotations which do.
GENERAL INFORMATION
DESCRIPTION OF SHARES
Pacific Horizon is an open-end management investment company
organized as a Maryland corporation on October 27, 1982. Pacific Horizon's
Charter authorizes the Board of Directors to issue up to two hundred billion
full and fractional common shares. Pursuant to the authority granted in the
Charter, the Board of Directors has authorized the issuance of twenty-two
classes of stock - Classes A through W Common Stock, $.001 par value per share,
representing interests in twenty-two separate investment portfolios; Class T
represents interests in the A Shares of the Fund, Class T -- Special
Series 3 represents interests in the B Shares of the Fund and Class T --
Special Series 5 represents interests in the K Shares of the Fund. The
Company's charter also authorizes the Board of Directors to classify or
reclassify any particular class of the Company's shares into one or more
series.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus, the Company's shares will be fully
paid and non-assessable. For information concerning possible restrictions
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upon the transferability of the Company's shares and redemption provisions
with respect to such shares, see "Additional Purchase and Redemption
Information."
Shareholders are entitled to one vote for each full share
held, and fractional votes for fractional shares held, and will vote in the
aggregate and not by class or series except as otherwise required by the 1940
Act or other applicable law or when permitted by the Board of Directors. Shares
have cumulative voting rights to the extent they may be required by applicable
law.
Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding shares
of each fund affected by the matter. The Fund is affected by a matter unless
it is clear that the interests of each of the Company's fund's in the matter
are substantially identical or that the matter does not affect any interest of
the Fund. Under Rule 18f-2 the approval of an investment advisory agreement,
sub-advisory agreement or 12b-1 distribution plan or any change in a fundamental
investment policy would be effectively acted upon with respect to the Fund
only if approved by a majority of the outstanding shares of the Fund. However,
the rule also provides that the ratification of independent public accountants,
the approval of principal underwriting contracts and the election of directors
may be effectively acted upon by shareholders of the Company voting without
regard to particular Funds.
Notwithstanding any provision of Maryland law requiring a
greater vote of the Company's common stock (or of the shares of the Fund
voting separately as a class) in connection with any corporate action, unless
otherwise provided by law (for example, by Rule 18f-2 discussed above) or by
the Company's Charter, the Company may take or authorize such action upon the
favorable vote of the holders of more than 50% of the outstanding common stock
of the Company voting without regard to class.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
PNC Bank, National Association ("PNC"), Broad and Chestnut
Streets, Philadelphia, PA 19101 has been appointed custodian for the Fund.
PFPC provides the Fund with certain accounting services pursuant to a Fund
Accounting Services Agreement with the Administrator. Both PFPC, which is
located at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
DE 19809, and PNC are wholly owned subsidiaries of PNC Bancorp, Inc., a bank
holding company. Pursuant to the
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Fund Accounting Services Agreement, PFPC has agreed to provide certain
accounting, bookkeeping, pricing, dividend and distribution calculation services
with respect to the Fund. The monthly fees charged by PFPC under the Fund
Accounting Agreement are borne by the Fund. As custodian, PNC maintains a
separate account or accounts in the name of the Fund, holds and disburses
portfolio securities, makes receipts and disbursements of money, collects and
receives income and other payments and distributions on account of portfolio
securities, responds to correspondence from security brokers and others
relating to their respective duties and makes periodic reports concerning
their duties.
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 serves as transfer and dividend disbursing agent for the Fund. BISYS
Fund Services, Inc. is a wholly-owned subsidiary of The BISYS Group, Inc., and
an affiliate of the Administrator and Distributor.
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of the Company, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serves as counsel to the Company and will
pass upon the legality of the shares offered hereby.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, independent accountants, with offices at
1177 Avenue of the Americas, New York, New York, has been selected as the Fund's
independent accountants for the fiscal period ended February 28, 1997.
REPORTS
Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
together with the reports of the independent accountants of the Fund.
MISCELLANEOUS
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority" of the outstanding shares of the Fund or a
particular class of shares means the affirmative vote of the lesser of (a)
more than 50% of the outstanding shares of the Fund or class of shares or (b)
67% of the shares of the Fund or class of shares present at a meeting at which
more than 50% of the outstanding shares of the Fund or class of shares are
represented in person or by proxy.
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At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Treasury Only Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 128,849,896.28 shares (44.04%); VAR &
Co., Attn: Linda Frintz, 180 E. 5th Street, 4th Floor, St. Paul, MN 55101,
31,981,230 shares (10.93%); BA Securities, Inc., 185 Berry Street, 3rd Floor,
San Francisco, CA 94107, 66,681,182.99 shares (22.79%); and Hare & Co., Bank
of New York and Short-Term Investment Funds, Attn: Bimal Saha, One Wall Street,
New York, NY 10286, 17,174,397.60 shares (5.87%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows: Omnibus
Account for the Shareholder Accounts Maintained By Concord Financial Services,
Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 50,129,518.32 shares (31.77%); Comcare, Inc., 4001
North Third Street, Suite 120, Phoenix, AZ 85012, 18,229,220.49 shares
(11.55%); Comcare, Inc., 4001 North Third Street, Suite 120, Phoenix, AZ 85012,
17,284,833.02 shares (10.95%); and Omnibus Account for the Shareholder
Accounts Maintained by Concord Financial Services, Inc., Attn: Linda Zerbe, 100
First Avenue, Suite 300, Pittsburgh, PA 15222, 22,570,985.47 shares (14.30%).
At October 15, 1996, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Shares of the Treasury Only Fund were as follows: Centinela Valley
Health Services, Attn: Sherwin L. Memel, 11355 West Olympic Boulevard, Los
Angeles, CA 90064, 43,275,947.43 shares (8.28%).
At October 15, 1996, the name, address and share ownership of
the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Only Fund were as follows: Bank of
America National Trust and Savings Association, Trustee/Custodian, Attn: Common
Trust Funds Unit 8329, P.O. Box 3577, Los Angeles, CA 90051, 93,699,582.79
shares (10.45%); and BA Investment Services, Inc., Attn: Box Santilli, 185 Berry
Street, Third Floor, Unit 7852, San Francisco, CA 94107, 199,662,779.09 shares
(33.02%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Pacific
Horizon Shares of the Treasury Fund were as follows: Hare & Co., Bank of New
York and Short Term Investment Funds, Attn: Bimal Saha, One Wall Street, New
York, NY 10286, 136,609,163.58 shares (15.91%); BA Investment Services, Inc.,
For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120,
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199,862,702.99 shares (23.28%); and VAR & Co., Attn: Linda Frintz, 180 E. 5th
Street, 4th Floor, St. Paul, MN 55101, 459,855,902 shares (53.55%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows: BISYS Fund
Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 182,193,650.41 shares (12.23%); and
BISYS Fund Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe,
100 First Avenue, Suite 300, Pittsburgh, PA 15222, 487,156,119.47 shares
(32.71%).
At October 15, 1996, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Treasury Fund were as follows: Bank of America
Financial Management and Trust Services, Attn: Common Trust Funds Unit 8329,
P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 264,706,769.80 shares
(9.00%); and Bank of America Nevada Southern Commercial Bank, Attn: Cindy 2964,
P.O. Box 98600, Las Vegas, NV 89193, 157,666,250.89 shares (5.35%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Treasury Fund were as follows: Bank of America TTEE/Cust. Invest.
Hor. Treas., Attn: Common Trust Funds Unit 8329, P.O. Box 3577, Terminal Annex,
Los Angeles, CA 90051, 242,604,374.22 shares (8.34%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Government Fund were as follows: BA Investment
Services, Inc., For the Benefit of Clients, Attn: Unit #7852 - Bob Santilli,
P.O. Box 7042, San Francisco, CA 94120, 74,443,625.51 shares (32.51%); VAR &
Co., Attn: Linda Frintz, 180 E. 5th Street, 4th Floor, St. Paul, MN 55101,
29,073,405 shares (12.70%); BA Securities, Inc., 185 Berry Street, 3rd Floor,
San Francisco, CA 94107, 60,149,536.82 shares (26.27%); and Bank of America
National Trust and Savings Association and Private Bank, Attn: ACI Unit 8329,
P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 26,287,277.44 shares
(11.48%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Government Fund were as follows: Omnibus Account
for the Shareholder Accounts Maintained By Concord Financial Services, Inc.,
Attn: Linda Zerbe, First and Market Building, 100 First Avenue, Suite 300,
Pittsburgh, PA 15222, 54,946,147.35 shares (18.52%); Viejas Band of Kumeyaay
Indians, A Federally Recognized Indian
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Tribe, 5000 Willows Road, Alpine, CA 91901, 20,684,502.32 shares (6.97%);
Omnibus Account for the Shareholder Accounts Maintained By Concord Financial
Services, Inc., Attn: Linda Zerbe, First and Market Building, 100 First Avenue,
Suite 300, Pittsburgh, PA 15222, 15,954,998.54 shares (5.38%); Cohu Inc., 5755
Kearny Villa Road, San Diego, CA 92123, 15,114,279.28 shares (5.10%); and Good
Health Plan of Washington, Attn: Linda Lan Ha, 1501 4th Avenue, Suite 500,
Seattle, WA 98101, 15,096,218.19 shares (5.09%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Shares of the Government Fund were as follows: Sunquest Information Systems,
Inc., Attn: Trena Couch, 1407 Eisenhower Boulevard, Johnstown, PA 15904,
34,133,212.51 shares (6.14%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Prime Fund were as follows: BA Securities, Inc.,
185 Berry Street, 3rd Floor, San Francisco, CA 94107, 210,837,920.82 shares
(9.32%); Hare & Co., Bank of New York and Short Term Investment Funds, Attn:
Bimal Saha, One Wall Street, New York, NY 10286, 165,890,980.38 shares
(7.34%); and BA Investment Services, Inc., For the Benefit of Clients, Attn:
Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA 94120,
1,723,111,105.37 shares (76.19%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows: BISYS Fund Services,
Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First Avenue, Suite
300, Pittsburgh, PA 15222, 1,395,146,335.08 shares (50.54%); and BISYS Fund
Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 345,706,323.96 shares (12.52%).
At October 15, 1996, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the Prime Fund were as follows: Bank of America
National Trust and Savings Association, Financial Management & Trust Services,
Attn: Common Trust Funds Unit 8329, P.O. Box 3577, Terminal Annex, Los Angeles,
CA 90051, 815,759,587.51 shares (12.50%); and Security Pacific Cash
Management, c/o Bank of America GPO M/C 5533, Attn: Regina Olsen, 1850 Gateway
Boulevard , Concord, CA 94520, 552,092,600 shares (8.46%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the Tax-Exempt
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Money Fund were as follows: BA Investment Services, Inc., For the Benefit of
Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San Francisco, CA
94120, 36,636,648.77 shares (68.23%); and VAR & Co., Attn: Linda Frintz, 180
E. 5th Street, 4th Floor, St. Paul, MN 55101, 12,115,711 shares (22.56%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Service Shares of the Tax-Exempt Money Fund were as follows: BISYS Fund
Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe, 100 First
Avenue, Suite 300, Pittsburgh, PA 15222, 94,983,380.22 shares (70.97%); and
BISYS Fund Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe,
100 First Avenue, Suite 300, Pittsburgh, PA 15222, 23,630,360.91 shares
(17.66%).
At October 15, 1996, the name, address and share ownership
of the entities which held as beneficial owners more than 5% of the outstanding
Horizon Service Shares of the TaxExempt Money Fund were as follows: Bank of
America Financial Management and Trust Services, Attn: Common Trust Funds Unit
8329, P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 96,373,107.27
shares (21.40%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Horizon Shares of the Tax-Exempt Money Fund were as follows: Bank of America
Cust. for Invest. Hor T-E, Attn: Common Trust Funds Unit 8329, P.O. Box 3577,
Terminal Annex, Los Angeles, CA 90051, 71,157,875.72 shares (15.80%); and
Continental Bank National Association Cust, FBO Cust & Co., Attn: Mary Chester,
South LaSalle Street 6Q, Chicago, IL 60697, 186,490,974.09 shares (41.42%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Pacific Horizon Shares of the California Tax-Exempt Money Market Fund were as
follows: BA Securities, Inc., 185 Berry Street, 3rd Floor, San Francisco, CA
94107, 215,635,293.16 shares (42.60%); and BA Investment Services, Inc., For
the Benefit of Clients, Attn: Unit #7852 - Bob Santilli, P.O. Box 7042, San
Francisco, CA 94120, 251,101,485.35 shares (49.61%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Horizon
Service Shares of the California Tax-Exempt Money Market Fund were as follows:
BISYS Fund Services, Inc. Pittsburgh, FBO Sweep Customers, Attn: Linda Zerbe,
100 First Avenue, Suite 300, Pittsburgh, PA 15222, 202,141,862.60 shares
(51.76%); and BISYS Fund Services, Inc. Pittsburgh, FBO Sweep Customers, Attn:
Linda Zerbe, First and
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Market Building, 100 First Avenue, Suite 300, Pittsburgh, PA 15222,
126,056,593.10 shares (32.28%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
A Shares of the Corporate Bond Fund were as follows: Bank of America
National Trust and Savings Association and Private Bank, Attn: Common Trust
Funds Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
128,868.68 shares (6.55%); Smith Barney, Inc., Custodian, 333 W. 34th Street,
3rd Floor, New York, NY 10001, 112,581.97 shares (5.72%); and Dean Witter
Reynolds, Inc., Stock Record Department, 5th Floor, 5 World Trade Center, New
York, NY 10048, 105,583 shares (5.36%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class A Shares of the Intermediate Bond Fund were as follows: Bank of America
National Trust and Savings Association and Private Bank, Attn: Common Trust
Funds Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
423,376.34 shares (23.85%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the National Municipal Bond Fund were as follows: BA Investment
Services, Inc., FBO 421981351, 185 Berry Street, 3rd Floor, 2640, San
Francisco, CA 94104, 78,122.07 shares (5.22%); and BA Investment Services,
Inc., FBO 405084421, 555 California Street, 4th Floor, 2640, San Francisco, CA
94104, 88,776.96 shares (5.93%).
At October 15, 1996, the name, address and share ownership
of the entities which held as record owners more than 5% of the outstanding
Class A Shares of the Short-Term Government Fund were as follows: Bank of
America National Trust and Savings Association and Private Bank, Attn: Common
Trust Funds Unit 38329, P.O. Box 3577 Terminal Annex, Los Angeles, CA 90051,
589,639.98 shares (94.83%).
At October 15, 1996, the name, address and share ownership of
the entities which held as record owners more than 5% of the outstanding Class A
Shares of the International Equity Fund were as follows: Bank of America
National Trust and Savings Association, Agent for the Giannini Foundation for
Medical Research, TR 10100227313510, P.O. Box 3577, Terminal Annex, Los Angeles,
CA 90051, 99,595.59 shares (8.73%); Bank of America National Trust and
Savings Association, and Private Bank, Attn: Common Trust Funds Unit 38329,
P.O. Box 3577, Terminal Annex, Los Angeles, CA 90051, 203,225 shares (17.81%).
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At such dates, no other person was known by the Company to
hold of record or beneficially more than 5% of the outstanding shares of any
investment portfolio of the Company.
The Prospectus relating to the Funds and this Statement of
Additional Information omit certain information contained in the Company's
registration statement filed with the SEC. Copies of the registration statement,
including items omitted herein, may be obtained from the Commission by paying
the charges prescribed under its rules and regulations.
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FINANCIAL STATEMENTS
The financial statements and notes thereto in the SemiAnnual
Reports for the Fund and the Master Portfolio for the period May 13, 1996
(commencement of operations) through August 31, 1996 are incorporated in this
Statement of Additional Information by reference. No other parts of the
Semi-Annual Reports are incorporated by reference herein.
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APPENDIX A
As stated in the Prospectus, the Fund may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Appendix A.
I. INTEREST RATE FUTURES CONTRACTS
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Fund, through using
futures contracts.
Description of Interest Rate Futures Contracts. An interest
rate futures contract sale would create an obligation by the Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most
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cases the contracts are closed out before the settlement date without the making
or taking of delivery of securities. Closing out a futures contract sale is
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by the Fund's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Fund realizes
a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges principally, the Chicago Board of
Trade and the Chicago Mercantile Exchange. The Fund would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. The Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. The Fund would engage in
an interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all of
the loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in the
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). The investment adviser or sub-adviser
wishes to fix the current market value of this portfolio security until some
point in the future. Assume the portfolio security has a market value of 100,
and the investment adviser or sub-adviser believes that, because of an
anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
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In that case, the five-point loss in the market value of the
portfolio security would be offset by the five-point gain realized by closing
out the futures contract sale. Of course, the futures market price of Treasury
bonds might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
The investment adviser or sub-adviser could be wrong in its
forecast of interest rates and the equivalent futures market price could rise
above 98. In this case, the market value of the portfolio securities, including
the portfolio security being protected, would increase. The benefit of this
increase would be reduced by the loss realized on closing out the futures
contract sale.
If interest rate levels did not change, the Fund in the
above example might incur a loss of 2 points (which might be reduced by an
off-setting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
Examples of Futures Contract Purchase. The Fund would engage
in an interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time
the income advantage from investing in the short-term securities; the Fund
would be endeavoring at the same time to eliminate the effect of all or part of
an expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond
that the Fund may purchase, currently yielding 10%, tends to move in concert
with futures market prices of Treasury bonds. The investment adviser or
sub-adviser wishes to fix the current market price (and thus 10% yield) of the
long-term bond until the time (four months away in this example) when it may
purchase the bond. Assume the long-term bond has a market price of 100, and the
investment adviser or sub-adviser believes that, because of an anticipated fall
in interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the
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equivalent futures market price for Treasury bonds might also rise from 98 to
103. In that case, the 5-point increase in the price that the Fund pays for
the long-term bond would be offset by the 5-point gain realized by closing out
the futures contract purchase.
The investment adviser or sub-adviser could be wrong in its
forecast of interest rates; long-term interest rates might rise to above 10%;
and the equivalent futures market price could fall below 98. If short-term rates
at the same time fall to 10% or below, it is possible that the Fund would
continue with its purchase program for long-term bonds. The market price of
available long-term bonds would have decreased. The benefit of this price
decrease, and thus yield increase, will be reduced by the loss realized on
closing out the futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that the Fund would discontinue its purchase
program for long-term bonds. The yield on short-term securities in the
portfolio, including those originally in the pool assigned to the particular
long-term bond, would remain higher than yields on long-term bonds. The benefit
of this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses would
also be incurred.
II. STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value (which assigns relative values to the common stocks included in the
index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through a
clearing corporation, which guarantees the performance of the parties to each
contract.
The Fund will sell stock index futures contracts in order to
offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline.
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The Fund may do so either to hedge the value of its portfolio as a whole, or
to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, the Fund will purchase stock
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, the Fund may utilize stock index futures
contracts in anticipation of changes in the composition of its portfolio
holdings. For example, in the event that the Fund expects to narrow the range
of industry groups represented in its holdings it may, prior to making purchases
of the actual securities, establish a long futures position based on a more
restricted index, such as an index comprised of securities of a particular
industry group. The Fund may also sell futures contracts in connection with
this strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of its portfolio will
decline prior to the time of sale.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Fund Futures
---- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Fund at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Fund with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Fund Futures
---- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Fund Value of Futures = $1,000,000
-Day Hedge is Lifted-
Fund-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Fund Value = $40,000 Gain on Futures = $40,000\
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and the Fund had entered into an anticipatory
purchase hedge, or market value increased and the Fund had hedged its stock
portfolio, the results of the Fund's transactions in stock index futures would
be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Fund Futures
---- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Fund Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Fund with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Fund Futures
---- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Fund Value of Futures = $1,000,000
-Day Hedge is Lifted-
Fund-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Fund Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by the Fund
to hedge against exposure to fluctuations in exchange rates between the U.S.
dollar and other currencies arising from multinational transactions.
IV. MARGIN PAYMENTS
Unlike when the Fund purchases or sells a security, no price
is paid or received by the Fund upon the purchase or sale of a futures
contract. Initially, the Fund will be required to deposit with the broker or
in a segregated account with the Fund's custodian an amount of cash or cash
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equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when the Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
the investment adviser or sub-adviser may elect to close the position by taking
an opposite position, subject to the availability of a secondary market, which
will operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures
in the Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Fund
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
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subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, the Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the volatility over
a particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to
be appropriate by the investment adviser. Conversely, the Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the investment adviser or sub-adviser. It is also possible that,
where the Fund has sold futures to hedge its portfolio against a decline in
the market, the market may advance and the value of securities held in the
Fund may decline. If this occurred, the Fund would lose money on the future
and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest its cash
(or cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Fund then concludes not
to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, the Fund will realize a
loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by
the Fund, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Fund's custodian and/or in a margin account with a broker to collateralize the
position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of
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view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the investment adviser or
sub-adviser may still not result in a successful hedging transaction over a
short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Fund intends to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by the Fund is also subject to the
investment adviser's or sub-adviser's ability to predict correctly movements in
the direction of the market. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part of all of the
benefit to the increased value of its securities which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of
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<PAGE> 133
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
VI. OPTIONS ON FUTURES CONTRACTS
The Fund may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs).
VII. OTHER HEDGING TRANSACTIONS
The Fund presently intends to use interest rate futures
contracts, stock index futures contracts and foreign currency futures
contracts (and related options) in connection with its hedging activities.
Nevertheless, the Fund is authorized to enter into hedging transactions in any
other futures or options contracts which are currently traded or which may
subsequently become available for trading. Such instruments may be employed in
connection with the Fund's hedging strategies if, in the judgment of the
investment adviser or subadviser, transactions therein are necessary or
advisable.
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VIII. ACCOUNTING AND TAX TREATMENT
Accounting for futures contracts and related options will be
in accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts
held by the Fund at the close of the Fund's taxable year will be treated for
federal income tax purposes as sold for their fair market value on the last
business day of such year, a process known as "marking-to-market." Forty percent
of any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60% of such gain or loss will be treated as
long-term capital gain or loss without regard to the length of time the Fund
holds the futures contract or option ("the 40%-60% rule"). The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or
other disposition of those futures contracts or options will be adjusted to
reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the contracts or options. With
respect to futures contracts to sell, which will be regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by the Fund, losses as to such contracts to sell will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
also will be applicable, the holding period of the securities forming part of
the straddle (if they have not been held for the long-term holding period) will
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts and related options, deductions for interest and
carrying charges will not be allowed. Notwithstanding the rules described above,
with respect to futures contracts to sell which are properly identified as such,
the Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales and loss deferral rules
and the requirement to capitalize interest and carrying charges. Under Temporary
Regulations, the Fund would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election,
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<PAGE> 135
not more than 50 percent of any net gain may be treated as long-term and no more
than 40 percent of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by the Fund
may be subject to the "marking-to-market" process, but gain or loss will be
treated as 100% ordinary income or loss. To receive such federal income tax
treatment, a foreign currency contract must meet the following conditions: (1)
the contract must require delivery of a foreign currency of a type in which
regulated futures contracts are traded or upon which the settlement value of the
contract depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this Statement of Additional Information,
the Treasury has not issued any such regulations. Foreign currency contracts
entered into by the Fund may result in the creation of one or more straddles for
federal income tax purposes, in which case certain loss deferral, short sales,
and wash sales rules and the requirement to capitalize interest and carrying
charges may apply.
Some investments may be subject to special rules which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S. dollar. The types of
transactions covered by the special rules include the following: (i) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(ii) the accruing of certain trade receivables and payables; and (iii) the
entering into or acquisition of any forward contract, futures contract, option
or similar financial instrument. However, regulated futures contracts and
non-equity options are generally not subject to the special currency rules if
they are or would be treated as sold for their fair market value at year-end
under the marking-to-market rules, unless an election is made to have such
currency rules apply. The disposition of a currency other than the U.S. dollar
by a U.S. taxpayer is also treated as a transaction subject to the special
currency rules. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations,
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certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Code and the Treasury
regulations) will be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts that the Fund may make or may enter
into will be subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by
the Fund which are not subject to special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
Qualification as a regulated investment company under the Code
requires that the Fund satisfy certain requirements with respect to the source
of its income during a taxable year. At least 90% of the gross income of the
Fund must be derived from dividends, interests, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including but not limited to gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to the Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by the Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
An additional requirement for qualification as a regulated
investment company under the Code is that less than 30% of the Fund's gross
income must be derived from gains realized on the sale or other disposition of
the following investments held for less than three moths: (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). With respect to futures contracts and other financial
instruments subject to the marking-to-market rules, the Internal Revenue Service
has ruled in private letter rulings that a gain realized from such a futures
contract or financial
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<PAGE> 137
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract or
instrument is held) if the gain arises as a result of a constructive sale under
the marking-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract or instrument is
terminated (or transferred) during the taxable year (other than by reason of
marking-to-market) and less than three months have elapsed between the date the
contract or instrument is acquired and the termination date. In determining
whether the 30% test is met for a taxable year, increases and decreases in the
value of the Fund's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
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<PAGE> 138
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
[(1) Included in Part A hereof:
Financial Highlights for:
- International Equity Fund
(2) Incorporated by reference in Part B and C
hereof:
- The Unaudited Financial Statements and
related notes thereto for the
International Equity Fund for the period
ended August 31, 1996 as filed with the
Securities and Exchange Commission on
November 12, 1996 pursuant to Rule 30b2-
1 of the Investment Company Act of 1940
(Nos. 2-81110 and 811-4293).
- The Unaudited Financial Statements and
related notes thereto for the
International Equity Portfolio of Master
Investment Trust, Series I for the
period ended August 31, 1996 as filed
with the Securities and Exchange
Commission on November 12, 1996 pursuant
to Rule 30b2-1 of the Investment Company
Act of 1940 (Nos. 2-81110 and 811-
4293).]
(b) Exhibits:
(1) (a) Restated Articles of Incorporation filed
November 22, 1983 are incorporated by
reference to Exhibit 1(a) to Post-
Effective Amendment No. 45 to the
Registration Statement of the Registrant
on Form N-1A (Nos. 2-81110/811-4293)
filed February 23, 1996 ("Post-Effective
Amendment No. 45").
(b) Articles Supplementary filed January 9,
1986 are incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment
No. 45.
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<PAGE> 139
(c) Articles Supplementary to increase
authorized capital stock filed
August 31, 1989 are incorporated by
reference to Exhibit 1(c) to Post-
Effective Amendment No. 45.
(d) Articles Supplementary classifying
shares filed August 31, 1989 are
incorporated by reference to Exhibit
1(d) to Post-Effective Amendment No. 45.
(e) Articles Supplementary classifying
shares filed June 3, 1991 are
incorporated by reference to Exhibit
1(e) to Post-Effective Amendment No. 45.
(f) Articles Supplementary classifying and
reclassifying shares filed August 1,
1991 are incorporated by reference to
Exhibit 1(f) to Post-Effective Amendment
No. 45.
(g) Articles Supplementary to increase
authorized capital stock filed August
16, 1991 are incorporated by reference
to Exhibit 1(g) to Post-Effective
Amendment No. 45.
(h) Articles Supplementary classifying
shares filed August 16, 1991 are
incorporated by reference to Exhibit
1(h) to Post-Effective Amendment No. 45.
(i) Articles Supplementary classifying
shares filed November 25, 1991 are
incorporated by reference to Exhibit
1(i) to Post-Effective Amendment No. 45.
(j) Articles Supplementary classifying
shares filed May 11, 1992 are
incorporated by reference to Exhibit
1(j) to Post-Effective Amendment No. 45.
(k) Articles Supplementary reclassifying
shares filed May 15, 1992 are
incorporated by reference to Exhibit
1(k) to Post-Effective Amendment No. 45.
(l) Articles Supplementary classifying
shares filed July 20, 1992 are
incorporated by reference to Exhibit
1(l) to Post-Effective Amendment No. 45.
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<PAGE> 140
(m) Articles Supplementary to increase
authorized capital stock filed August 6,
1992 are incorporated by reference to
Exhibit 1(m) to Post-Effective Amendment
No. 45.
(n) Articles Supplementary classifying shares
filed August 6, 1992 are incorporated by
reference to Exhibit 1(n) to Post-Effective
Amendment No. 45.
(o) Articles Supplementary classifying shares
filed March 3, 1993 are incorporated by
reference to Exhibit 1(o) to Post-Effective
Amendment No. 45.
(p) Articles Supplementary reclassifying shares
filed May 12, 1993 are incorporated by
reference to Exhibit 1(p) to Post-Effective
Amendment No. 45.
(q) Articles of Amendment eliminating
restriction on number of classes of shares
filed May 8, 1990 are incorporated by
reference to Exhibit 1(q) to Post-Effective
Amendment No. 45.
(r) Articles of Amendment reclassifying shares
filed on July 9, 1993 are incorporated by
reference to Exhibit 1(r) to Post-Effective
Amendment No. 45.
(s) Articles Supplementary classifying shares
filed November 18, 1993 are incorporated by
reference to Exhibit 1(s) to Post-Effective
Amendment No. 45.
(t) Articles Supplementary reclassifying shares
filed November 18, 1993 are incorporated by
reference to Exhibit 1(t) to Post-Effective
Amendment No. 45.
(u) Articles Supplementary reclassifying shares
filed January 21, 1994 are incorporated by
reference to Exhibit 1(u) to Post-Effective
Amendment No. 45.
(v) Articles Supplementary classifying shares
filed October 30, 1995 are incorporated by
reference to Exhibit 1(v) to Post-Effective
Amendment No. 47 to the Registration
Statement of the Registrant on Form N-1A
(Nos. 2- 81110/811-4293) filed April 30,
1996 ("Post-Effective Amendment No. 47").
3
<PAGE> 141
(w) Articles of Amendment cancelling shares
filed on January 26, 1996 are incorporated
by reference to Exhibit 1(v) to
Post-Effective Amendment No. 45.
(x) Articles Supplementary classifying shares
filed on January 26, 1996 are incorporated
by reference to Exhibit 1(w) to
Post-Effective Amendment No. 45.
(y) Articles Supplementary reclassifying shares
filed on January 26, 1996 are incorporated
by reference to Exhibit 1(x) to
Post-Effective Amendment No. 45.
(z) Articles Supplementary reclassifying shares
filed on [April 12], 1996.
(aa) Articles Supplementary reclassifying shares
filed on June [25, 1996 ] are
incorporated by reference to
Exhibit [1(z)] to Post-Effective
Amendment No. [50 to the
Registration Statement of the
Registrant on Form N-1A (Nos. 2-
81110/811-4293) filed July 29, 1996
("Post-Effective Amendment No. 50.").]
[(bb) Articles Supplementary reclassifying
shares filed on June 25, 1996 are]
incorporated by reference to Exhibit
[1(aa)] to Post-Effective Amendment No.
[50.]
[(cc) Articles Supplementary reclassifying
shares filed on June 25, 1996 are]
incorporated by reference to Exhibit
[1(bb)] to Post-Effective Amendment No.
[50.]
[(2)(a) Amended and Restated] By-Laws as
approved by Registrant's Board of
Directors on [July 23, 1996 are]
incorporated by reference to Exhibit
[2(f)] to Post- Effective Amendment No.
[50.]
[(3) None.]
[(4) See Article VI, Section (2) of
Article VII, Article VIII and
Section (2) and (4) of Article X of
the Restated Articles of
Incorporation] incorporated by
4
<PAGE> 142
reference to Exhibit [1(a) of]
Post-Effective Amendment No. [45
and Article I, Section 1 and 10 of
Article II, Article IV and Section 1
of Article VI of the Amended and
Restated By-laws incorporated by
reference to Exhibit 2(f) of]
Post-Effective Amendment No.
[50].
(5) (a) Investment Advisory Agreement dated as of
April 22, 1992 between Registrant and Bank
of America National Trust and Savings
Association (Money Market Funds) is
incorporated by reference to Exhibit 5(a)
to Post-Effective Amendment No. 45.
(b) Investment Advisory Agreement dated as of
April 22, 1992 between Registrant and Bank
of America National Trust and Savings
Association (Non-Money Market Funds) is
incorporated by reference to Exhibit 5(b)
to Post-Effective Amendment No. 45.
(c) Addendum to Investment Advisory Agreement
dated as of March 1, 1993 between
Registrant and Bank of America National
Trust and Savings Association (Money Market
Funds - Prime Value Fund) is incorporated
by reference to Exhibit 5(c) to
Post-Effective Amendment No. 45.
(d) Addendum to Investment Advisory Agreement
dated as of March 1, 1993 between
Registrant and Bank of America National
Trust and Savings Association (Money Market
Funds - Government and Treasury Only Funds)
is incorporated by reference to Exhibit
5(d) to Post- Effective Amendment No. 45.
(e) Investment Advisory Agreement dated
November 1, 1994 between Registrant and
Bank of America National Trust & Savings
Association with respect to the Capital
Income Fund is incorporated by reference to
Exhibit 5(e) to Post-Effective Amendment
No. 45.
(f) Investment Advisory Agreement [dated as
of July 1, 1996] between Registrant and
Bank of America National Trust & Savings
Association with respect to the National
Municipal Bond Fund [.]
5
<PAGE> 143
[(g) Investment Advisory Agreement dated as
of July 30, 1996 between Registration
and Bank of America National Trust and
Savings Association with respect to the
International Equity and Short-Term
Government Funds.
(h) Form of Investment Advisory Agreement dated
as of September 1, 1996 between Registrant
and Bank of America National Trust &
Savings Association with respect to the
Corporate Bond Fund.
(i) Form of Amended and Restated Investment
Advisory Agreement dated as of _________
between Registrant and Bank of America
National Trust & Savings Association with
respect to the International Equity Fund.
(j) Form of Sub-Investment Advisory Agreement
dated as of __________ between Bank of
America National Trust & Savings
Association and Wellington Management
Company, LLP with respect to the
International Equity Fund.
(6) (a) Amended and Restated] Distribution
Agreement between the Registrant and
Concord Financial Group, Inc.
(b) Agreement relating to the Distribution
Agreement between Registrant and Concord
Financial Group, Inc. is incorporated by
reference to Exhibit 6(b) to Post-
Effective Amendment No. 45.
(c) Form of Broker/Dealer Agreement is
incorporated by reference to Exhibit 6(c)
to Post-Effective Amendment No. 45.
(d) Form of Bank Agreement is incorporated by
reference to Exhibit 6(d) to Post-
Effective Amendment No. 45.
(7) Board Guidelines on Significant Governance
Issues (which includes a description of the
Board of Director's retirement policy and
benefit) are incorporated by reference to
Exhibit 7 to Post-Effective Amendment No.
45.
6
<PAGE> 144
(8) (a) Custody Agreement between Registrant
and The Bank of New York dated as of April
3, 1989 is incorporated by reference to
Exhibit 8(a) to Post- Effective Amendment
No. 45.
(b) Amendment No. 1 to Custody Agreement
between Registrant and The Bank of New York
dated as of March 30, 1990 is incorporated
by reference to Exhibit 8(b) to
Post-Effective Amendment No. 45.
(c) Amendment No. 2 to Custody Agreement
between Registrant and The Bank of New York
dated as of February 26, 1993 is
incorporated by reference to Exhibit 8(c)
to Post-Effective Amendment No. 49 to the
Registration Statement of the Registrant on
Form N-1A (Nos. 2- 81110/811-4293) filed
June 28, 1996 ("Post-Effective Amendment
No. 49").
(d) Amendment No. 3 to Custody Agreement
between Registrant and The Bank of New York
dated as of April 24, 1996 is incorporated
by reference to Exhibit 8(d) to
Post-Effective Amendment No. 49.
(e) [Amendment No. 4 to Custody Agreement
between Registrant and The Bank of New York
dated as of July 1, 1996.
(f)] Custodian Services Agreement between
Registrant and PNC Bank, N.A is
incorporated by reference to Exhibit 8(c)
to Post-Effective Amendment No. 45.
[(g) Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.
is incorporated by reference to Exhibit
8(d) to Post-Effective Amendment No. 47.
[(h) Form of Amendment No. 1 to Transfer Agency
Agreement between Registrant and BISYS Fund
Services, Inc.
(i)] Sub-Custodian Agreement between
Registrant, The Bank of New York, and
Security Pacific National Bank is
incorporated by reference to Exhibit 8(e)
to Post-Effective Amendment No. 45.
7
<PAGE> 145
[(j)] Sub-Custodian Agreement between The Bank
of New York and Citibank, N.A. dated May
18, 1988 is incorporated by reference to
Exhibit 8(f) to Post-Effective Amendment
No. 45.
[(k)] Form of Sub-Custody Agreement between The
Bank of New York and Bank of America
National Trust and Savings Association is
incorporated by reference to Exhibit
(8)(i) to Post-Effective Amendment No.
37.
(9) (a) [Form of Basic Administrative Services
Agreement between Registrant and The BISYS
Group, Inc. (Money Market Funds) dated as
of November 1, 1996.
(b)] Basic Administrative Services Agreement
between Registrant and Concord Holding
Corporation (Money Market Funds) dated as
of November 13, 1989 is incorporated by
reference to Exhibit 9(a) to PostEffective
Amendment No. 45.
[(c)] Amendment No. 1 to Basic Administrative
Services Agreement between Registrant and
Concord Holding Corporation (Money Market
Funds) dated November 1, 1991 is
incorporated by reference to Exhibit 9(b)
to Post-Effective Amendment No. 45.
[(d)] Amendment No. 2 to Basic Administrative
Services Agreement dated as of March 1,
1993 between Registrant and Concord
Holding Corporation (Money Market Funds)
is incorporated by reference to Exhibit
9(c) to Post-Effective Amendment No. 45.
[(e)] Amendment No. 3 to Basic Administrative
Services Agreement dated as of March 1,
1993 between Registrant and Concord
Holding Corporation is incorporated by
reference to Exhibit 9(d) to Post-
Effective Amendment No. 45.
[(f)] Amendment No. 4 to Basic Administrative
Services Agreement dated November 1, 1993
between
8
<PAGE> 146
Registrant and Concord Holding
Corporation is incorporated by
reference to Exhibit 9(e) to Post-
Effective Amendment No. 45.
[(g)] Amendment No. 5 to Basic Administrative
Services Agreement dated November 1, 1995
between Registrant and Concord Holding
Corporation is incorporated by reference
to Exhibit 9(f) to Post- Effective
Amendment No. 46 to the Registration
Statement of the [Registration] on
Form N[-] 1A (Nos. 281110/811-4293)
filed March 4, 1996 ("Post-Effective
Amendment No. 46").
[(h)] Agreement relating to the Basic
Administrative Services Agreement between
Registrant and Concord Holding
Corporation is incorporated by reference
to Exhibit 9(f) to Post-Effective
Amendment No. 45.
[(i)] Special Management Services Agreement
among Registrant, Concord Holding
Corporation and Bank of America National
Trust and Savings Association (Money
Market Funds) dated as of April 22, 1992
is incorporated by reference to Exhibit
9(g) to Post-Effective Amendment No. 45.
[(j)] Amendment No. 1 to Special Management
Services Agreement dated as of March 1,
1993 between Registrant, Concord Holding
Corporation and Bank of America National
Trust and Savings Association (Money
Market Funds) is incorporated by
reference to Exhibit 9(h) to
Post-Effective Amendment No. 45.
[(k)] Amendment No. 2 to Special Management
Services Agreement dated as of March 1,
1993 among Registrant, Concord Holding
Corporation and Bank of America National
Trust and Savings Association (Money
Market Funds) is incorporated by
reference to
9
<PAGE> 147
Exhibit 9(i) to Post-Effective
Amendment No. 45.
[(l)] Amendment No. 3 to Special Management
Services Agreement dated as of April 1,
1993 among Registrant, Concord Holding
Corporation and Bank of America National
Trust and Savings Association (Money
Market Funds) is incorporated by
reference to Exhibit 9(j) to
Post-Effective Amendment No. 45.
[(m)] Amendment No. 4 to Special Management
Services Agreement among Registrant,
Concord Holding Corporation and Bank of
America National Trust and Savings
Association (Money Market Funds) is
incorporated by reference to Exhibit 9(k)
to Post-Effective Amendment No. 45.
[(n)] Agreement relating to the Special
Management Services Agreement among
Registrant, Concord Holding Corporation
and Bank of America National Trust and
Savings Association (Money Market Funds)
is incorporated by reference to Exhibit
9(l) to Post-Effective Amendment No. 45.
[(o)] Administration Agreement between
Registrant and Concord Holding
Corporation (Non-Money Market Funds)
dated as of November 13, 1989 is
incorporated by reference to Exhibit 9(m)
to Post-Effective Amendment No. 45.
[(p)] Amendment No. 1 to [the] Administration
Agreement between Registrant and Concord
Holding Corporation (Aggressive Growth
Fund, U.S. Government Securities Fund,
Capital Income Fund and California
Tax-Exempt Bond Fund) dated as of
November 1, 1991 is incorporated by
reference to Exhibit 9(n) to
Post-Effective Amendment No. 45.
10
<PAGE> 148
[(q)] Amendment No. 2 to [the] Administration
Agreement between Registrant and Concord
Holding Corporation (non-Money Market
Funds) is incorporated by reference to
Exhibit 9(o) to Post-Effective Amendment
No. 45.
[(r)] Amendment No. 3 to the Administration
Agreement between Registrant and Concord
Holding Corporation (non-Money Market
Funds) is incorporated by reference to
Exhibit 9(p) to Post-Effective Amendment
No. 45.
[(s)] Amendment No. 4 to the Administration
Agreement between Registrant and Concord
Holding Corporation (non-Money Market
Funds) is incorporated by reference to
Exhibit 9(q) to Post-Effective Amendment
No. 45.
[(t)] Amendment No. 5 to [the] Administration
Agreement between Registrant and Concord
Holding Corporation (non-Money Market
Funds) dated November 1, 1995 is
incorporated by reference to Exhibit 9(s)
to Post-Effective Amendment No. 46.
[(u)] Amendment No. 6 to the Administration
Agreement [between Registrant and
Concord Holding Corporation (National
Municipal Bond Fund) dated as of July 1,
1996.]
[(v) Amendment No. 7 to the Administration
Agreement between Registrant and Concord
Holding Corporation (Short-Term
Government Fund) dated as of July 30,
1996.
(w) Amendment No. 8 to the Administration
Agreement between Registrant and Concord
Holding Corporation (Corporate Bond and
International Equity Funds) dated as of
September 1, 1996.
(x)] Agreement relating to the Administration
Agreement between Registrant and Concord
Holding Corporation (non-Money Market
11
<PAGE> 149
Funds) is incorporated by reference to
Exhibit 9(r) to Post-Effective Amendment
No. 45.
[(y)] Cash Management and Related Services
Agreement between Registrant and The Bank
of New York (Horizon Shares and Horizon
Service Shares) dated as of May 1, 1990
is incorporated by reference to Exhibit
9(s) to Post-Effective Amendment No. 45.
[(z)] Amendment to Cash Management and Related
Services Agreement between Registrant and
The Bank of New York dated as of June 21,
1993 is incorporated by reference to
Exhibit 9(t) to Post-Effective Amendment
No. 45.
[(aa)] Accounting Services Agreement between the
Registrant and Provident Financial
Processing Corp is incorporated by
reference to Exhibit 9(u) to
Post-Effective Amendment No. 45.
(10)1 Opinion of counsel that shares are validly
issued, fully paid and non-assessable.
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of Price Waterhouse LLP.
(12) None
(13) (a) Purchase Agreement between Registrant
and The Dreyfus Corporation is
incorporated by reference to Exhibit
13(a) to Post-Effective Amendment No. 45.
(b) Purchase Agreement between Registrant
and Hambrecht & Quist Group, Inc. dated
- --------
1 Filed with the Securities and Exchange Commission ("SEC") on April 29,
1996 under Rule 24f-2 as part of Registrant's 24f- 2 Notice.
12
<PAGE> 150
March 31, 1988 is incorporated by
reference to Exhibit 13(b) to Post-
Effective Amendment No. 45.
(c) Investment Letter of Concord Financial
Group, Inc. to The Horizon Funds is
incorporated by reference to Exhibit 13(c)
to Post-Effective Amendment No. 45.
(d) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and
Hambrecht & Quist Group, Inc. is
incorporated by reference to Exhibit 13(d)
to Post-Effective Amendment No. 45.
(e) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and
Pacific Horizon Tax- Exempt Funds, Inc. is
incorporated by reference to Exhibit 13(e)
to Post- Effective Amendment No. 45.
(f) Purchase Agreement between Pacific Horizon
Tax-Exempt Money Market Portfolio, Inc. and
The Dreyfus Corporation is incorporated by
reference to Exhibit 13(f) to
Post-Effective Amendment No. 45.
(g) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc.
and Hambrecht & Quist Group, Inc. is
incorporated by reference to Exhibit 13(g)
to Post-Effective Amendment No. 45.
(h) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc.
and The Dreyfus Corporation is incorporated
by reference to Exhibit 13(h) to
Post-Effective Amendment No. 45.
(i) Purchase Agreement between Pacific Horizon
California Tax-Exempt Bond Portfolio, Inc.
and Pacific Horizon Tax- Exempt Funds, Inc.
is incorporated by reference to Exhibit
13(i) to Post- Effective Amendment No. 45.
(j) Investment Letter of Concord Financial
Group, Inc. to The Horizon Capital Funds is
incorporated by reference to Exhibit
13
<PAGE> 151
13(j) to Post-Effective Amendment No. 45.
(14) (a) Individual Retirement Account and
accompanying Custodial Agreement,
Disclosure Statement, IRA Application and
IRA Transfer/Rollover Request Form is
incorporated by reference to Exhibit 14(a)
to Post-Effective Amendment No. 45.
(b) Appointment of Successor Custodian for
Individual Retirement Account dated as of
August 3, 1990 is incorporated by reference
to Exhibit 14(b) to Post- Effective
Amendment No. 45.
(15) (a) Shareholder Services Plan for Non-Money
Market Funds is incorporated by reference
to Exhibit 15(a) to Post- Effective
Amendment No. 45.
(b) Shareholder Services Plan for Horizon
Service Shares as modified by Registrant's
Board of Directors on January 29, 1993 is
incorporated by reference to Exhibit 15(b)
to Post- Effective Amendment No. 45.
(c) Revised Shareholder Servicing Agreement is
incorporated by reference to Exhibit 15(c)
to Post-Effective Amendment No. 45.
(d) Revised Shareholder Service Agreement as
modified by Registrant's Board of Directors
on January 29, 1993 is incorporated by
reference to Exhibit 15(d) to
Post-Effective Amendment No. 45.
(e) Revised Shareholder Servicing Agreement for
Non-Money Market Funds is incorporated by
reference to Exhibit 15(e) to
Post-Effective Amendment No. 45.
(f) [Special Management Services Plan and
related Special Management Services
Agreement for Pacific Horizon Shares of
Registrant's Money Market Funds.
(g) Distribution and Services Plan and related
Administrative Servicing
14
<PAGE> 152
Agreement and Distribution Agreement
with respect to Registrant's "B" Shares.
(h)] Distribution and Services Plan and related
Distribution and Administrative Servicing
Agreement with respect to Registrant's "S"
Shares and "X" Shares is incorporated by
reference to Exhibit 15(f) to
Post-Effective Amendment No. 47.
[(i) Distribution Plan and related Distribution
Agreement with respect to Registrant's "K"
Shares.
(j) Administrative and Shareholder Services
Plan and related Administrative and
Shareholder Services Agreement with respect
to Registrant's "K" Shares.]
(16) (a) Schedule for Computation of Performance
Quotations with respect to the Prime Fund,
Treasury Fund, Tax-Exempt Money Fund,
Tax-Exempt Money Market Fund, California
Tax-Exempt Money Market Fund, Aggressive
Growth Fund, California Tax- Exempt Bond
Fund, U.S. Government Securities Fund
(formerly known as the GNMA Extra Fund) and
Capital Income Fund (formerly known as the
Convertible Securities Fund) is
incorporated by reference to Exhibit 16(a)
to Post- Effective Amendment No. 45.
(b) Schedule for Computation of Performance
Quotations with respect to the Government
Fund, Treasury Only Fund and Prime Value
Fund is incorporated by reference to
Exhibit 16(b) to Post- Effective Amendment
No. 45.
(c) Schedule for Computation of Performance
Quotations with respect to the Corporate
Bond Fund, Intermediate Bond Fund (formerly
known as the Flexible Bond Fund), Blue Chip
Fund, Asset Allocation Fund and National
Municipal Bond Fund is incorporated by
reference to Exhibit 16(c) to
Post-Effective Amendment No. 45.
[(d) Schedule for Computation of Performance
Quotations with respect to the
International Equity Fund.
15
<PAGE> 153
(17) Financial Data Schedule.]
(18) Amended and Restated Plan Pursuant to Rule
18f-3 for Operation of a MultiClass System
[is incorporated by reference to Exhibit 18
to PostEffective Amendment No. 50].
16
<PAGE> 154
Item 25. Persons Controlled by or under
Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class [September]1,1996
-------------- -----------------
<S> <C>
Class A Common Stock [1,019]
Class A Common Stock -
Special Series 1 [734]
Class A Common Stock -
Special Series 2 [66
Class A Common Stock -
Special Series 3 0
Class A Common Stock -
Special Series 4 1]
Class B Common Stock [2,293]
Class B Common Stock -
Special Series 1 [1,432]
Class B Common Stock -
Special Series 2 [255
Class B Common Stock -
Special Series 3 0
Class B Common Stock -
Special Series 4 1]
Class D Common Stock [13,366
Class D Common Stock -
Special Series 3 0
Class D Common Stock -
Special Series 5 1]
Class E Common Stock [4,095
Class E Common Stock -
Special Series 3 0
Class E Common Stock -
Special Series 5 1]
Class F Common Stock [16,944
Class F Common Stock -
Special Series 3 0
Class F Common Stock -
Special Series 5 1]
Class G Common Stock [4,328
Class G Common Stock -
Special Series 3 0
Class G Common Stock -
Special Series 5 1]
Class H Common Stock 0
Class I Common Stock [153]
Class I Common Stock -
Special Series 1 [58]
</TABLE>
17
<PAGE> 155
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class September 1, 1996
-------------- -----------------
<S> <C>
Class I Common Stock -
Special Series 2 [5]
Class J Common Stock [440]
Class J Common Stock -
Special Series 1 [159]
Class J Common Stock -
Special Series 2 0
[Class J Common Stock -
Special Series 4 1]
Class K Common Stock [1,412]
Class K Common Stock -
Special Series 1 [128]
Class K Common Stock -
Special Series 2 [12]
Class L Common Stock [125]
Class L Common Stock -
Special Series 1 [199]
Class L Common Stock -
Special Series 2 [26]
Class M Common Stock [589
Class M Common Stock -
Special Series 3 0
Class M Common Stock -
Special Series 5 1]
Class N Common Stock [8,427
Class N Common Stock -
Special Series 3 0
Class N Common Stock -
Special Series 5 1]
Class O Common Stock [2,016
Class O Common Stock -
Special Series 3 0
Class O Common Stock -
Special Series 5 1]
Class Q Common Stock [387
Class Q Common Stock -
Special Series 3 0
Class Q Common Stock -
Special Series 5 1]
Class R Common Stock 0
[Class R Common Stock -
Special Series 3 0
Class R Common Stock -
Special Series 5 0]
Class S Common Stock 0
[Class S Common Stock -
Special Series 3 0
Class S Common Stock -
Special Series 5 0]
Class T Common Stock [153
Class T Common Stock -
Special Series 3 0
</TABLE>
18
<PAGE> 156
<TABLE>
Number of Record
Holders as of
Title of Class September 1, 1996
-------------- -----------------
<S> <C>
Class T Common Stock -
Special Series 5 1]
Class U Common Stock [4
Class U Common Stock -
Special Series 3 0
Class U Common Stock -
Special Series 5 0]
Class V Common Stock 0
[Class V Common Stock -
Special Series 3 0
Class V Common Stock -
Special Series 5 0]
Class W Common Stock [2,575
Class W Common Stock -
Special Series 3 0
Class W Common Stock -
Special Series 5 1]
</TABLE>
Item 27. Indemnification
Article VII, Section 3, of Registrant's Restated Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a) hereto, and
Article VI, Section 2, of Registrant's [Amended and Restated] By-Laws,
incorporated herein by reference as Exhibit (2)(a) hereto, provide for the
indemnification of Registrant's directors and officers. Indemnification of the
Fund's [sub-adviser,] principal underwriter, custodians, sub-custodians,
transfer agent and sub-transfer agent is provided for, respectively, in
[Section 8 of the form of Sub-Advisory Agreement included herewith as Exhibit
(5)(j), Article V of the Amended and Restated] Distribution Agreement,
[included herewith] as Exhibit (6)(a), Article XV[, Section 15 of the
Custody] Agreement incorporated herein by reference as Exhibit [(8)(a)
hereto, Article XII,] Section [14] of the [Sub-Custodian] Agreement
incorporated herein by reference as Exhibit [(8)(i)] hereto, Article III,
Section 4 of the SubCustodian Agreement incorporated herein by reference as
Exhibit [(8)(j)] hereto, Section 8 of the form of SubCustody Agreement
incorporated herein by reference as Exhibit [(8)(k)], Article VII, Section 7,
of the Transfer Agency Agreement incorporated herein by reference as Exhibit
[(8)(g)] , and Article VI, Section 3, of the Cash Management and Related
Services Agreement incorporated herein by reference as Exhibit [(9)(y)]
hereto. Registrant has obtained from a major insurance carrier a directors and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its directors, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant
19
<PAGE> 157
will comply with Rule 484 under the Securities Act of 1933 and Release 11330
under the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. [(a)] Business and Other Connections of
Investment Adviser
Bank of America National Trust and Savings Association ("Bank
of America") performs investment advisory services for Registrant. Bank of
America and its predecessors have been in the business of managing the
investments of fiduciary and other accounts since 1904. In addition to its trust
business, Bank of America provides commercial and consumer banking services.
To the knowledge of Registrant, none of the directors or
officers of Bank of America, except those set forth below, is or has been, at
any time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers of Bank of America also hold various positions with, and
engage in business for, BankAmerica Corporation, which owns all the outstanding
stock of Bank of America, or other subsidiaries of BankAmerica Corporation. Set
forth below are the names and principal businesses of the directors of Bank of
America and the directors and certain of the senior executive officers of Bank
of America who are engaged in any other business, profession, vocation or
employment of a substantial nature, other than with BankAmerica Corporation.
20
<PAGE> 158
<TABLE>
<CAPTION>
[Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business]
- --------------- ---- ---------- ---------
<S> <C> <C> <C>
Director...................Joseph F. Alibrandi Chairman of the Manufacturer of
Board, Whittaker Aerospace and
Corporation Biotechnology
Products
Director...................Jill Elikann Barad President and Chief Toy manufacturer
[Executive] Officer,
Mattel, Inc.
Director...................Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate
Investors, Inc. [Development and
investment Firm
Director...................Andrew F. Brimmer President, Consulting
Brimmer & Co., Inc.
Director...................Richard A. Retired Chairman of Utility Company
Clarke the Board, Pacific
Gas and Electric
Company
[Chairman.]................David A. Coulter Chief Executive Banking
Officer and
President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director...................Timm F. Crull Retired Chairman of Food and Related
the Board, Products
Nestle USA, Inc.
Director...................Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director...................Donald E. Guinn Chairman Emeritus, Telecommuni-
Pacific Telesis cations and
Group Diversified
Holding Com-
pany
Director...................Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director...................Ignacio E. Lozano, Chairman, Newspaper
Jr. "La Opinion" Publishing
Director...................Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
</TABLE>
21
<PAGE> 159
<TABLE>
<CAPTION>
[Position with
Bank of America
National Trust
and Savings Principal Type of
Association Name Occupation Business]
- --------------- ---- ---------- ---------
<S> <C> <C> <C>
Director...................John M. Richman Counsel, Wachtell, Law firm
Lipton, Rosen &
Katz
[Director.]................Richard M. [Retired; former Banking
Rosenberg] Chairman of the
Board, Bank America
Corporation[ ]and Bank
of [ ]America National
[ ]Trust & Savings [
]Association
Director...................A. Michael Spence Dean of the Higher
Graduate School of Education
Business, Stanford
University
[Director..................Solomon D. President and CEO, Telecommunica-
Trujillo U.S. West tions
Communications
Group
</TABLE>
(b) Business and Other Connections of Sub-Adviser
Wellington Management Corporation, LLP, ("Wellington")
is an investment adviser registered under the Investment Advisers
Act of 1940 (the "Advisers Act").
The list required by this Item 28 of the partners of
Wellington, together with information as to any business profession, vocation or
employment of substantial nature engaged in by such partners during the past two
years, is incorporated herein by references to Schedules A and D of Form ADV
filed by Wellington pursuant to the Advisers Act (SEC File No. 801- 15908).]
Item 29. Principal Underwriters
(a) Principal underwriter (exclusive distributor) also acts as
principal underwriter or exclusive distributor for The Infinity Funds, Inc., The
Pilot Funds, Seafirst Retirement Funds and Time Horizon Funds.
(b) For information as to the business, profession, vocation
or employment of a substantial nature of each of the principal underwriter, its
officers and directors, reference is made to their Form BD File No. 8-37601
filed by the principal underwriter. For information, as to the positions or
offices of each of the principal underwriter, its officers and directors,
22
<PAGE> 160
reference is made to the section entitled "Management" in the Statements of
Additional Information. Both the principal underwriter's Form BD and the
Registrants Statements of Additional Information are incorporated herein by
reference.
(c) Not Applicable.
Item 30. Location of Accounts and Records
(1) [The BISYS Group, Inc., 150 Clove Road, Little
Falls, New Jersey 07424] (records relating to the
administrator).
(2) Concord Financial Group, Inc., 125 West 55th
Street, New York, New York 10019 (records relating
to the distributor).
(3) Concord Management (Ireland) Limited, Floor 2,
Block 2, Harcourt Centre, Dublin 2, Ireland
(records relating to the administrator for the
Funds it services).
(4) Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the
investment adviser).
(5) [Wellington Management Company, LLP, 75 State
Street, Boston, Massachusetts 02109 (records
relating to the investment sub-adviser for the
International Equity Fund)
(6)] Bank of America National Trust and Savings
Association, 555 California Street, San Francisco,
California 94104 (records relating to the
SubCustodian for the Funds it services).
[(7)] The Bank of New York, 90 Washington Street,
New York, New York 10286) (records relating
to the custodian for the Funds it services).
[(8)] BISYS Fund Services, Inc., 3435 Stelzer
Road, Columbus, Ohio 43219 (records relating
to the transfer agent for the Funds it
services).
[(9)] Drinker Biddle & Reath, Philadelphia National
Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496
(Registrant's Charter, By-Laws and Minute
Books).
[(10)] PNC Bank, National Association, Broad and
Chestnut Streets, Philadelphia, PA 19101,
23
<PAGE> 161
(records relating to the custodian for the
Funds it services).
[(11)] PFPC, Inc. 103 Bellevue Parkway, Wilmington,
DE 19809, (records relating to the sub-
administrator for the Funds it services).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940, as amended, as though such
provisions were applicable to it.
Registrant hereby undertakes to furnish its Annual
Report to Shareholders upon request and without charge to any
person to whom a prospectus is delivered.
24
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia, and the
Commonwealth of Pennsylvania, on this [13th] day of [November], 1996.
PACIFIC HORIZON FUNDS, INC.
Registrant
*/Cornelius John Pings
----------------------------
Cornelius John Pings
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/Cornelius John Pings Chairman of the [November 13], 1996
- ---------------------- Board and President
Cornelius John Pings
[/s/Kevin L. Martin] Treasurer (Chief [November 13,] 1996
- ---------------------- Accounting and
[Kevin L. Martin] Financial Officer)
*/Thomas M. Collins Director [November 13], 1996
- ----------------------
Thomas M. Collins
*/Douglas B. Fletcher Director [November 13], 1996
- ----------------------
Douglas B. Fletcher
*/Robert E. Greeley Director [November 13], 1996
- ----------------------
Robert E. Greeley
*/Kermit O. Hanson Director [November 13], 1996
- ----------------------
Kermit O. Hanson
</TABLE>
*By: /s/ W. Bruce McConnel[, III]
----------------------------
W. Bruce McConnel, III
Attorney-in-fact
25
<PAGE> 163
PACIFIC HORIZON FUNDS, INC.
Certificate of Secretary
The following resolution was duly adopted by the Board of
Directors of Pacific Horizon Funds, Inc. on October 29, 1996 and remains in
effect on the date hereof:
FURTHER RESOLVED, that the directors and officers of
Pacific Horizon who may be required to execute any amendments
to Pacific Horizon's Registration Statement be, and each
hereby is, authorized to execute a power of attorney
appointing W. Bruce McConnel, III and Cornelius J. Pings their
true and lawful attorney or attorneys, to execute in their
name, place and stead, in their capacity as director or
officer, or both, of Pacific Horizon any and all amendments to
the Registration Statement, and all instruments necessary or
incidental in connection therewith, and to file the same with
the SEC; and either of said attorneys shall have the power to
act thereunder with or without the other said attorney and
shall have full power of substitution and resubstitution; and
to do in the name and on behalf of said directors and
officers, or any or all of them, in any and all capacities,
every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of
said directors or officers, or any or all of them, might or
could do in person, said acts of said attorneys, being hereby
ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day
of October, 1996.
PACIFIC HORIZON FUNDS, INC.
/s/ W. Bruce McConnel, III
--------------------------
W. Bruce McConnel, III
Secretary
<PAGE> 164
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Cornelius John Pings, whose signature appears below, does hereby
constitute and appoint W. Bruce McConnel, III, his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
s/ Cornelius John Pings
------------------------------
Cornelius John Pings
Date: December 6, 1995
<PAGE> 165
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Thomas M. Collins, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
s/ Thomas M. Collins
-----------------------------
Thomas M. Collins
Date: December 7, 1995
<PAGE> 166
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Douglas, B. Fletcher, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
s/ Douglas B. Fletcher
-------------------------------
Douglas B. Fletcher
Date: December 7, 1995
<PAGE> 167
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Robert E. Greeley, whose signature appears below, does hereby
constitute and appoint Cornelius John Pings and W. Bruce McConnel, III, and
either of them his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Pacific Horizon
Funds, Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
s/Robert E. Greeley
-------------------------------
Robert E. Greeley
Date: December 7, 1995
<PAGE> 168
PACIFIC HORIZON FUNDS, INC.
POWER OF ATTORNEY
-----------------
Kermit O. Hanson, whose signature appears below, does hereby constitute
and appoint Cornelius John Pings and W. Bruce McConnel, III, and either of them
his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Pacific Horizon Funds,
Inc. (the "Fund"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments (including post-effective amendments) to the Fund's Registration
Statement pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director and/or officer of the Fund any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
s/ Kermit O. Hanson
-------------------------------
Kermit O. Hanson
Date: December 6, 1995
<PAGE> 169
PACIFIC HORIZON FUNDS, INC.
EXHIBIT INDEX
EXHIBITS
1(z) - Articles Supplementary reclassifying shares filed
on April 12, 1996.
5(f) - Investment Advisory Agreement dated as of July 1,
1996 between Registrant and Bank of America National
Trust & Savings Association with respect to the
National Municipal Bond Fund.
5(g) - Investment Advisory Agreement dated as of July 30,
1996 between Registrant and Bank of America National
Trust & Savings Association with respect to the
International Equity and Short-Term Government Funds.
5(h) - Form of Investment Advisory Agreement dated as of
September 1, 1996 between Registrant and Bank of
America National Trust & Savings Association with
respect to the Corporate Bond Fund.
5(i) - Form of Amended and Restated Investment Advisory
Agreement dated as of between Registrant
and Bank of America National Trust & Savings
Association with respect to the International Equity
Fund.
5(j) Form of Sub-Investment Advisory Agreement dated as of
between Bank of America National Trust &
Savings Association and Wellington Management
Company, LLP with respect to the International Equity
Fund.
6(a) - Amended and Restated Distribution Agreement
between the Registrant and Concord Financial
Group, Inc.
8(e) - Amendment No. 4 to Custody Agreement between
Registrant and The Bank of New York dated as of
July 1, 1996.
8(h) - Form of Amendment No. 1 to Transfer Agency
Agreement between Registrant and BISYS Fund
Services, Inc.
<PAGE> 170
EXHIBITS
9(a) Form of Basic Administrative Services Agreement
between Registrant and The BISYS Group, Inc.
(Money Market Funds) dated as of November 1, 1996.
9(u) - Amendment No. 6 to the Administration Agreement
between Registrant and Concord Holding Corporation
(National Municipal Bond Fund) dated as of July 1,
1996.
9(v) - Amendment No. 7 to the Administration Agreement
between Registrant and Concord Holding Corporation
(Short-Term Government Fund) dated as of July 30,
1996.
9(w) - Amendment No. 8 to the Administration Agreement
between Registrant and Concord Holding
Corporation (Corporate Bond and International
Equity Funds) dated as of September 1, 1996.
11(a) - Consent of Drinker Biddle & Reath.
11(b) - Consent of Price Waterhouse LLP.
15(f) Special Management Services Plan and related
Special Management Services Agreement for Pacific
Horizon Shares of Registrant's Money Market Funds.
15(g) - Distribution and Services Plan and related
Administrative Servicing Agreement and
Distribution Agreement with respect to
Registrant's "B" Shares.
15(i) - Distribution Plan and related Distribution Agreement
with respect to Registrant's "K" Shares.
15(j - Administrative and Shareholder Services Plan and
related Administrative and Shareholder Services
Agreement with respect to Registrant's "K" Shares.
16(d) Schedule for Computation of Performance Quotations
with respect to the International Equity Fund.
27 - Financial Data Schedule.
<PAGE> 1
EXHIBIT 1(z)
ARTICLES SUPPLEMENTARY
OF
PACIFIC HORIZON FUNDS, INC.
PACIFIC HORIZON FUNDS, INC., a Maryland corporation having its
principal office in the City of Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
Class A Common Stock - Special Series 3
FIRST: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has reclassified Five
(5) Billion (5,000,000,000) shares of authorized and unissued capital stock of
the Corporation previously classified as Class A Common Stock (par value One
Mill ($0.001) per share) and Five (5) Billion (5,000,000,000) shares of
authorized and unissued capital stock of the Corporation previously classified
as Class A Common Stock -Special Series 1 (par value One Mill ($0.001) per
share) as Class A Common Stock -Special Series 3 (par value One Mill ($0.001)
per share), such that there now exists a total of Ten Billion (10,000,000,000)
shares of capital stock of the Corporation classified as Class A Common Stock -
Special Series 3 pursuant to the following resolution adopted by the Board of
Directors of the Corporation at the Regular Meeting of the Board of Directors
held on January 30, 1996:
<PAGE> 2
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Five Billion (5,000,000,000)
authorized and unissued shares of capital stock of the Corporation
previously classified as Class A Common Stock (of the par value of One
Mill ($0.001) per share and of the aggregate par value of Five Million
Dollars ($5,000,000)) and Five Billion (5,000,000,000) authorized and
unissued shares of capital stock of the Corporation previously
classified as Class A Common Stock-Special Series 1 (of the par value
of One Mill ($0.001) per share and of the aggregate par value of Five
Million Dollars ($5,000,000) be, and hereby are, divided into and
reclassified as Class A Common Stock - Special Series 3;
FURTHER RESOLVED, that all consideration received by the
Corporation for the issue or sale of shares of Class A Common Stock -
Special Series 3 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter designated as Class A Common Stock
(irrespective of whether said shares have been designated as Special
Series of said Class, and if so designated as Special Series,
irrespective of the particular Series designation), along with all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of the Corporation
allocated to the shares of Class A Common Stock - Special Series 3 or
such other shares by the Board of Directors in accordance with the
Charter of the Corporation, and each share of Class A Common Stock -
Special Series 3 shall share equally with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of
such proceeds in whatever form;
FURTHER RESOLVED, that each share of Class A Common Stock -
Special Series 3 shall be charged equally with each other share now or
hereafter designated as Class A Common Stock (irrespective of whether
said shares have been designated as part of a Special Series of said
Class and, if so designated as a part of a Special Series, irrespective
of the particular Series designation) with the expenses and liabilities
of the Corporation in respect of shares of Class A Common Stock -
Special Series 3 or such other shares and in respect of any general
expenses and liabilities of the Corporation allocated to shares of
Class A Common Stock - Special Series 3 or such other shares in
accordance with the Charter of the Corporation, except that:
-2-
<PAGE> 3
(a) shares of Class A Common Stock - Special Series 3 shall
bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to such Series but not with respect to shares of Class A
Common Stock (irrespective of whether said shares have been designated
as part of a Special Series of said Class and, if so designated as a
part of a Special Series, irrespective of the particular Series
designation) other than Class A Common Stock - Special Series 3, as
well as any other expenses and liabilities directly attributable to
Class A Common Stock Special Series 3 which the Board of Directors
determines should be borne solely by such Series; and
(b) shares of Class A Common Stock - Special Series 3 shall
not bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to other shares of Class A Common Stock (irrespective of
whether said shares have been designated as part of a Special Series of
said Class and, if so designated as a part of a Special Series,
irrespective of the particular Series designation) of the Corporation
but not with respect to Class A Common Stock - Special Series 3, as
well as any other expenses and liabilities directly attributable to
shares of Class A Common Stock other than Class A Common Stock -
Special Series 3 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class A Common Stock -
Special Series 3 shall otherwise have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as
each other share now or hereafter designated as Class A Common Stock
(irrespective of whether said share has been designated as part of a
Special Series of said Class and, if so designated as part of a Special
Series, irrespective of the particular Series designation), except
that:
(a) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a) of the
immediately preceding resolution (or to any plan or other document
adopted by the Corporation relating to said agreements, arrangements,
expenses or liabilities) and is submitted to a vote of shareholders of
the Corporation, only shares of Class A Common Stock - Special Series 3
shall be entitled to vote, except that: (i) if said matter affects
shares of capital stock of the Corporation other than shares of Class A
Common Stock - Special Series 3, such
-3-
<PAGE> 4
other affected shares of capital stock shall also be entitled to vote,
and in such case shares of Class A Common Stock - Special Series 3
shall be voted in the aggregate together with such other affected
shares and not by Class or Series except where otherwise required by
law or permitted by the Board of Directors of the Corporation; and (ii)
if said matter does not affect shares of Class A Common Stock Special
Series 3, said shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of shares of
capital stock of the Corporation other than shares of Class A Common
Stock Special Series 3; and
(b) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b) of the
immediately preceding resolution (or any plan or other document adopted
by the Corporation relating to said agreements, arrangements, expenses
or liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class A Common Stock - Special Series 3 shall
not be entitled to vote, except where otherwise required by law or
permitted by the Board of Directors of the Corporation, and except that
if said matter affects shares of Class A Common Stock - Special Series
3, such shares shall be entitled to vote, and in such case shares of
Class A Common Stock - Special Series 3 shall be voted in the aggregate
together with all other shares of capital stock of the Corporation
voting on the matter and not by Class or Series except where otherwise
required by law or permitted by the Board of Directors.
Class B Common Stock - Special Series 3
SECOND: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has reclassified Five
(5) Billion (5,000,000,000) shares of authorized and unissued capital stock of
the Corporation previously classified as Class B Common Stock (par value One
Mill ($0.001) per share) and Five (5) Billion (5,000,000,000) shares of
authorized and unissued capital stock of the Corporation previously classified
as Class B Common Stock - Special Series 1 (par value One Mill ($0.001) per
share) as
-4-
<PAGE> 5
Class B Common Stock - Special Series 3 (par value One Mill ($0.001) per share),
such that there now exists a total of Ten Billion (10,000,000,000) shares of
capital stock of the Corporation classified as Class B Common Stock - Special
Series 3 pursuant to the following resolution adopted by the Board of Directors
of the Corporation at the Regular Meeting of the Board of Directors held on
January 30, 1996:
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Five Billion (5,000,000,000)
authorized and unissued shares of capital stock of the Corporation
previously classified as Class B Common Stock (of the par value of One
Mill ($0.001) per share and of the aggregate par value of Five Million
Dollars ($5,000,000)) and Five Billion (5,000,000,000) authorized and
unissued shares of capital stock of the Corporation previously
classified as Class B Common Stock - Special Series 1 (of the par value
of One Mill ($0.001) per share and of the aggregate par value of Five
Million Dollars ($5,000,000)) be, and hereby are, divided into and
reclassified as Class B Common Stock - Special Series 3;
FURTHER RESOLVED, that all consideration received by the
Corporation for the issue or sale of shares of Class B Common Stock -
Special Series 3 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter designated as Class B Common Stock
(irrespective of whether said shares have been designated as Special
Series of said Class, and if so designated as Special Series,
irrespective of the particular Series designation), along with all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of the Corporation
allocated to the shares of Class B Common Stock - Special Series 3 or
such other shares by the Board of Directors in accordance with the
Charter of the Corporation, and each share of Class B Common Stock -
Special Series 3 shall share equally with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets
-5-
<PAGE> 6
derived from any reinvestment of such proceeds in whatever form;
FURTHER RESOLVED, that each share of Class B Common Stock -
Special Series 3 shall be charged equally with each other share now or
hereafter designated as Class B Common Stock (irrespective of whether
said shares have been designated as part of a Special Series of said
Class and, if so designated as a part of a Special Series, irrespective
of the particular Series designation) with the expenses and liabilities
of the Corporation in respect of shares of Class B Common Stock -
Special Series 3 or such other shares and in respect of any general
expenses and liabilities of the Corporation allocated to shares of
Class B Common Stock - Special Series 3 or such other shares in
accordance with the Charter of the Corporation, except that:
(a) shares of Class B Common Stock - Special Series 3 shall
bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to such Series but not with respect to shares of Class B
Common Stock (irrespective of whether said shares have been designated
as part of a Special Series of said Class and, if so designated as a
part of a Special Series, irrespective of the particular Series
designation) other than Class B Common Stock - Special Series 3, as
well as any other expenses and liabilities directly attributable to
Class B Common Stock Special Series 3 which the Board of Directors
determines should be borne solely by such Series; and
(b) shares of Class B Common Stock - Special Series 3 shall
not bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to other shares of Class B Common Stock (irrespective of
whether said shares have been designated as part of a Special Series of
said Class and, if so designated as a part of a Special Series,
irrespective of the particular Series designation) of the Corporation
but not with respect to Class B Common Stock - Special Series 3, as
well as any other expenses and liabilities directly attributable to
shares of Class B Common Stock other than Class B Common Stock -
Special Series 3 which the Board of Directors determines should be
borne solely by such other shares;
FURTHER RESOLVED, that each share of Class B Common Stock -
Special Series 3 shall otherwise have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications
-6-
<PAGE> 7
and terms and conditions of redemption as each other share now or
hereafter designated as Class B Common Stock (irrespective of whether
said share has been designated as part of a Special Series of said
Class and, if so designated as part of a Special Series, irrespective
of the particular Series designation), except that:
(a) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a) of the
immediately preceding resolution (or to any plan or other document
adopted by the Corporation relating to said agreements, arrangements,
expenses or liabilities) and is submitted to a vote of shareholders of
the Corporation, only shares of Class B Common Stock - Special Series 3
shall be entitled to vote, except that: (i) if said matter affects
shares of capital stock of the Corporation other than shares of Class B
Common Stock - Special Series 3, such other affected shares of capital
stock shall also be entitled to vote, and in such case shares of Class
B Common Stock - Special Series 3 shall be voted in the aggregate
together with such other affected shares and not by Class or Series
except where otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if said matter does not affect
shares of Class B Common Stock Special Series 3, said shares shall not
be entitled to vote (except where otherwise required by law or
permitted by the Board of Directors) even though the matter is
submitted to a vote of the holders of shares of capital stock of the
Corporation other than shares of Class B Common Stock Special Series 3;
and
(b) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b) of the
immediately preceding resolution (or any plan or other document adopted
by the Corporation relating to said agreements, arrangements, expenses
or liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class B Common Stock - Special Series 3 shall
not be entitled to vote, except where otherwise required by law or
permitted by the Board of Directors of the Corporation, and except that
if said matter affects shares of Class B Common Stock - Special Series
3, such shares shall be entitled to vote, and in such case shares of
Class B Common Stock - Special Series 3 shall be voted in the aggregate
together with all other shares of capital stock of the Corporation
voting on the matter and not by Class or Series except where otherwise
required by law or permitted by the Board of Directors.
-7-
<PAGE> 8
Class B Common Stock - Special Series 4
THIRD: Pursuant to Section 2-208 of the Maryland General
Corporation Law, the Board of Directors of the Corporation has reclassified Ten
(10) Billion (10,000,000,000) shares of authorized and unissued capital stock of
the Corporation previously classified as Class B Common Stock Special Series 2
(par value One Mill ($0.001) per share) as Class B Common Stock - Special Series
4 (par value One Mill ($0.001) per share), such that there now exists a total of
Ten Billion (10,000,000,000) shares of capital stock of the Corporation
classified as Class B Common Stock - Special Series 4 pursuant to the following
resolution adopted by the Board of Directors of the Corporation at the Regular
Meeting of the Board of Directors held on January 30, 1996:
RESOLVED, that pursuant to Article VI of the Articles of
Incorporation of the Corporation Ten Billion (10,000,000,000)
authorized and unissued shares of capital stock of the Corporation
previously classified as Class B Common Stock - Special Series 2 (of
the par value of One Mill ($0.001) per share and of the aggregate par
value of Ten Million Dollars ($10,000,000)) be, and hereby are, divided
into and reclassified as Class B Common Stock Special Series 4;
FURTHER RESOLVED, that all consideration received by the
Corporation for the issue or sale of shares of Class B Common Stock -
Special Series 4 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter designated as Class B Common Stock
(irrespective of whether said shares have been designated as Special
Series of said Class, and if so designated as Special Series,
irrespective of the particular Series designation), along with all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, any funds or
payments
-8-
<PAGE> 9
derived from any reinvestment of such proceeds in whatever form the
same may be, and any general assets of the Corporation allocated to the
shares of Class B Common Stock - Special Series 4 or such other shares
by the Board of Directors in accordance with the Charter of the
Corporation, and each share of Class B Common Stock - Special Series 4
shall share equally with each such other share in such consideration
and other assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, and any assets derived from any reinvestment of such proceeds
in whatever form;
FURTHER RESOLVED, that each share of Class B Common Stock -
Special Series 4 shall be charged equally with each other share now or
hereafter designated as Class B Common Stock (irrespective of whether
said shares have been designated as part of a Special Series of said
Class and, if so designated as a part of a Special Series, irrespective
of the particular Series designation) with the expenses and liabilities
of the Corporation in respect of shares of Class B Common Stock -
Special Series 4 or such other shares and in respect of any general
expenses and liabilities of the Corporation allocated to shares of
Class B Common Stock - Special Series 4 or such other shares in
accordance with the Charter of the Corporation, except that:
(a) shares of Class B Common Stock - Special Series 4 shall
bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to such Series but not with respect to shares of Class B
Common Stock (irrespective of whether said shares have been designated
as part of a Special Series of said Class and, if so designated as a
part of a Special Series, irrespective of the particular Series
designation) other than Class B Common Stock - Special Series 4, as
well as any other expenses and liabilities directly attributable to
Class B Common Stock Special Series 4 which the Board of Directors
determines should be borne solely by such Series; and
(b) shares of Class B Common Stock - Special Series 4 shall
not bear the expenses and liabilities relating to any agreements or
arrangements entered into by or on behalf of the Corporation pursuant
to which an organization or other person agrees to provide services
with respect to other shares of Class B Common Stock (irrespective of
whether said shares have been designated as part of a Special Series of
said Class and, if so designated as a part of a Special Series,
irrespective of the particular Series designation) of the Corporation
but not with respect to Class B Common
-9-
<PAGE> 10
Stock - Special Series 4, as well as any other expenses and liabilities
directly attributable to shares of Class B Common Stock other than
Class B Common Stock - Special Series 4 which the Board of Directors
determines should be borne solely by such other shares;
FURTHER RESOLVED, that each share of Class B Common Stock -
Special Series 4 shall otherwise have the same preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as
each other share now or hereafter designated as Class B Common Stock
(irrespective of whether said share has been designated as part of a
Special Series of said Class and, if so designated as part of a Special
Series, irrespective of the particular Series designation), except
that:
(a) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (a) of the
immediately preceding resolution (or to any plan or other document
adopted by the Corporation relating to said agreements, arrangements,
expenses or liabilities) and is submitted to a vote of shareholders of
the Corporation, only shares of Class B Common Stock - Special Series 4
shall be entitled to vote, except that: (i) if said matter affects
shares of capital stock of the Corporation other than shares of Class B
Common Stock - Special Series 4, such other affected shares of capital
stock shall also be entitled to vote, and in such case shares of Class
B Common Stock - Special Series 4 shall be voted in the aggregate
together with such other affected shares and not by Class or Series
except where otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if said matter does not affect
shares of Class B Common Stock Special Series 4, said shares shall not
be entitled to vote (except where otherwise required by law or
permitted by the Board of Directors) even though the matter is
submitted to a vote of the holders of shares of capital stock of the
Corporation other than shares of Class B Common Stock Special Series 4;
and
(b) on any matter that pertains to the agreements,
arrangements, expenses or liabilities described in clause (b) of the
immediately preceding resolution (or any plan or other document adopted
by the Corporation relating to said agreements, arrangements, expenses
or liabilities) and is submitted to a vote of shareholders of the
Corporation, shares of Class B Common Stock - Special Series 4 shall
not be entitled to vote, except where otherwise required by law or
permitted by the Board of Directors of the Corporation, and except that
if said matter affects shares of Class B Common Stock - Special Series
4, such shares shall be
-10-
<PAGE> 11
entitled to vote, and in such case shares of Class B Common Stock -
Special Series 4 shall be voted in the aggregate together with all
other shares of capital stock of the Corporation voting on the matter
and not by Class or Series except where otherwise required by law or
permitted by the Board of Directors.
General
FOURTH: The shares of capital stock of the Corporation
reclassified pursuant to the resolutions set forth in Articles FIRST,
SECOND and THIRD of these Articles Supplementary have been reclassified
by the Corporation's Board of Directors under the authority contained
in the Charter of the Corporation.
FIFTH: These Articles Supplementary do not increase the
authorized number of shares of the Corporation or the aggregate par value
thereof. The total number of shares of capital stock which the Corporation is
presently authorized to issue remains Two Hundred Billion (200,000,000,000)
shares (of the par value of One Mill ($.001) each) and of the aggregate par
value of Two Hundred Million Dollars ($200,000,000) of Common Stock classified
as follows:
-11-
<PAGE> 12
<TABLE>
<CAPTION>
Number of shares
Classification Authorized
- -------------- ----------------
<S> <C>
Class A 10,000,000,000
Class A-Special Series 1 10,000,000,000
Class A-Special Series 2 14,400,000,000
Class A-Special Series 3 10,000,000,000
Class B 10,000,000,000
Class B-Special Series 1 10,000,000,000
Class B-Special Series 2 18,000,000,000
Class B-Special Series 3 10,000,000,000
Class B-Special Series 4 10,000,000,000
Class C 250,000,000
Class D 400,000,000
Class D-Special Series 3 600,000,000
Class E 100,000,000
Class E-Special Series 3 150,000,000
Class F 100,000,000
Class F-Special Series 3 150,000,000
Class G 100,000,000
Class G-Special Series 3 150,000,000
Class I 1,500,000,000
Class I-Special Series 1 3,000,000,000
Class I-Special Series 2 3,000,000,000
Class J 1,000,000,000
Class J-Special Series 1 500,000,000
Class J-Special Series 2 500,000,000
Class K 15,000,000,000
Class K-Special Series 1 15,000,000,000
Class K-Special Series 2 7,000,000,000
Class L 15,000,000,000
Class L-Special Series 1 15,000,000,000
Class L-Special Series 2 7,000,000,000
Class M 40,000,000
Class M-Special Series 3 60,000,000
Class N 40,000,000
Class N-Special Series 3 60,000,000
Class O 40,000,000
Class O-Special Series 3 60,000,000
Class Q 40,000,000
Class Q-Special Series 3 60,000,000
Class R 40,000,000
Class R-Special Series 3 60,000,000
Class S 40,000,000
Class S-Special Series 3 60,000,000
Class T 40,000,000
Class T-Special Series 3 60,000,000
Class U 40,000,000
Class U-Special Series 3 60,000,000
Class V 40,000,000
Class V-Special Series 3 60,000,000
</TABLE>
-12-
<PAGE> 13
<TABLE>
<S> <C>
Class W 40,000,000
Class W-Special Series 3 60,000,000
Unclassified 11,100,000,000
</TABLE>
IN WITNESS WHEREOF, PACIFIC HORIZON FUNDS, INC. has caused these
presents to be signed in its name and on its behalf by its Executive Vice
President and its corporate seal to be hereunto affixed and attested by its
Secretary on this 11th day of April, 1996.
PACIFIC HORIZON FUNDS, INC.
[SEAL] By:/s/ William B. Blundin
William B. Blundin
Executive Vice President
Attest:
/s/ W. Bruce McConnel, III
W. Bruce McConnel, III
Secretary
-13-
<PAGE> 14
CERTIFICATE
THE UNDERSIGNED, Executive Vice President of PACIFIC HORIZON
FUNDS, INC., who executed on behalf of said Corporation the attached
Articles Supplementary of said Corporation, of which this Certificate
is made a part, hereby acknowledges, in the name and on behalf of said
Corporation, the attached Articles Supplementary to be the corporate
act of said Corporation, and certifies that to the best of his
knowledge, information and belief the matters and facts set forth in
the attached Articles Supplementary with respect to authorization and
approval are true in all material respects, under the penalties for
perjury.
Dated: April 11, 1996 /s/ William B. Blundin
----------------------
William B. Blundin
Executive Vice President
<PAGE> 1
EXHIBIT 5(f)
INVESTMENT ADVISORY AGREEMENT
(NATIONAL MUNICIPAL BOND FUND)
THIS AGREEMENT is made as of July 1, 1996 between PACIFIC
HORIZON FUNDS, INC., a Maryland Corporation (the "Company"), and Bank of America
National Trust and Savings Association (the "Adviser").
WHEREAS, the Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Company desires to retain the Adviser to
furnish investment advisory services to the Company;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Adviser to act
as investment adviser to the Company's National Municipal Bond Fund investment
portfolio (the "Fund") for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
(a) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing, whereupon such investment
portfolio shall become a "Fund" (as defined below) hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Fund
except to the extent that said provisions (including those relating to the
compensation payable by the Fund to the Adviser) are modified with respect to
such Fund in writing by the Company and the Adviser at the time. The Fund and
any additional investment portfolios established hereunder in accordance with
this paragraph are sometimes collectively referred to herein as the "Funds" and
individually as a "Fund."
2. SERVICES. Subject to the supervision of the Company's Board
of Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities
<PAGE> 2
and investments and cash equivalents in the Funds. The Adviser will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Company with respect to each Fund. The Adviser will
provide the services under this Agreement in accordance with each Fund's
investment objective, policies and restrictions as stated in the Fund's
registration statement, as from time to time amended, and resolutions of the
Board. The Adviser further agrees that it:
(a) Will conform with all applicable rules and
regulations of the Securities and Exchange Commission and will in addition
conduct its activities under this Agreement in accordance with other applicable
law, including but not limited to banking law.
(b) Will review, monitor and report to the Board
regarding the performance and investment procedures of any Sub- Adviser.
(c) Will assist and consult with any Sub-Advise
appointed with respect to a particular Fund in connection with that Fund's
continuous investment program.
(d) Will place all orders for the purchase and
sale of portfolio securities for the account of each Fund with brokers or
dealers selected by the Adviser. In executing portfolio transactions and
selecting brokers or dealers, the Adviser will use its best efforts to seek on
behalf of the Company and each Fund the best overall terms available. In
assessing the best overall terms available for any transaction the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. In evaluating
the best overall terms available, and in selecting the broker or dealer to
execute a particular transaction, the Adviser may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to any Fund and/or other
accounts over which the Adviser or any affiliate of the Adviser exercises
investment discretion. The Adviser is authorized, subject to the prior approval
of the Board, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for any
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the Adviser
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer
viewed in terms of that particular transaction or in terms of the overall
-2-
<PAGE> 3
responsibilities of the Adviser to the particular Fund and to the Company. In no
instance will portfolio securities be purchased from or sold to the Adviser, any
Sub-Adviser (as defined in Section 3, hereinafter the "Sub-Advisor") or Concord
Holding Corporation, the Company's administrator (the "Administrator"), or an
affiliated person of any of them acting as principal or as broker, except as
permitted by law. In addition, the Adviser is authorized to take into account
the sale of shares of the Company in allocating to brokers or dealers (including
brokers and dealers that are affiliated with the Adviser or Concord) purchase
and sale orders for the Funds' portfolio securities, provided that the Adviser
believes that the quality of the transaction and the commission are comparable
to what they would be with other qualified firms. In executing portfolio
transactions for any Fund, the Adviser may, but shall not be obligated to, to
the extent permitted by applicable laws and regulations, aggregate the
securities to be sold or purchased with those of the Company's other investment
protfolios and its other clients where such aggregation is not inconsistent with
the policies set forth in the Company's registration statement. In such event,
the Adviser will allocate the securities so purchased or sold, and the expenses
incurred in the transaction, in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Funds and such other
clients.
In performing the investment services designated
hereunder, the Adviser, is authorized to purchase, sell or otherwise deal with
securities or other instruments for which (a) Bank of America National Trust and
Savings Association, (b) any affiliate of Bank of America National Trust and
Savings Association, (c) an entity in which Bank of America National Trust and
Savings Association has a direct or indirect interest, or (d) another member of
a syndicate or other intermediary (where an entity referred to in (a), (b) or
(c) above was a member of the syndicate), has acted, now acts or in the future
will act as an underwriter, syndicate member, market-maker, dealer, broker or in
any other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar, as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have a
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect
to the securities transactions of the Funds, keep books of account with respect
to such Funds and furnish the Board such periodic special reports as the Board
may request.
-3-
<PAGE> 4
(f) Will maintain a policy and practice of conducting
its investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
(g) Will treat confidentially and as proprietary
information of the Company all records and other information relative to the
Company and prior or present Company shareholders or those persons or entities
who respond to inquiries concerning investment in the Company, and will not use
such records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Company except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Adviser from advertising to or
soliciting the public generally with respect to other products or services,
including, but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present shareholders of the Company or those persons or entities who have
responded to inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from
time to time employ or associate with itself such person or persons as the
Adviser believes to be fitted to assist it in the performance of this Agreement
(each a "Sub-Adviser"); provided, however, that the compensation of such person
or person shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes
herein be deemed to be an independent contractor and will, unless otherwise
expressly provided herein or authorized by the Board from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The investment management services furnished by the Adviser hereunder
are not deemed exclusive, and the Adviser will
-4-
<PAGE> 5
be free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to the Company any such records upon the Company's
request. The Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Company will pay the Adviser and the
Adviser will accept as full compensation therefor a fee, computed daily and paid
monthly (in arrears), at an annual rate of .35% of the net assets of the
National Municipal Bond Fund. Such fee as is attributable to a Fund will be a
separate charge to each such Fund and will be the several (and not joint or
joint and several) obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as
defined under the securities regulations of any state having jurisdiction over
the Fund) exceed the expense limitations of any such state, the Adviser will
reimburse the Fund to the extent necessary to reduce such Fund's expenses below
such expense limitation. The obligation of the Adviser to reimburse any Fund
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year with respect to such Fund; provided, however, that
notwithstanding the foregoing, the Adviser will reimburse any Fund for excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction over
the Fund so require. Such expense reimbursement, if any, will be estimated and
accrued daily and paid on a monthly basis.
8. LIMITATION OF LIABILITY. Subject to the provisions of
Section 3 hereof concerning the Adviser's responsibility for the acts and
omissions of persons employed by or associated with the Adviser, the Adviser
will not be liable for any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the performance of this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for
-5-
<PAGE> 6
services or a loss resulting from willful misfeasance, bad faith or negligence
on the part of the Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become
effective with respect to the National Municipal Bond Fund on the date first
written above. This Agreement will become effective with respect to any
additional Fund on the date of receipt by the Company of notice from the Adviser
in accordance with Section 1(b) hereof that the Adviser is willing to serve as
investment adviser with respect to such Fund, provided that this Agreement (as
supplemented by the terms specified in any notice and agreement pursuant to
Section 1(b) hereof) shall have been approved by the shareholders of the Fund in
accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement
will continue in effect until October 31, 1996. Thereafter, if not terminated,
this Agreement shall continue in effect as to a particular Fund for successive
annual periods, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement will be effective as to a particular Fund until approved by vote of a
majority of the outstanding voting securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser
hereunder by the Company will be in writing and will be duly given if mailed or
delivered to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles,
California 90071, Attention: Sandra C. Brown, or at such other address or to
such individual as will be so specified by the Adviser to the Company. Notices
of any kind to be given to the Company hereunder by the
-6-
<PAGE> 7
Adviser will be in writing and will be duly given if mailed or delivered to the
Company at 3435 Stelzer Road, Columbus, Ohio 43219, Attention: J. David Huber
(with a copy to Association of American Universities, One DuPont Circle, Suite
730, Washington, DC 20036, Attention: Cornelius J. Pings, President), or at such
other address or to such individual as will be so specified by the Company to
the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PACIFIC HORIZON FUNDS, INC.
By: /s/ Cornelius J. Pings
----------------------------
Name: Cornelius J. Pings
Title: President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATIONS
By: /s/ Kirk D. Hartman
---------------------------
Name: Kirk D. Hartman
Title: Chief Investment Officer
-7-
<PAGE> 1
EXHIBIT 5(g)
INVESTMENT ADVISORY AGREEMENT
(INTERNATIONAL EQUITY AND SHORT-TERM GOVERNMENT FUNDS)
THIS AGREEMENT is made as of July 30, 1996 between PACIFIC HORIZON
FUNDS, INC., a Maryland corporation (herein called the "Company"), and Bank of
America National Trust and Savings Association (the "Adviser").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish
investment advisory services to the Company's International Equity and
Short-Term Government Funds
(individually a "Fund" and together the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. The Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law and are under the common
control of BankAmerica Corporation provided (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Adviser.
(b) In the event that the Company establishes one or more
investment portfolios other than the Funds with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing whereupon such investment
portfolio shall become a "Fund" hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Funds except to the extent that said
provisions (including those relating to the compensation payable by the Fund to
the Adviser) are modified with respect to such Fund in writing by the Company
and the Adviser at the time.
<PAGE> 2
2. SERVICES. Subject to the supervision of the Company's Board of
Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Company with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct is
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser (as
defined in Section 3 of this Agreement).
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program (as defined in Section 3 of this Agreement).
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and each Fund the best overall terms available. In assessing the
best overall terms available for any transaction the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(c) of the Securities Exchange
Act of 1934, as amended) provided to any Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess
-2-
<PAGE> 3
of the amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Adviser to the particular Fund and to the Company. In no instance will portfolio
securities be purchased from or sold to the Adviser, any Sub-Adviser or Concord
Holding Corporation, the Company's administrator (the "Administrator"), or an
affiliated person of any of them acting as principal or as broker, except as
permitted by law. In executing portfolio transactions for any Fund, the Adviser
may, but shall not be obligated to, to the extent permitted by applicable laws
and regulations, aggregate the securities to be sold or purchased with those of
other Funds and its other clients where such aggregation is not inconsistent
with the policies set forth in the Company's registration statement. In such
event, the Adviser will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and such
other clients.
In performing the investment advisory services hereunder, the Adviser
is authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have a
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions for the Funds, keep books of account with respect to
such Funds and furnish the Board such periodic special reports as the Board may
request.
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its
-3-
<PAGE> 4
commercial banking operations. When the Adviser makes investment recommendations
for a Fund, its investment advisory personnel will not inquire or take into
consideration whether the issuer of securities proposed for purchase or sale for
the Fund's account are customers of its commercial department. In dealing with
commercial customers, the Adviser's commercial department will not inquire or
take into consideration whether securities of those customers are held by the
Funds.
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquires concerning investment in the Company, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder or under any other agreement with the Company except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Adviser may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. Nothing contained herein, however, shall prohibit
the Adviser from advertising to or soliciting the public generally with respect
to other products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons or
entities who have responded to inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time
to time employ or associate with itself such person or persons as the Adviser
believes to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
Additionally, in the event that any Sub-Adviser appointed hereunder is
terminated, the Adviser may provide investment advisory services pursuant to
this Agreement to the Funds without further shareholder approval.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes
herein be deemed to be an independent contractor and will, unless otherwise
expressly provided herein or authorized by the Board from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The investment management services furnished by the Adviser hereunder
are not deemed exclusive, and the Adviser will
-4-
<PAGE> 5
be free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to the Company any such records upon the Company's
request. The Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31-1
under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Company will pay the Adviser and the
Adviser will accept as full compensation therefor a fee, computed daily and paid
monthly (in arrears), at an annual rate of: .25% of the net assets of the
Short-Term Government Fund; and .75% of the net assets of the International
Equity Fund. Such fee as is attributable to each Fund will be a separate charge
to each such Fund and will be the several (and not joint or joint and several
obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Adviser will reimburse the
Fund to the extent necessary to reduce such Fund's expenses below such expense
limitation. The obligation of the Adviser to reimburse any Fund hereunder is
limited in any fiscal year to the amount of its fee hereunder for such fiscal
year with respect to such Fund; provided, however, that notwithstanding the
foregoing, the Adviser will reimburse any Fund for excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Fund so
require. Such expense reimbursement, if any, will be estimated and accrued daily
and paid on a monthly basis.
8. LIMITATION OF LIABILITY. Subject to the provisions of Section
3 hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from
-5-
<PAGE> 6
willful misfeasance, bad faith or negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective
as of the date first above written. This Agreement will become effective with
respect to any additional Fund on the date of receipt by the Company of notice
from the Adviser in accordance with Section 1(b) hereof that the Adviser is
willing to serve as investment adviser with respect to such Fund, provided that
this Agreement (as supplemented by the terms specified in any notice and
agreement pursuant to Section 1(b) hereof) shall have been approved by the
shareholders of the Funds in accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1996. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement will be effective as to a particular Fund until approved by vote of a
majority of the outstanding voting securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser
hereunder by the Company will be in writing and will be duly given if mailed or
delivered to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles,
California 90071, Attention: Sandra C. Brown, or at such other address or to
such individuals as will be so specified by the Adviser to the Company. Notices
of any kind to be given to the Company hereunder by the Adviser will be in
writing and will be duly given if
-6-
<PAGE> 7
mailed or delivered to the Company at 3435 Stelzer Road, Columbus, Ohio 43219,
Attention: J. David Huber (with a copy to Association of American Universities,
One DuPont Circle, Suite 730, Washington, DC 20036, Attention: Cornelius J.
Pings, President), or at such other address or to such individual as will be so
specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By: /s/ Cornelius J. Pings
---------------------------------------
Name: Cornelius J. Pings
Title: President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATIONS
By: /s/ Kirk D. Hartman
---------------------------------------
Name: Kirk D. Hartman
Title: Chief Investment Officer
-7-
<PAGE> 1
EXHIBIT 5(h)
INVESTMENT ADVISORY AGREEMENT
(CORPORATE BOND FUND)
THIS AGREEMENT is made as of September 1, 1996 between Pacific Horizon
Funds, Inc., a Maryland corporation (the "Company"), and Bank of America
National Trust and Savings Association (the "Advisor").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to
furnish investment advisory services to the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Corporate Bond Fund (the "Fund") for the period and on
the terms set forth in this Agreement. The Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
(b) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing, whereupon such investment
portfolio shall become a "Fund" (as defined below) hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Fund
except to the extent that said provisions (including those relating to the
compensation payable by the Fund to the Adviser) are modified with respect to
such Fund in writing by the Company and the Adviser at the time. The Fund and
any additional investment portfolio added hereunder in accordance with this
paragraph are sometimes collectively referred to herein as the "Funds" and
individually as a "Fund."
2. SERVICES. Subject to the supervision of the Company's Board
of Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
<PAGE> 2
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Company with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser.
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program.
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and each Fund the best overall terms available. In assessing the
best overall terms available for any transaction the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to any Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
particular Fund and to the
<PAGE> 3
Company. In no instance will portfolio securities be purchased from or sold to
the Adviser, any Sub-Adviser or Concord Holding Corporation, the Company's
administrator (the "Administrator"), or an affiliated person of any of them
acting as principal or as broker, except as permitted by law. In executing
portfolio transactions for any Fund, the Adviser may, but shall not be obligated
to, to the extent permitted by applicable laws and regulations, aggregate the
securities to be sold or purchased with those of other Funds and its other
clients where such aggregation is not inconsistent with the policies set forth
in the Company's registration statement. In such event, the Adviser will
allocate the securities so purchased or sold, and the expenses incurred in the
transaction, in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Funds and such other clients.
In performing the investment services for the Funds, the Adviser is
authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar, as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions of the Funds, keep books of account with respect to such
Funds and furnish the Board such periodic special reports as the Board may
request.
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
<PAGE> 4
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquiries concerning investment in the Company, and will not use such records
and information for any purpose other than the performance of its
responsibilities and duties hereunder or under any other agreement with the
Company except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Adviser from advertising to or
soliciting the public generally with respect to other products or services,
including, but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Company shareholders or those persons or entities who have responded to
inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time
to time employ or associate with itself such person or persons as the Adviser
believes to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes
herein be deemed to be an independent contractor and will, unless otherwise
expressly provided herein or authorized by the Board from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The investment management services furnished by the Adviser hereunder
are not deemed exclusive, and the Adviser will be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-3 under the
1940 Act.
<PAGE> 5
6. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Company will pay the Adviser and the
Adviser will accept as full compensation therefor a fee, computed daily and paid
monthly (in arrears), at an annual rate of .45% of the average net assets of the
Fund. Such fee as is attributable to a Fund will be a separate charge to each
such Fund and will be the several (and not joint or joint and several)
obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as
defined under the securities regulations of any state having jurisdiction over
the Fund) exceed the expense limitations of any such state, the Adviser will
reimburse the Fund to the extent necessary to reduce such Fund's expenses below
such expense limitation. The obligation of the Adviser to reimburse any Fund
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year with respect to such Fund; provided, however, that
notwithstanding the foregoing, the Adviser will reimburse any Fund for excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction over
the Fund so require. Such expense reimbursement, if any, will be estimated and
accrued daily and paid on a monthly basis.
8. LIMITATION OF LIABILITY. Subject to the provisions of Section
3 hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgement or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective
with respect to the Fund on the date first written above. This Agreement will
become effective with respect to any additional Fund on the date of receipt by
the Company of notice from the Adviser in accordance with Section 1(b) hereof
that the Adviser is willing to serve as investment adviser with respect to such
Fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section
<PAGE> 6
1(b) hereof) shall have been approved by the shareholders of the Fund in
accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1996. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement will be effective as to a particular Fund until approved by vote of a
majority of the outstanding voting securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser
hereunder by the Company will be in writing and will be duly given if mailed or
delivered to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles,
California 90071, Attention: Sandra C. Brown, or at such other address or to
such individual as will be so specified by the Adviser to the Company. Notices
of any kind to be given to the Company hereunder by the Adviser will be in
writing and will be duly given if mailed or delivered to the Company at 3435
Stelzer Road, Columbus, Ohio 43219, Attention: J. David Huber (with a copy to
Association of American Universities, One DuPont Circle, Suite 730, Washington,
DC 20036, Attention: Cornelius J. Pings, President), or at such other address or
to such individual as will be so specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
<PAGE> 7
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By: ______________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATIONS
By: ______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 5(I)
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
(INTERNATIONAL EQUITY FUND)
THIS AGREEMENT is made as of , 1997 between PACIFIC HORIZON
FUNDS, INC., a Maryland corporation (herein called the "Company"), and Bank of
America National Trust and Savings Association (the "Adviser").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish
investment advisory services to the Company's International Equity Fund (the
"Fund");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Adviser to act as
investment adviser to the Fund for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. The Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law and are under the common
control of BankAmerica Corporation provided (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Adviser.
(b) In the event that the Company establishes one or more
investment portfolios other than the Fund with respect to which it desires to
retain the Adviser to act as investment adviser hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services under this
Agreement it shall so notify the Company in writing whereupon such investment
portfolio shall become a "Fund" hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Fund except to the extent that said
provisions (including those relating to the compensation payable by the Fund to
the Adviser) are modified with respect to such Fund in writing by the Company
and the Adviser at the time. The Fund and any additional investment portfolios
established hereunder in accordance with this paragraph are sometimes
collectively referred to herein as the "Funds" and individually as a "Fund."
<PAGE> 2
2. SERVICES. Subject to the supervision of the Company's Board of
Directors (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 3 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Company with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct is
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Directors
regarding the performance and investment procedures of any Sub-Adviser (as
defined in Section 3 of this Agreement).
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program (as defined in Section 3 of this Agreement).
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best efforts to seek on behalf of
the Company and each Fund the best overall terms available. In assessing the
best overall terms available for any transaction the Adviser shall consider all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In evaluating the best
overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) provided to any Fund and/or other accounts over which
the Adviser or any affiliate of the Adviser exercises investment discretion. The
Adviser is authorized, subject to the prior approval of the Board, to pay to a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for any Fund which is in excess of the
-2-
<PAGE> 3
amount of commission another broker or dealer would have charged for effecting
that transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
particular Fund and to the Company. No prior approval by the Board, however,
shall be required so long as the broker or dealer selected by the Adviser
obtains best price and execution on a particular transaction. In no instance
will portfolio securities be purchased from or sold to the Adviser, any
Sub-Adviser or Concord Holding Corporation, the Company's administrator (the
"Administrator"), or an affiliated person of any of them acting as principal or
as broker, except as permitted by law. In executing portfolio transactions for
any Fund, the Adviser may, but shall not be obligated to, to the extent
permitted by applicable laws and regulations, aggregate the securities to be
sold or purchased with those of other Funds and its other clients where such
aggregation is not inconsistent with the policies set forth in the Company's
registration statement. In such event, the Adviser will allocate the securities
so purchased or sold, and the expenses incurred in the transaction, in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and such other clients.
In performing the investment advisory services hereunder, the Adviser
is authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in any
other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar as permitted by law any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have a
personal interest shall not apply to the Adviser, to the extent its actions are
authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions for the Funds, keep books of account with respect to
such Funds and furnish the Board such periodic special reports as the Board may
request.
-3-
<PAGE> 4
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
(g) Will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders or those persons or entities who respond
to inquires concerning investment in the Company, and will not use such records
and information for any purpose other than performance of its responsibilities
and duties hereunder or under any other agreement with the Company except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Adviser may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Company. Nothing contained herein, however, shall prohibit
the Adviser from advertising to or soliciting the public generally with respect
to other products or services, including, but not limited to, any advertising or
marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons or
entities who have responded to inquiries regarding the Company.
3. SUB-ADVISER. It is understood that the Adviser may from time
to time employ or associate with itself such person or persons as the Adviser
believes to be fitted to assist it in the performance of this Agreement (each a
"Sub-Adviser"); provided, however, that the compensation of such person or
persons shall be paid by the Adviser and that the Adviser shall be as fully
responsible to the Company for the acts and omissions of any such person as it
is for its own acts and omissions; and provided further, that the retention of
any Sub-Adviser shall be approved as may be required by the 1940 Act. In
addition, notwithstanding any such employment or association, the Adviser shall
itself (a) establish and monitor general investment criteria and policies for
the Fund, (b) review and analyze on a periodic basis the Fund's portfolio
holdings and transactions in order to determine their appropriateness in light
of the Fund's shareholder base, and (c) review and analyze on a periodic basis
the policies established by any Sub-Adviser for the Fund with respect to the
placement of orders for the purchase and sale of portfolio securities.
Additionally, in the event that any Sub-Adviser appointed
-4-
<PAGE> 5
hereunder is terminated, the Adviser may provide investment advisory services
pursuant to this Agreement to the Funds without further shareholder approval.
4. SERVICES NOT EXCLUSIVE. The Adviser will for all purposes
herein be deemed to be an independent contractor and will, unless otherwise
expressly provided herein or authorized by the Board from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The investment management services furnished by the Adviser hereunder
are not deemed exclusive, and the Adviser will be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any such records upon the Company's request.
The Adviser further agrees to preserve for the periods prescribed by Rule 31a- 2
under the 1940 Act the records required to be maintained by Rule 31-1 under the
1940 Act.
6. EXPENSES. During the term of this Agreement, the Adviser will
pay all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Company.
7. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Company will pay the Adviser and the
Adviser will accept as full compensation therefor a fee, computed daily and paid
monthly (in arrears), at an annual rate of .75% of the net assets of the
International Equity Fund. Such fee as is attributable to a Fund will be a
separate charge to each such Fund and will be the several (and not joint or
joint and several) obligation of each such Fund.
If in any fiscal year the aggregate expenses of any Fund (as defined
under the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Adviser will reimburse the
Fund to the extent necessary to reduce such Fund's expenses below such expense
limitation. The obligation of the Adviser to reimburse any Fund hereunder is
limited in any fiscal year to the amount of its fee hereunder for such fiscal
year with respect to such Fund; provided, however, that notwithstanding the
foregoing, the Adviser will reimburse any Fund for excess expenses regardless of
the amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Fund so
require. Such expense reimbursement, if any, will be estimated and accrued daily
and paid on a monthly basis.
-5-
<PAGE> 6
8. LIMITATION OF LIABILITY. Subject to the provisions of Section
3 hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement will become effective
with respect to the International Equity Fund as of the date first above
written, provided that the shareholders of such Fund have previously approved
the Agreement in accordance with the requirements of the 1940 Act. This
Agreement will become effective with respect to any additional Fund on the date
of receipt by the Company of notice from the Adviser in accordance with Section
1(b) hereof that the Adviser is willing to serve as investment adviser with
respect to such Fund, provided that this Agreement (as supplemented by the terms
specified in any notice and agreement pursuant to Section 1(b) hereof) shall
have been approved by the shareholders of such Fund in accordance with the
requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1997. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board or by
vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to any Fund
at any time, without the payment of any penalty, by the Company (by vote of the
Board or by vote of a majority of the outstanding voting securities of such
Fund), or by the Adviser, on sixty days' written notice. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meaning as the meaning
of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement will be effective as to
-6-
<PAGE> 7
a particular Fund until approved by vote of a majority of the outstanding voting
securities of such Fund.
11. NOTICES. Notices of any kind to be given to the Adviser
hereunder by the Company will be in writing and will be duly given if mailed or
delivered to the Adviser at 555 South Flower Street, 5th Floor, Los Angeles,
California 90071, Attention: Sandra C. Brown, or at such other address or to
such individuals as will be so specified by the Adviser to the Company. Notices
of any kind to be given to the Company hereunder by the Adviser will be in
writing and will be duly given if mailed or delivered to the Company at 3435
Stelzer Road, Columbus, Ohio 43219, Attention: J. David Huber (with a copy to
Association of American Universities, One DuPont Circle, Suite 730, Washington,
DC 20036, Attention: Cornelius J. Pings, President), or at such other address or
to such individual as will be so specified by the Company to the Adviser.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts, of the State of Maryland; provided
that nothing herein will be construed in a manner inconsistent with the 1940
Act, the Investment Advisers Act of 1940, as amended, or any rule or regulation
of the Securities and Exchange Commission thereunder. This Agreement may be
executed in two or more parts which together shall constitute a single
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PACIFIC HORIZON FUNDS, INC.
By:
Name: Cornelius J. Pings
Title: President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
Name: Kirk D. Hartman
Title: Chief Investment Officer
-7-
<PAGE> 1
EXHIBIT 5(j)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of ____________, 1997 between Bank of America
National Trust and Savings Association, a national banking association (herein
called the "Adviser"), and Wellington Management Company, LLP, a Massachusetts
limited liability partnership (herein called the "Sub-Adviser").
WHEREAS, Pacific Horizon Funds, Inc., a Maryland corporation
(hereinafter called the "Company"), is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement dated as of July
30, 1996 (hereinafter called the "Investment Advisory Agreement"), by and
between the Company and the Adviser, the Adviser has agreed to furnish
investment advisory services to the Company with respect to its International
Equity Fund (the "Fund"); and
WHEREAS, the Investment Advisory Agreement specifically authorizes the
Adviser to sub-contract investment advisory services on behalf of the Fund to a
sub-adviser pursuant to a sub-advisory agreement agreeable to the Company and
approved in accordance with the provisions of the 1940 Act; and
WHEREAS, the Board of Directors of the Company and the shareholders of
the Fund approved this Agreement, and the SubAdviser is willing to furnish such
services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. APPOINTMENT.
The Adviser hereby appoints the Sub-Adviser to act as subinvestment
adviser with respect to the Fund, for the period and on the terms set forth in
this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish
the services herein set forth for the compensation herein provided.
2. SERVICES OF SUB-ADVISER.
Subject to the oversight and supervision of the Adviser and the
Company's Board of Directors, the Sub-Adviser will provide a continuous
investment program for the Fund, including investment research and management
with respect to all securities and investments and cash equivalents in the Fund.
The Sub-Adviser will determine from time to time what securities and other
<PAGE> 2
investments will be purchased, retained or sold by the Fund. The Sub-Adviser
will provide the services rendered by it under this Agreement in accordance with
the investment criteria and policies established from time to time for the Fund
by the Adviser, the investment objective, policies and restrictions as stated in
the Company's currently effective Registration Statement with respect to the
Fund, and resolutions of the Company's Board of Directors. Without limiting the
generality of the foregoing, the Sub-Adviser further agrees that it will
maintain such books and records regarding the securities transactions with
respect to the Fund as may be required or otherwise requested by the Company and
its Board of Directors and the Sub-Adviser will also supply the Company and its
Board of Directors with reports, statistical data and economic information as
requested.
3. OTHER COVENANTS.
The Sub-Adviser agrees that it:
(a) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law;
(b) will use the same skill and care in providing services
under this Agreement as it uses in providing services to fiduciary accounts for
which it has investment responsibilities;
(c) will place orders pursuant to its investment
determinations with respect to the Fund with brokers or dealers in accordance
with the policy set forth in the Fund's Registration Statement or as the Adviser
or Board of Directors may direct from time to time. In executing portfolio
transactions and selecting brokers or dealers, the Sub-Adviser will use its best
efforts to seek on behalf of the Fund the best overall terms available. In
assessing the best overall terms available for any transaction, the Sub-Adviser
shall consider all factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for specific transactions and on a continuing basis. In
evaluating the best overall terms available, and in selecting the broker-dealer
to execute a particular transaction, the Sub-Adviser may also consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided with respect to the
Fund, other investment portfolios or other accounts over which the Sub-Adviser
or an affiliate of the Sub-Adviser exercises investment discretion. The
Sub-Adviser is authorized, subject to the prior approval of the Adviser and the
Company's Board of Directors, to pay to a broker or dealer who provides such
brokerage and research
-2-
<PAGE> 3
services a commission for executing a portfolio transaction with respect to the
Fund that is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer - viewed in terms of that particular transaction or in terms of
the overall responsibilities of the Sub-Adviser to the Fund and to the Company.
No prior approval by the Adviser or the Company's Board of Directors, however,
shall be required so long as the broker or dealer selected by the Sub-Adviser
obtains best price and execution on a particular transaction. In no instance
will portfolio securities be purchased from or sold to the Adviser, the
Sub-Adviser, or Concord Holding Corporation, or any affiliated person of the
Adviser, the Sub-Adviser, or Concord Holding Corporation acting as principal or
broker, except as permitted by law. In executing portfolio transactions with
respect to the Fund, the Sub-Adviser may, but is not obligated to, to the extent
permitted by applicable laws and regulations, aggregate the securities to be
sold or purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Company's currently effective
Registration Statement. In such event the Sub-Adviser will allocate the
securities so purchased or sold, and the expenses incurred in the transaction,
in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Fund, such other portfolios and such other clients.
(d) will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
prior or present Company shareholders ("Investors") or those persons or entities
who respond to inquiries concerning investment in the Company, and will not use
such records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Company except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Sub-Adviser from advertising to or
soliciting the public generally with respect to other procedures or services,
including but not limited to, any advertising or marketing via radio,
television, newspapers, magazines or direct mail solicitation, regardless of
whether such advertisement or solicitation may coincidentally include prior or
present Investors or those persons or entities who have responded to inquiries
regarding the Company.
-3-
<PAGE> 4
(e) will not purchase any securities from or sell any
securities to the Adviser, the Company's administrator or either of their
affiliates on behalf of the Fund except as permitted by law. Nothing in this
subsection shall in any way prohibit the Sub-Adviser or any of its affiliates
from purchasing securities from, selling securities to or engaging in any other
financial transactions with the Adviser or any of its affiliates on behalf of
any other accounts managed by the Sub-Adviser.
(f) will provide the Fund's Custodian on each business day
with information relating to all transactions concerning the Fund's assets and
shall provide the Adviser with such information upon request.
(g) on a monthly basis, will provide information regarding
investment strategy to be employed by the Sub-Adviser on behalf of the Fund and
information regarding the Fund's performance against its benchmark and will
provide such other information as the Adviser may reasonably request from time
to time.
4. SERVICES NOT EXCLUSIVE.
The services furnished by the Sub-Adviser hereunder are deemed not to
be exclusive, and the Sub-Adviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
The Sub-Adviser will for all purposes herein be deemed to be an independent
contractor and will, unless otherwise expressly authorized by the Board from
time to time, have no authority to act for or represent the Company or the
Adviser in any way or otherwise be deemed their agent.
5. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Sub-Adviser hereby agrees that all records that it maintains with respect to
the Fund are the property of the Company and further agrees to surrender
promptly to the Company any of such records upon the Company's request; provided
however that the Sub-Adviser may retain a copy of such records. The SubAdviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions and other
transaction costs, if any) purchased or sold with respect to the Fund.
-4-
<PAGE> 5
7. COMPENSATION.
For the services provided and the expenses assumed pursuant to this
Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser will accept
as full compensation therefor, a fee, payable quarterly (in arrears), at the
following annual rates based on the average month-end net assets of the Fund as
follows:
<TABLE>
<CAPTION>
Fund Assets Rate of Sub-Advisory Fee
----------- ------------------------
<S> <C>
First $50 million 0.40%
Next $100 million 0.30%
Next $350 million 0.25%
Over $500 million 0.20%
</TABLE>
The Sub-Adviser acknowledges that it shall not be entitled to any further
compensation from the Adviser in respect of the services provided and expenses
assumed by it under this Agreement. The Sub-Adviser understands and agrees that
the Company and the Fund shall have no liability for payment of the
Sub-Adviser's fees hereunder, and that the Sub-Adviser's sole recourse for
payment of such fees shall be to the Adviser.
8. LIMITATION OF LIABILITY.
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Company and the Adviser for any loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services or any loss
resulting from willful misfeasance, bad faith or negligence on the part of the
Sub-Adviser in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. The Sub-Adviser acknowledges
and agrees that the performance of this Agreement is for the benefit of the
Company, that the Sub-Adviser is therefore directly liable and responsible to
the Company for the performance of its obligations hereunder, and that the
Company may enforce in its own name and for itself such liability and
responsibility.
9. DURATION AND TERMINATION.
This Agreement will become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue in effect until October 31,
1998. Thereafter, if not terminated, this Agreement shall continue in effect for
successive annual periods ending on October 31, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Company's Board of Directors who
-5-
<PAGE> 6
are not interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by the Adviser or by
the Company (in the case of the Company, by vote of the Company's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund) on sixty days' written notice to the Sub-Adviser, or by the Sub-Adviser,
on sixty days' written notice to the Company, provided that in each such case,
notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to the contrary, in the event of the termination
of the Investment Advisory Agreement with respect to the Fund for any reason
(whether by the Company, by the Adviser or by operation of law) this Agreement
shall terminate upon the effective date of such termination of the Investment
Advisory Agreement. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as such terms have in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until approved by vote
of a majority of the outstanding voting securities of the Fund.
11. MISCELLANEOUS.
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by the internal laws, and not the
law of conflicts, of the State of Maryland; provided that nothing herein will be
construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder.
This Agreement may be executed in two or more parts which together
shall constitute a single Agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: ______________________________
Title
WELLINGTON MANAGEMENT COMPANY, LLP
By: ______________________________
Title
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<PAGE> 1
EXHIBIT 6(a)
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
This Amended and Restated Distribution Agreement is made as of
this September 1, 1995 between PACIFIC HORIZON FUNDS, INC., a Maryland
corporation (herein called the "Company"), and CONCORD FINANCIAL GROUP, INC., a
Delaware corporation (herein called "CFG").
WHEREAS, the Company is an open-end, management investment
company and is so registered under the Investment Company Act of 1940; and
WHEREAS, the Company will offer and maintain the following
investment portfolios: Prime Fund, Treasury Fund, Treasury Only Fund, Government
Fund, Tax-Exempt Money Fund, California Tax-Exempt Money Market Fund, Prime
Value Fund, Aggressive Growth Fund, U.S. Government Securities Fund, Capital
Income Fund, California Tax-Exempt Bond Fund, Blue Chip Fund, Flexible Bond
Fund, Asset Allocation Fund, National Municipal Bond Fund, Utilities Fund,
Short-Term Government Fund, Corporate Bond Fund, Growth and Income Fund,
International Bond Fund and International Equity Fund (individually a "Fund" and
collectively the "Funds"); and
WHEREAS, pursuant to an Administration Agreement dated
November 13, 1989, as amended, Basic Administrative Services Agreement dated
November 13, 1989, as amended, and Special Management Services Agreement, dated
April 22, 1992, as amended, (collectively the "Management Agreements") between
the Company and Concord Holding Corporation ("Concord"), the Company has
retained Concord to provide administrative and management services to the Funds;
and
WHEREAS, the Company desires to retain CFG as Distributor for
the Funds to provide for the sale and Distribution of shares of common stock of
the Funds, each such share having a par value of $.001 per share (herein
collectively called "Shares"), and CFG is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein the parties hereto agree as follows:
<PAGE> 2
I. DELIVERY OF DOCUMENTS
The Company has delivered to CFG copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) The Company's Charter and all amendments thereto
(such Charter, as presently in effect and as it shall from time to time be
amended, herein called the "Company's Charter");
(b) Bylaws of the Company (such Bylaws, as presently
in effect and as they shall from time to time be amended, herein called the
"Bylaws");
(c) Resolutions of the Board of Directors of the
Company authorizing the execution and delivery of this Agreement;
(d) Post-Effective Amendment No. 39 to the Company's
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the "1940 Act"), on
Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") relating to the Shares, and all subsequent amendments thereto
(said registration statement, as presently in effect and as amended or
supplemented from time to time, is herein called the "Registration Statement");
(e) Notification of Registration of the Company under
the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and statements of additional
information of the Company and of each Fund (such prospectuses and statements of
additional information, as presently in effect and as they shall from time to
time be amended and supplemented, herein called individually the "Prospectus"
and collectively the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Company hereby
appoints CFG as Distributor of the Funds' Shares and CFG hereby accepts such
appointment and agrees to render the services and duties set forth in this
Section II.
2. SERVICES AND DUTIES.
(a) The Company agrees to sell through CFG, as agent,
from time to time during the term of this Agreement, Shares of each class now or
hereafter created in the Funds (whether authorized but unissued or treasury
shares, in the
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<PAGE> 3
Company's sole discretion) upon the terms and at the current offering price as
described in the applicable Prospectus. CFG will act only on its own behalf as
principal in making agreements with selected dealers or others for the sale and
redemption of Shares, and shall sell Shares only at the offering price thereof
as set forth in the applicable Prospectus. CFG shall devote its best efforts to
effect sales of Shares of each of the Funds, but shall not be obligated to sell
any certain number of Shares.
(b) In all matters relating to the sale and
redemption of Shares CFG will act in conformity with the Company's Charter,
Bylaws and Prospectuses and with the instructions and directions of the Board of
Directors of the Company, and will conform to and comply with the requirements
of the 1933 Act, the 1940 Act, the regulations of the National Association of
Securities Dealers, Inc. and all other applicable federal or state laws and
regulations. In connection with such sales, CFG acknowledges and agrees that it
is not authorized to provide any information or make any representations other
than as contained in the Company's Registration Statement and Prospectuses and
any sales literature specifically approved by the Company.
(c) CFG will bear the cost of (i) printing and
distributing any Prospectus (including any supplement thereto), and (ii)
preparing, printing and distributing any literature, advertisement or material
which is primarily intended to result in the sale of the Shares; provided,
however, that CFG shall not be obligated to bear the expenses incurred by the
Company in connection with (1) the preparation and printing of any supplement or
amendment to any Registration Statement or Prospectus necessary for the
continued effective registration of the Shares under the 1933 Act or any state
securities laws; and (2) the printing and distribution of any Prospectus,
supplement or amendment thereto for existing shareholders of the Fund described
therein; and provided, further, that each Fund will bear the expenses incurred
and other payments made in accordance with the provisions of this Agreement and
any plan now or hereafter adopted with respect to any class or classes of Shares
of such Funds pursuant to Rule 12b-1 under the 1940 Act.
(d) Except for Shares that are sold with a contingent
deferred sales charge ("CDSC"), all Shares of the Aggressive Growth, U.S.
Government Securities, Capital Income, California Tax-Exempt Bond, Blue Chip,
Flexible Bond, Asset Allocation, National Municipal Bond, Utilities, Corporate
Bond, Growth and Income, International Bond and International Equity Funds of
the Company offered for sale by CFG shall be offered for sale to the public at a
price per Share (the "offering price") equal to (i) their net asset value
(determined in the manner set forth in the Company's Charter and then current
Prospectuses) plus, except with respect to those classes of persons or
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<PAGE> 4
transactions set forth in the then current Prospectuses, (ii) a sales charge
which shall be the percentage of the offering price of such Shares as set forth
in the Company's then current Prospectuses. The offering price, if not an exact
multiple of one cent, shall be adjusted to the nearest cent. Concessions by CFG
to broker-dealers and other persons shall be set forth in either the selling
agreements between CFG and such broker-dealers and persons or, if such
concessions are described in the then current Prospectuses, shall be as so set
forth. No broker-dealer or other person who enters into a selling agreement with
CFG shall be authorized to act as agent for the Company in connection with the
offering or sale of its Shares to the public or otherwise.
(e) If any Shares sold by CFG under the terms of this
Agreement are redeemed or repurchased by the Company or by CFG as agent or are
tendered for redemption within seven business days after the date of
confirmation of the original purchase of said Shares, CFG shall forfeit the
amount above the net asset value received by it in respect of such Shares,
provided that the portion, if any, of such amount re-allowed by CFG to
broker-dealers or other persons shall be repayable to the Company only to the
extent recovered by CFG from the broker-dealer or other person concerned. CFG
shall include in the forms of agreement with such broker-dealers and other
persons a corresponding provision for the forfeiture by them of their concession
with respect to Shares sold by them or their principals and redeemed or
repurchased by the Company or by CFG as agent (or tendered for redemption)
within seven business days after the date of confirmation of such initial
purchases.
(f) With respect to such classes of Shares, if any,
that are sold with a contingent deferred sales charge ("CDSC"), CFG shall impose
a CDSC in connection with the redemption of the Shares of such classes, not to
exceed a specified percentage of the original purchase price of the Shares, as
from time to time set forth in the applicable Prospectuses. CFG may retain (or
receive from the Company, as the case may be) all of any CDSC. CFG may pay to
broker-dealers or other persons through whom such Shares are sold a commission
or other payment to the extent consistent with the current Prospectuses and
applicable rules and regulations.
3. SALES AND REDEMPTIONS.
(a) The Company shall pay all costs and expenses in
connection with the registration of the Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and transfer of
the Shares and for supplying information, prices and other data to be furnished
by the Company hereunder, and all expenses in connection with preparing,
printing and distributing the Prospectuses except as set forth in
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<PAGE> 5
subsection 2(c) of Section II hereof or in any other agreement entered into by
the Company.
(b) The Company shall execute all documents, furnish
all information and otherwise take all actions which may be reasonably necessary
in the discretion of the Company's officers in connection with the qualification
of the Shares for sale in such states as CFG may designate to the Company and
the Company may approve, and the Company shall pay all filing fees which may be
incurred in connection with such qualification. CFG shall pay all expenses
connected with its qualification as a dealer under state or federal laws and,
except as otherwise specifically provided in this Agreement, all other expenses
incurred by CFG in connection with the sale of the Shares as contemplated in
this Agreement. It is understood that certain advertising, marketing,
shareholder servicing, administration, distribution and/or other expenses to be
incurred in connection with the Shares may be paid as provided in a Shareholder
Service Plan or a plan adopted pursuant to Rule 12b-1 of the 1940 Act adopted by
the Company (collectively, the "Plans"). The Distributor agrees to be
responsible for implementing and operating such Plans in accordance with the
terms thereof.
(c) The Company shall have the right to suspend the
sale of Shares of any Fund at any time in response to conditions in the
securities markets or otherwise, and to suspend the redemption of Shares of any
Fund at any time as permitted by the 1940 Act or the rules of the Commission
("Rules").
(d) The Company reserves the right to reject any
order for Shares, but will not do so arbitrarily or without reasonable cause.
III. LIMITATIONS OF LIABILITY
CFG shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
IV. CONFIDENTIALITY
CFG will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and the
Funds and prior or present shareholders or those persons or entities who respond
to CFG'S inquiries concerning investment in the Company, and will not use
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<PAGE> 6
such records and information for any purpose other than the performance of its
responsibilities and duties hereunder or under any other agreement with the
Company, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where CFG may be exposed to civil or criminal contempt proceedings for
failure to comply, when CFG is requested to divulge such information by duly
constituted authorities, or when CFG is so requested by the Company.
V. INDEMNIFICATION
1. COMPANY REPRESENTATIONS. The Company represents and
warrants to CFG that at all times the Registration Statement and Prospectuses
will in all material respects conform to the applicable requirements of the 1933
Act and the Rules and will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation or warranty in this
subsection shall apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
and with respect to CFG expressly for use in the Registration Statement or
Prospectuses.
2. CFG REPRESENTATIONS. CFG represents and warrants to the
Company that it is duly organized as a Delaware corporation and is and at all
times will remain duly authorized and licensed to carry out its services as
contemplated herein.
3. COMPANY INDEMNIFICATION. The Company will indemnify, defend
and hold harmless CFG, its several officers and directors, and any person who
controls CFG within the meaning of Section 15 of the 1933 Act, from and against
any losses, claims, damages or liabilities, joint or several, to which any of
them may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectuses or in any application or other document executed by or on behalf of
the Company, or arise out of, or are based upon, information furnished by or on
behalf of the Company filed in any state in order to qualify the Shares under
the securities or blue sky laws thereof ("Blue Sky Application"), or arise out
of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse CFG, its several officers and
directors, and any person who controls CFG within the meaning of Section 15 of
the 1933 Act, for any
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<PAGE> 7
legal or other expenses reasonably incurred by any of them in investigating,
defending or preparing to defend any such action, proceeding or claim; provided,
however, that the Company shall not be liable in any case to the extent that
such loss, claim, damage or liability arises out of, or is based upon, any
untrue statement, alleged untrue statement, or omission or alleged omission made
in the Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Company in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of and with respect to CFG specifically for inclusion
therein.
The Company shall not indemnify any person pursuant to this
subsection 3 unless the court or other body before which the proceeding was
brought has rendered a final decision on the merits that such person was not
liable by reason of his willful misfeasance, bad faith or negligence in the
performance of his duties, or his reckless disregard of obligations and duties,
under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of directors of the Company who are neither
"interested persons" of the Company (as defined in the 1940 Act) nor parties to
the proceeding, or by an independent legal counsel in a written opinion.
Each Fund shall advance attorneys' fees and other expenses
incurred by any person in defending any claim, demand, action or suit which is
the subject of a claim for indemnification pursuant to this subsection 3, so
long as: (a) such person shall undertake to repay all such advances unless it is
ultimately determined that he is entitled to indemnification hereunder; and (b)
such person shall provide security for such undertaking, or the Fund shall be
insured against losses arising by reason of any lawful advances, or a majority
of a quorum of the disinterested, non-party directors of the Company (or an
independent legal counsel in a written opinion) shall determine based on a
review of readily available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such person ultimately will be found entitled to
indemnification hereunder.
4. CFG INDEMNIFICATION. CFG will indemnify, defend
and hold harmless the Company, each Fund, the Company's several officers and
directors and any person who controls the Company or any Fund within the meaning
of Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise
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<PAGE> 8
out of, or are based upon, any breach of its representations and warranties in
subsection 2 hereof or its agreements in subsection 2 of Section II hereof, or
which arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectuses, any Blue Sky Application or any application or other document
executed by or on behalf of the Company, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, which statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company or any of its several officers and directors by or on behalf of and with
respect to CFG specifically for inclusion therein, and will reimburse the
Company, each Fund, the Company's several officers and directors, and any person
who controls the Company or any Fund within the meaning of Section 15 of the
1933 Act, for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying
party shall be liable under its indemnity agreement contained in sub-section 3
or 4 hereof with respect to any claim made against such indemnifying party
unless the indemnified party shall have notified the indemnifying party in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
indemnified party (or after the indemnified party shall have received notice of
such service on any designated agent), but failure to notify the indemnifying
party of any such claim shall not relieve it from any liability which it may
otherwise have to the indemnified party. The indemnifying party will be entitled
to participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, and if the
indemnifying party elects to assume the defense, such defense shall be conducted
by counsel chosen by it and reasonably satisfactory to the indemnified party. In
the event the indemnifying party elects to assume the defense of any such suit
and retain such counsel, the indemnified party shall bear the fees and expenses
of any additional counsel retained by the indemnified party.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date
hereof and, unless sooner terminated as provided herein, shall continue in
effect with respect to each Fund until October 31, 1995. Thereafter, if not
terminated, this Agreement shall continue automatically for successive terms of
one year, provided that such continuance is specifically approved at least
annually (a) by a vote of a majority of those members of the Board of
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<PAGE> 9
Directors of the Company who are not parties to this Agreement or "interested
persons" of any such party and have no direct or indirect financial interest in
the operation of any Plan adopted pursuant to Rule 12b-1 of the 1940 Act that
has been adopted by the Company or in any agreements entered into in connection
with such Plans, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Board of Directors of the Company or by vote of a
"majority of the outstanding voting securities" of the Funds as to which the
Agreement is effective; provided, however, that this Agreement may be terminated
by the Company at any time, without the payment of any penalty, by vote of a
majority of the entire Board of Directors of the Company or by a vote of a
"majority of the outstanding voting securities" of such Funds on 60 days'
written notice to CFG, or by CFG at any time, without the payment of any
penalty, on 90 days' written notice to the Company. This Agreement will
automatically and immediately terminate in the event of its "assignment." (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the 1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
VIII. NOTICES
Notices of any kind to be given to the Company hereunder by
CFG shall be in writing and shall be duly given if mailed or delivered to the
Company at Association of American Universities, One DuPont Circle, Suite 730,
Washington, D.C. 20036, Attention: Cornelius J. Pings, President, with a copy to
Suite 1100, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496,
Attention: W. Bruce McConnel, III, Secretary, or at such other address or to
such individual as shall be so specified by the Company to CFG. Notices of any
kind to be given to CFG hereunder by the Company shall be in writing and shall
be duly given if mailed or delivered to CFG at 125 West 55th Street, 11th Floor,
New York, New York 10019, Attention: Stephen G. Mintos, Executive Vice President
and Chief Operating Officer, or at such other address or to such individual as
shall be so specified by CFG to the Company.
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<PAGE> 10
IX. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section VI hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law; provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
---------------------------
Cornelius J. Pings
President
Attest: /s/ W. Bruce McConnel, III
--------------------------
Secretary
CONCORD FINANCIAL GROUP, INC.
By:/s/ Stephen G. Mintos
---------------------------
Stephen G. Mintos
Executive Vice President
and Chief Operating Officer
Attest: /s/ W. Bruce McConnel, III
--------------------------
Secretary
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<PAGE> 1
EXHIBIT 8(e)
Amendment Number 4 to Custody Agreement
This Amendment Number 4 to Custody Agreement is dated as of
July 1, 1996 (the "Amendment") and is made by Pacific Horizon Funds, Inc., a
Maryland Corporation (the "Fund"), and The Bank of New York (the "Custodian").
W I T N E S S E T H:
WHEREAS, the Custodian acts as custodian for the Fund with
respect to certain of the Fund's currently existing investment portfolios (i.e.,
the Prime Fund, Treasury Fund, Tax-Exempt Money Fund, California Tax-Exempt
Money Market Fund, Aggressive Growth Fund, Capital Income Fund, U.S. Government
Securities Fund, California Tax-Exempt Bond Fund, Government Fund and Treasury
Only Fund) pursuant to a Custody Agreement between the Custodian and the Fund
dated as of April 3, 1989 as amended by Amendment Number 1 to Custody Agreement
dated March 30, 1990, Amendment Number 2 to the Custody Agreement dated February
26, 1993 and Amendment Number 3 to the Custody Agreement dated April 24, 1996
(the "Agreement"); and
WHEREAS, the Fund is reorganizing the National Municipal Bond
Fund (the "Portfolio") from the existing master-feeder structure into a
"stand-alone" fund (the "Reorganization") and desires the Custodian to act as
custodian with respect to the Portfolio after the Reorganization.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the Custodian and the Fund do hereby
covenant to and agree as follows:
1. Effective as of July 1, 1996 the Fund hereby constitutes and
appoints the Custodian as custodian of the "Securities" (as defined in the
Agreement) and moneys at any time owned by the Portfolio prior to the time the
custodial relationship between the Custodian and the Portfolio is terminated in
accordance with the provisions of the Agreement.
2. The parties agree that in the case of any conflict between the
terms of this Amendment and the Agreement, the terms of this Amendment shall
prevail.
THE BANK OF NEW YORK
By:/s/ Stephen E. Grunston
-----------------------
Title: Vice President
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
-----------------------
Title: President
<PAGE> 1
EXHIBIT 8(h)
AMENDMENT NO. 1 TO THE TRANSFER AGENCY AGREEMENT
This Agreement is made as of December 12, 1995 between Pacific
Horizon Funds, Inc., a Maryland corporation (the "Company"), having its
principal office and place of business at 3435 Stelzer Road, Columbus, Ohio
43219-3035; and BISYS Fund Services, Inc., a Delaware corporation ("BISYS"),
having its principal office and place of business at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
WITNESSETH:
WHEREAS, the Company entered into a Transfer Agency Agreement dated as
of December 11, 1995 with BISYS (the "Agreement") on behalf of all of the
Company's investment portfolios;
WHEREAS, the Company and BISYS wish to amend such Agreement;
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth and intending to be legally bound hereby, the parties agree as follows:
1. Article IV is hereby amended by adding a Paragraph 15:
"15. Any interest or other earnings on bank cash balances or
otherwise in connection with purchases or redemptions of
Shares, dividends payable with respect to Shares or on any
other "float" with respect to the Company shall be for the
benefit and account of the Company."
2. Capitalized terms not defined herein are defined in the
Agreement.
3. Except as specifically set forth herein, all other provisions
of the Agreement shall remain in full force and effective.
4. The Agreement and Amendment No. 1 to the Agreement supersedes
any prior agreement relating to the subject matter of the Agreement and
Amendment No. 1 to the Agreement.
5. This Amendment No. 1 to the Agreement may be executed in any
number of counterparts each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
Pacific Horizon Funds, Inc.
By: ________________________
BISYS Fund Services, Inc.
By: ________________________
<PAGE> 1
EXHIBIT 9(a)
BASIC ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made as of this 1st day of November,
1996 between PACIFIC HORIZON FUNDS, INC., a Maryland corporation
(the "Company"), and The BISYS GROUP, INC. ("BISYS").
WHEREAS, the Company is an open-end management
investment company and is so registered under the Investment
Company Act of 1940 ("1940 Act"); and
WHEREAS, the Company offers and maintains the following
investment portfolios: Prime Fund, Treasury Fund, Tax-Exempt
Money Fund, California Tax-Exempt Money Market Fund, Government
Fund and Treasury Only Fund (the "Funds"); and
WHEREAS, the Company offers for sale separate series of shares
of beneficial interest in each Fund (the "Shares"); and
WHEREAS, pursuant to an Amended and Restated Distribution
Agreement dated September 1, 1995 (the "Distribution Agreement") between the
Company and Concord Financial Group, Inc. ("Concord Financial"), the Company has
retained Concord Financial as its Distributor to provide for the sale and
distribution of the Shares; and
WHEREAS, the Company desires to retain BISYS as its
Administrator to provide basic administrative services for the benefit of all
classes of Shares in each of the Funds, and BISYS is willing to render such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
I. ADMINISTRATION
1. Appointment of Administrator. The Company hereby appoints
BISYS as Administrator of each Fund on the terms and for the period set forth in
this Agreement, and BISYS hereby accepts such appointment and agrees to perform
the services and duties set forth in this Section I for the compensation
provided in this Section. The Company understands that BISYS now acts and will
continue to act as administrator of various investment companies and fiduciary
of other managed accounts, and the Company has no objection to BISYS's so
acting. In addition, it is understood that the persons employed by BISYS to
assist in the performance of its duties hereunder will not devote their full
time to such services, and nothing herein contained shall be deemed to limit or
restrict the right of BISYS or any affiliate of BISYS to
<PAGE> 2
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
2. Services and Duties.
(a) Subject to the supervision and control of the
Company's Board of Directors, BISYS will provide facilities, equipment and
personnel to carry out those administrative services that are for the benefit of
all series of Shares in each of the Funds, provided that such services will not
include those investment advisory functions which are to be performed by the
Company's Investment Adviser, the services of Concord Financial as Distributor
pursuant to the Distribution Agreement, those services to be performed by The
Bank of New York and PNC Bank, National Association ("PNC") pursuant to the
Company's Custody Agreements, those services to be performed by BISYS Fund
Services, Inc. ("Transfer Agent") pursuant to the Company's Transfer Agency
Agreement and those services normally performed by the Company's counsel and
auditors.
(b) The responsibilities of BISYS include, without
limitation, the following services:
(i) Participation in the periodic updating
of the prospectuses and statements of additional information for the Funds (the
"Prospectuses") and accumulation of information for and, subject to approval by
the Company's Treasurer and legal counsel, coordination of the preparation,
filing, printing and dissemination of reports to the Funds' shareholders and the
Securities and Exchange Commission (the "Commission"), including but not limited
to annual reports and semi-annual reports on Form N-SAR, notices pursuant to
Rule 24f-2 and proxy materials;
(ii) Computation of each Fund's net asset
value per share on each business day and determination of the variance of each
Fund's amortized cost value per share from its market value per share;
(iii) Calculation of the expenses,
dividends and capital gain distributions of each Fund;
(iv) Payment of all expenses of
maintaining the offices of the Company, wherever located, and arrangement for
payment by the Company of all expenses payable by the Funds;
(v) Determination, after consultation with
legal counsel for the Company, of the jurisdictions in which Shares for sale to
institutional investors are to be registered or qualified for sale and, in
connection therewith, responsibility for the maintenance of the registration or
-2-
<PAGE> 3
qualification of the Shares for sale under the securities laws of
such jurisdictions;
(vi) Provision of the services of persons
who may be appointed as officers of the Company by the Company's Board of
Directors;
(vii) Preparation and filing of the
Company's federal, state and local income tax returns;
(viii) Preparation and, subject to
approval of the Company's Treasurer, dissemination of the Company's and each
Fund's quarterly financial statements and schedules of investments to the
Company's directors, and preparation of such other reports relating to the
business and affairs of the Company and each Fund as the officers and directors
of the Company may from time to time reasonably request; and
(ix) Provision of internal legal and
accounting compliance services.
(c) In addition, BISYS shall provide the following
services with respect to all shareholders in the Funds (regardless of the class
of Shares held) who have made a minimum initial purchase of at least $500,000:
(i) Providing and supervising a facility
to receive purchase and redemption orders via toll-free IN-WATS telephone lines;
(ii) Providing for the preparing,
supervising and mailing of confirmations for all purchase and redemption orders;
(iii) Providing and supervising the
operation of an automated data processing system to process purchase and
redemption orders received by BISYS (BISYS assumes responsibility for the
accuracy of the data transmitted for processing or storage);
(iv) Overseeing the performance of The
Bank of New York, PNC and Transfer Agent under the Custody Agreements and
Transfer Agency Agreement including a review of all correspondence from the
transfer agent to shareholders for accuracy and timeliness in handling inquiries
and review of dividend checks, statements and purchase and redemption orders for
proper turn-around;
(v) Making available information
concerning each Fund to shareholders; distributing written communications to
each Fund's shareholders such as periodic
-3-
<PAGE> 4
listings of each Fund's portfolio securities, annual and semi-annual reports,
and Prospectuses and supplements thereto; and handling shareholder problems and
calls relating to administrative matters;
(vi) Providing and supervising the
services of employees ("relationship coordinators") whose principal
responsibility and function will be to preserve and strengthen each Fund's
relationships with its shareholders;
(vii) Assuring that persons are available
to transmit redemption requests to the Company's transfer agent as promptly as
practicable;
(viii) Assuring that persons are available
to transmit orders accepted for the purchase of Shares to the transfer agent of
the Company as promptly as practicable;
(ix) Preparing regular reports for
internal use and for distribution to the Company's Board of Directors concerning
shareholder activity; and
(x) Responding to shareholder inquiries
sent to the Company.
(d) BISYS shall oversee the maintenance by The
Bank of New York, PNC and Transfer Agent of the books and records required under
the 1940 Act in connection with performance of the Custody Agreements and
Transfer Agency Agreement, and shall maintain (or oversee the maintenance by
such other persons as may from time to time be approved by the Company's Board
of Directors) such other books and records (other than those required to be
maintained by the Funds' investment adviser) as may be required by law or may be
required for the proper operation of the business and affairs of the Funds. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, BISYS agrees
that all such books and records which it maintains, or is responsible for
maintaining, for the Company and the Funds are the property of the Company and
further agrees to surrender promptly to the Company any of such books and
records upon the Company's request. BISYS further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act said books and records
required to be maintained by Rule 31a-1 under said Act.
(e) In performing its services and duties
hereunder as Administrator for the Funds, BISYS will act in conformity with the
Company's Charter, Bylaws and Prospectuses and with the instructions and
directions of the Board of Directors of the Company, and will conform to and
comply with the requirements of the 1940 Act and all other applicable federal or
state laws and regulations.
-4-
<PAGE> 5
3. Subcontractors. It is understood that BISYS may from time
to time employ or associate with itself such person or persons as BISYS may
believe to be particularly fitted to assist in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by BISYS and that BISYS shall be as fully responsible to the
Company for the acts and omissions of any subcontractor as it is for its own
acts and omissions. Without limiting the generality of the foregoing, it is
understood that BISYS or a subcontractor has entered into an agreement with The
Bank of New York under which said institution will provide certain accounting,
bookkeeping, pricing and dividend and distribution calculation services with
respect to the Funds at the expense of the Funds.
4. Expenses Assumed as Administrator. Except as otherwise
stated in this subsection 4, BISYS shall pay all expenses incurred by it in
performing its services and duties hereunder as Administrator including the cost
of any independent pricing service used in connection with the Funds. Other
expenses to be incurred in the operation of the Funds (other than those borne by
the Company's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's investment adviser or BISYS or any of their
affiliates, Securities and Exchange Commission fees and state blue sky
registration and qualification fees, advisory fees, fees payable to shareholder
organizations, fees for special management services, charges of custodians,
transfer and dividend disbursing agents' fees, certain insurance premiums,
outside auditing and legal expenses, costs of maintaining corporate existence,
costs attributable to shareholder services, including without limitation
telephone and personnel expenses, costs of preparing and printing Prospectuses,
or any supplement or amendment thereto, necessary for the continued effective
registration of the Shares under the 1933 Act or state securities laws, costs of
printing and distributing any Prospectus, supplement or amendment thereto for
existing shareholders of the Fund described therein, costs of shareholder
reports and corporate meetings and any extraordinary expenses will be borne by
the Funds.
5. Compensation. For the services provided and the expenses
assumed as Administrator pursuant to Section I of this Agreement, the Company
will pay BISYS a fee, computed daily and payable monthly, based on the net
assets of the Prime Fund, Treasury Fund, Tax-Exempt Money Fund, California
Tax-Exempt Money Market Fund, Government Fund and Treasury Only Fund considered
separately on a per Fund basis at the following annual rates: .10% of the first
$7 billion of each Fund's net assets, plus .09% of the next $3 billion of each
Fund's net assets, plus .08% of each Fund's net assets over $10 billion. Such
fee as is attributable to each Fund shall be a separate charge to each such
-5-
<PAGE> 6
Fund and shall be the several (and not joint and several) obligation of each
such Fund. Notwithstanding anything to the contrary herein, if in any fiscal
year the aggregate expenses of any Fund (as defined under the securities
regulations of any state having jurisdiction over such Fund) exceed the expense
limitations of any such state, BISYS will reimburse the Fund for one-half of
such excess expenses unless the Fund's investment adviser reimburses the Fund
for more than one-half of such excess expenses, in which case BISYS will
reimburse the Fund for the difference between the amount of such excess expenses
less the amount of the investment adviser's reimbursement to the Fund. The
obligations of BISYS to reimburse any Fund hereunder is limited in any fiscal
year to the amount of its fee hereunder for such fiscal year with respect to
such Fund; provided, however, that notwithstanding the foregoing, BISYS shall
reimburse any Fund for such proportion of such excess expenses regardless of the
amount of fees paid to it during such fiscal year to the extent that the
securities regulations of any state having jurisdiction over the Fund so
require. Such expense reimbursement, if any, will be estimated and accrued daily
and paid on a monthly basis.
II. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and the
Funds and prior or present shareholders or those persons or entities who respond
to Concord Financial's inquiries concerning investment in the Company, and will
not use such records and information for any purpose other than performance of
its responsibilities and duties hereunder or under any other agreement with the
Company, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where BISYS may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
III. LIMITATIONS OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or by any Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement. Any person, even though also an officer, director, partner,
employee or agent of BISYS, who may be or become an officer, director, employee
or agent of the Company, shall be deemed, when rendering services to the Company
or to any Fund or acting on any business of the Company or of any Fund
-6-
<PAGE> 7
(other than services or business in connection with BISYS duties as
Administrator hereunder or under any other agreement with the Company) to be
rendering such services to or acting solely for the Company or Fund and not as
an officer, director, partner, employee or agent or one under the control or
direction of BISYS even though paid by BISYS.
IV. DURATION AND TERMINATION
This Agreement shall become effective November 1, 1996 and,
unless sooner terminated as provided herein, shall continue until October 31,
1997. Thereafter, if not terminated, this Agreement shall continue automatically
as to a particular Fund for successive terms of one year, provided that such
continuance is specifically approved at least annually (a) by a vote of a
majority of those members of the Board of Directors of the Company who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Directors of the Company or by vote of a "majority of the
outstanding voting securities" of such Fund; provided, however, that this
Agreement may be terminated by the Company at any time with respect to any Fund,
without cause and without the payment of any penalty, by vote of a majority of
the entire Board of Directors of the Company or by a vote of a "majority of the
outstanding voting securities" of such Fund on 60 days' written notice to BISYS,
or by BISYS at any time, without the payment of any penalty, on 90 days' written
notice to the Company. This Agreement will immediately terminate in the event of
its "assignment." (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.)
V. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
VI. NOTICES
Notices of any kind to be given to the Company hereunder by
BISYS shall be in writing and shall be duly given if mailed or delivered to the
Company at Association of American University, One Dupont Circle, Suite 730,
Washington, D.C. 20036, Attention: Dr. Cornelius J. Pings, President, or at such
other address or to such individual as shall be so specified by the Company to
BISYS. Notices of any kind to be given to BISYS hereunder by the Company shall
be in writing and shall be duly given if mailed or delivered to BISYS at 150
Clove Road, Little
-7-
<PAGE> 8
Falls, New Jersey 07424, Attention: Kevin J. Dell, General
Counsel, or at such other address or to such individual as shall
be so specified by BISYS to the Company.
VII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be signed in
one or more counterparts, each of which shall be an original and all of which
together shall be deemed one and the same document. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section IV hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law; provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PACIFIC HORIZON FUNDS, INC.
By:
-----------------------
President
Attest:
-----------------------
Secretary
THE BISYS GROUP, INC.
By:
-----------------------
Authorized Officer
Attest:
-----------------------
Secretary
-9-
<PAGE> 1
EXHIBIT 9(u)
AMENDMENT NO. 6 TO ADMINISTRATION AGREEMENT
This Amendment No. 6, dated as of the 1st day of July, 1996, is entered
into between PACIFIC HORIZON FUNDS, INC. (the "Company"), a Maryland
corporation, and Concord Holding Corporation, a Delaware corporation
("Concord").
WHEREAS, the Company and Concord have entered into an Administration
Agreement (the "Administration Agreement") dated as of November 13, 1989, as
amended, pursuant to which the Company retained Concord as its Administrator to
provide administrative services for the Aggressive Growth Fund, Capital Income
Fund, U.S. Government Securities Fund, California TaxExempt Bond Fund, Blue Chip
Fund, Flexible Bond Fund, Asset Allocation Fund, National Municipal Bond Fund,
Utilities Fund, Growth and Income Fund, Corporate Bond Fund, Short-Term
Government Fund, International Bond Fund and International Equity Fund;
WHEREAS, the Company has notified Concord that it is reorganizing the
National Municipal Bond Fund (the "Fund") into a nonfeeder fund and that it
desires to retain Concord to act as the Administrator therefor, and Concord has
notified the Company that it is willing to serve as the Administrator for the
Fund;
WHEREAS, the Company desires that the Fund shall become a "Fund" as
that term is defined in the Administration Agreement, and such Fund shall become
subject to the provisions of said Administration Agreement to the same extent as
the other Funds except to the extent said provisions are modified below; and
WHEREAS, the parties wish to amend the Administration Agreement and to
rescind Amendment No. 4 to the Administration Agreement to the extent said
Agreement applies to the Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. RESCISSION OF AMENDMENT NO. 4 TO THE ADMINISTRATION AGREEMENT AS IT
RELATES TO THE FUND. Amendment No. 4 is rescinded as it relates to the Fund.
2. APPOINTMENT. The Company hereby appoints Concord as Administrator of
the National Municipal Bond Fund for the period and on the terms set forth in
the Administration Agreement. Concord accepts such appointment and agrees to
perform the duties
<PAGE> 2
and services set forth in the Administration Agreement, for the
compensation herein provided.
3. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to the Administration Agreement with respect to the Fund,
the Company will pay Concord a fee, computed daily and paid monthly, at the
annual rate of 0.20% of the Fund's average daily net assets.
Except to the extent amended hereby, the Administration Agreement shall
remain unchanged and in full force and effect and is hereby ratified and
confirmed in all respects as amended hereby.
This Amendment may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 6
as of the date and year first above written.
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
-----------------------------
Title: President
CONCORD HOLDING CORPORATION
By:/s/ J. David Huber
-----------------------------
Title: Executive Vice President
-2-
<PAGE> 1
EXHIBIT 9(v)
AMENDMENT NO. 7 TO ADMINISTRATION AGREEMENT
This Amendment No. 7, dated as of the 30th day of July,
1996, is entered into between PACIFIC HORIZON FUNDS, INC. (the
"Company"), a Maryland corporation, and Concord Holding
Corporation, a Delaware corporation ("Concord").
WHEREAS, the Company and Concord have entered into an Administration
Agreement (the "Administration Agreement") dated as of November 13, 1989, as
amended, pursuant to which the Company retained Concord as its Administrator to
provide administrative services for the Aggressive Growth Fund, Capital Income
Fund, U.S. Government Securities Fund, California TaxExempt Bond Fund, Blue Chip
Fund, Intermediate Bond Fund (formerly, Flexible Bond Fund), Asset Allocation
Fund, National Municipal Bond Fund, Utilities Fund, Growth and Income Fund,
Corporate Bond Fund, Short-Term Government Fund, International Bond Fund and
International Equity Fund;
WHEREAS, the Company has notified Concord that it is reorganizing the
Short-Term Government Fund (the "Fund") into a non-feeder fund and that it
desires to retain Concord to act as the Administrator therefor, and Concord has
notified the Company that it is willing to serve as the Administrator for the
Fund;
WHEREAS, the Company desires that the Fund shall become a "Fund" as
that term is defined in the Administration Agreement, and such Fund shall become
subject to the provisions of said Administration Agreement to the same extent as
the other Funds except to the extent said provisions are modified below; and
WHEREAS, the parties wish to amend the Administration
Agreement and to rescind Amendment No. 4 to the Administration
Agreement to the extent said Agreement applies to the Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. RESCISSION OF AMENDMENT NO. 4 TO THE ADMINISTRATION
AGREEMENT AS IT RELATES TO THE FUND. Amendment No. 4 is rescinded as it relates
to the Fund.
2. APPOINTMENT. The Company hereby appoints Concord as
Administrator of the Short-Term Government Fund for the period and on the terms
set forth in the Administration Agreement. Concord accepts such appointment and
agrees to perform the duties and services set forth in the Administration
Agreement, for the compensation herein provided.
<PAGE> 2
3. COMPENSATION. For the services provided and the expenses
assumed as Administrator pursuant to the Administration Agreement with respect
to the Fund, the Company will pay Concord a fee, computed daily and paid
monthly, at the annual rate of 0.20% of the Fund's average daily net assets.
Except to the extent amended hereby, the Administration Agreement as
amended shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended hereby.
This Amendment may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 7
as of the date and year first above written.
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
-------------------------------
Title: President
CONCORD HOLDING CORPORATION
By:/s/ J. David Huber
-------------------------------
Title: Executive Vice President
-2-
<PAGE> 1
EXHIBIT 9(w)
AMENDMENT NO. 8 TO ADMINISTRATION AGREEMENT
This Amendment No. 8, dated as of the 1st day of September, 1996, is
entered into between PACIFIC HORIZON FUNDS, INC. (the "Company"), a Maryland
corporation, and Concord Holding Corporation, a Delaware corporation
("Concord").
WHEREAS, the Company and Concord have entered into an Administration
Agreement (the "Administration Agreement") dated as of November 13, 1989, as
amended, pursuant to which the Company retained Concord as its Administrator to
provide administrative services for the Aggressive Growth Fund, Capital Income
Fund, U.S. Government Securities Fund, California TaxExempt Bond Fund, Blue Chip
Fund, Intermediate Bond Fund (formerly, Flexible Bond Fund), Asset Allocation
Fund, National Municipal Bond Fund, Utilities Fund, Growth and Income Fund,
Corporate Bond Fund, Short-Term Government Fund, International Bond Fund and
International Equity Fund;
WHEREAS, the Company has notified Concord that it is reorganizing the
Corporate Bond Fund and International Equity Fund (the "Funds") into non-feeder
funds and that it desires to retain Concord to act as the Administrator
therefor, and Concord has notified the Company that it is willing to serve as
the Administrator for the Funds;
WHEREAS, the Company desires that the Funds shall each become a "Fund"
as that term is defined in the Administration Agreement, and such Funds shall
become subject to the provisions of said Administration Agreement to the same
extent as the other Funds except to the extent said provisions are modified
below; and
WHEREAS, the parties wish to amend the Administration Agreement and
Amendment No. 4 to the Administration Agreement to the extent said Agreement
applies to the Funds;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. RESCISSION OF AMENDMENT NO. 4 TO THE ADMINISTRATION AGREEMENT
AS IT RELATES TO THE FUNDS. Amendment No. 4 is rescinded as it relates to the
Funds.
2. APPOINTMENT. The Company hereby appoints Concord as
Administrator of the Corporate Bond Fund and International Equity Fund for the
period and on the terms set forth in the Administration Agreement. Concord
accepts such appointment and
<PAGE> 2
agrees to perform the duties and services set forth in the Administration
Agreement, for the compensation herein provided.
3. COMPENSATION. For the services provided and the expenses
assumed as Administrator pursuant to the Administration Agreement with respect
to the Funds, the Company will pay Concord a fee, computed daily and paid
monthly, at the annual rate of 0.20% of each such Fund's average daily net
assets.
Except to the extent amended hereby, the Administration Agreement as
amended shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended hereby.
This Amendment may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 8
as of the date and year first above written.
PACIFIC HORIZON FUNDS, INC.
By:/s/ Cornelius J. Pings
-------------------------------
Title: President
CONCORD HOLDING CORPORATION
By:/s/ J. David Huber
-------------------------------
Title: Executive Vice President
-2-
<PAGE> 1
EXHIBIT 11 (a)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that are included in Post- Effective Amendment No. 51 to the
Registration Statement (No. 2- 81110) on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940, as amended, of Pacific Horizon
Funds, Inc. This consent does not constitute a consent under section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under said section 7 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
--------------------------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
November 13, 1996
<PAGE> 1
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information constituting parts of
this Post-Effective Amendment No. 51 to the registration statement on Form
N-1A.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
November 8, 1996
<PAGE> 1
EXHIBIT 15(f)
PACIFIC HORIZON FUNDS, INC.
SPECIAL MANAGEMENT SERVICES PLAN
SECTION 1.
Upon the recommendation of Concord Holding Corporation ("Concord"), the
administrator of Pacific Horizon Funds, Inc. (the "Company"), any officer of the
Company is authorized to execute and deliver, in the name and on behalf of the
Company, written agreements based on the form attached hereto as Appendix A or
any other form duly approved by the Board of Directors ("Agreements") with
securities dealers, financial institutions and other industry professionals that
are shareholders or dealers of record or which have a servicing relationship
("Shareholder Organizations") with the beneficial owners of the various classes
of shares (each a "Class") of the portfolios of the Company (each a "Money
Market Fund") listed in Exhibit 1 hereto, as amended from time to time. Pursuant
to such Agreements, Shareholder Organizations shall provide support services as
set forth therein to their clients who beneficially own shares of the particular
Class of the particular Money Market Fund in consideration of a fee, computed
monthly in the manner set forth in the Agreements, up to the particular annual
rate set forth in Exhibit 1, such rate being a percentage of the average daily
net asset value of the shares of the particular Class of the particular Money
Market Fund beneficially owned by such clients. Concord, Bank of America
National Trust and Savings Association and their affiliates are eligible to
become Shareholder Organizations and to receive fees under this Plan. All
expenses incurred by a particular Money Market Fund in connection with the
Agreements and the implementation of this Plan shall be borne entirely by the
holders of the particular Class of the particular Money Market Fund involved.
SECTION 2.
Concord shall monitor the arrangements pertaining to the Company's
Agreements with Shareholder Organizations. Concord shall not, however, be
obliged by this Plan to recommend, and the Company shall not be obliged to
execute, any Agreement with any qualifying Shareholder Organization.
SECTION 3.
So long as this Plan is in effect, Concord shall provide to the
Company's Board of Directors, and the Directors shall review at least quarterly,
a written report of the amounts expended
<PAGE> 2
pursuant to this Plan and the purposes for which such expenditures were made.
SECTION 4.
Unless sooner terminated, this Plan shall continue until October 31,
1997 and thereafter shall continue automatically for successive annual periods
provided such continuance is approved at least annually by a majority of the
Board of Directors, including a majority of the Directors who are not
"interested persons," as defined in the Investment Company Act of 1940, of the
Company and have no direct or indirect financial interest in the operation of
this Plan or in any Agreement related to this Plan (the "Disinterested
Directors").
SECTION 5.
This Plan may be amended at any time with respect to any Money Market
Fund or any Class of such Money Market Fund by the Board of Directors, provided
that any material amendment of the terms of this Plan shall become effective
only upon the approvals set forth in Section 4.
SECTION 6.
This Plan is terminable at any time with respect to any Money Market
Fund or any Class of such Money Market Fund by vote of a majority of the
Disinterested Directors.
SECTION 7.
While this Plan is in effect, the selection and nomination of those
Directors who are not "interested persons" (as defined in the Investment Company
Act of 1940) of the Company shall be committed to the discretion of such
non-interested Directors.
SECTION 8.
This Plan shall be effective as of November 1, 1996.
-2-
<PAGE> 3
EXHIBIT 1
---------
<TABLE>
<CAPTION>
Special Management
Services Fee
(expressed as a
percentage of
average daily assets
of shares
beneficially owned
by clients of
Class of particular
Name of Money Market Fund Shares Shareholder Organizations)
- ------------------------- -------- --------------------------
<S> <C> <C>
Prime Fund Pacific Horizon up to .32%
Treasury Fund Pacific Horizon up to .32%
Treasury Only Fund Pacific Horizon up to .32%
Government Fund Pacific Horizon up to .32%
Tax-Exempt Fund Pacific Horizon up to .32%
California Tax-Exempt Fund Pacific Horizon up to .35%
</TABLE>
-3-
<PAGE> 4
APPENDIX A
FORM OF
SPECIAL MANAGEMENT SERVICES AGREEMENT
PACIFIC HORIZON FUNDS, INC.
(the "Company")
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We wish to enter into this Special Management Services Agreement with
you concerning the provision of support services to your clients ("Clients") who
may from time to time beneficially own shares of any of the various classes
(each a "Class") of the various portfolios of the Company (each a "Money Market
Fund") listed on Exhibit 1 hereto, as amended from time to time. The terms and
conditions of this Agreement are as follows:*
1. You agree to provide the following support services to Clients who
may from time to time beneficially own shares of a particular Class of a
particular Fund: (i) aggregating and processing purchase and redemption requests
for shares from Clients and placing net purchase and redemption orders with our
distributor; (ii) providing Clients with a service that invests the assets of
their accounts in such shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend payments from us on behalf of Clients;
(iv) providing statements periodically to Clients showing their positions in
such shares; (v) providing subaccounting with respect to Shares beneficially
owned by Clients or the information to us necessary for subaccounting; (vi) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (vii) forwarding to Clients proxy
statements and proxies containing any proposals regarding this Agreement or the
Special Management Services Plan related hereto; (viii) developing and
monitoring investor programs offered from time to time; (ix) providing dedicated
walk-in and telephone facilities to handle Client inquires and serve Client
needs; (x) providing and maintaining specialized systems for the automatic
investments of Clients; (xi) maintaining the registration or qualification of a
Class for sale under state securities laws; (xii) paying for the operation of
arrangements that facilitate same-day purchases by Clients; (xiii) assuming the
expense of payments made to third parties for
* Services may be modified or omitted in the particular case and items
renumbered.
A-1
<PAGE> 5
services provided in connection with the investments of their customers in a
Class; (xiv) providing various other services (such as the provision of a
facility to receive purchase and redemption orders) for shareholders who have
made a minimum initial investment of less than $500,000; and (xv) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules or regulations.
2. We recognize that you may be subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by Federally chartered and supervised banks and other banking
organizations. As such, you are restricted in the activities you may undertake
and for which you may be paid and, therefore, you will perform only those
activities which are consistent with your statutory and regulatory obligations.
You will act solely as agent for, upon the order of, and for the account of your
Clients.
3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
my be reasonably necessary or beneficial in order to provide such services to
Clients.
4. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or such shares except those
contained in our then current prospectuses for such shares, copies of which will
be supplied by us to your, or in such supplemental literature or advertising as
may be authorized by us in writing.
5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of such shares by or on behalf of Clients. You and your
employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
6. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefor, a
fee at the particular annual rate set forth in Exhibit 1, such rate being a
percentage of the average daily net asset value of the shares of the particular
Class of the particular Money Market Fund beneficially owned by
A-2
<PAGE> 6
your Clients for whom you are the dealer of record or holder of record or with
whom you have a servicing relationship (the "Clients Shares"), which fee will be
computed daily and payable monthly. For purposes of determining the fees payable
under this Section 6, the average daily net asset value of the Clients Shares
will be computed in the manner specified in our registration statement (as the
same is in effect from time to time) in connection with the computation of the
net asset value of the particular Class of the particular Money Market Fund for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us, in our sole discretion, at any time
upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of any particular Money Market Fund or any
particular Class of a particular Money Market Fund, including the sale of such
Money Market Fund or such Class of such Money Market Fund to you for the account
of any Client or Clients.
7. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to our Board of Directors,
and our Directors will review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made. In
addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to our Board of Directors concerning this Agreement and
the monies paid or payable by us pursuant hereto, as well as any other reports
or filings that may be required by law. You will be responsible for promptly
reporting to us and our Board of Directors any potential or existing conflicts
with respect to the investments of your customers in any particular Money Market
Fund or any particular Class of a particular Money Market Fund.
8. We may enter into other similar Special Management Services
Agreements with any other person or persons without your consent.
9. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares of any
particular Class of a particular Money Market Fund issued by us; (ii) the
compensation payable to you hereunder, together with any other compensation
payable to you by Clients in connection with the investment of their assets in
any particular Class of a particular Money Market Fund will be disclosed by you
to your Clients, will be authorized by your Clients and will not result in an
excessive or
A-3
<PAGE> 7
unreasonable fee to you; (iii) you will not advertise or otherwise promote your
Client accounts primarily as a means of investing in any particular Class of a
particular Money Market Fund or establish or maintain Client accounts for the
primary purpose of investing in such Class of such Money Market Fund; (iv) in
the event an issue pertaining to this Agreement or our Special Management
Services Plan related hereto is submitted for shareholder approval, you will
vote shares of the particular Class of the particular Money Market Fund held for
your own account in the same proportion as the vote of shares of the particular
Class of the particular Money Market Fund held for your Clients' benefit; and
(v) you will not engage in activities pursuant to this Agreement which
constitute acting as a broker or dealer under state law unless you have obtained
the licenses required by such law.
10. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1997, and thereafter
will continue automatically for successive annual periods ending on October 31,
provided such continuance is specifically approved at least annually by us in
the manner described in Section 13. This Agreement is terminable with respect to
any Money Market Fund or any Class of any Money Market Fund without penalty, at
any time by us (which termination may be by vote of a majority of our
Disinterested Directors as defined in Section 13) or by you upon notice to the
other party hereto.
11. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above, or to such
other address as either party shall so provide the other.
12. This Agreement shall be construed in accordance with the laws of
the internal laws of Ohio without giving effect to principles of conflict of
laws, and is non-assignable by the parties hereto.
13. This Agreement has been approved by vote of a majority of (i) our
Board of Directors and (ii) those Directors who are not "interested persons" (as
defined in the Investment Company Act of 1940) of us and have no direct or
indirect financial interest in the operation of the Special Management Services
Plan adopted by us regarding the provision of support services to the beneficial
owners of shares of any Class of any Money Market Fund or in any agreements
related thereto ("Disinterested Directors"), cast in person at a meeting called
for the purpose of voting on such approval.
A-4
<PAGE> 8
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address first stated above.
[SIGNATURE LINES OMITTED]
A-5
<PAGE> 9
EXHIBIT 1
---------
<TABLE>
<CAPTION>
Special Management
Services Fee
(expressed as a
percentage of
average daily assets
of shares
beneficially owned
by clients of
Class of particular
Name of Money Market Fund Shares Shareholder Organizations)
- ------------------------- -------- --------------------------
<S> <C> <C>
Prime Fund Pacific Horizon .32%
Treasury Fund Pacific Horizon .32%
Treasury Only Fund Pacific Horizon .32%
Government Fund Pacific Horizon .32%
Tax-Exempt Fund Pacific Horizon .32%
California Tax-Exempt Fund Pacific Horizon .35%
</TABLE>
A-6
<PAGE> 1
EXHIBIT 15(g)
Adopted July 26, 1995
PACIFIC HORIZON FUNDS, INC.
DISTRIBUTION AND SERVICES PLAN
This Distribution and Services Plan (the "Plan") has been
adopted by the Board of Directors of Pacific Horizon Funds, Inc. (the "Company")
in connection with the Class D - Special Series 3, Class E - Special Series 3,
Class F - Special Series 3, Class G - Special Series 3, Class M - Special Series
3, Class N Special Series 3, Class O - Special Series 3, Class Q - Special
Series 3, Class R - Special Series 3, Class S - Special Series 3, Class T -
Special Series 3, Class U - Special Series 3, Class V Special Series 3 and Class
W - Special Series 3 shares of the Aggressive Growth, U.S. Government
Securities, Capital Income, California Tax-Exempt Bond, Flexible Bond, Blue
Chip, Asset Allocation, National Municipal Bond, Utilities, Growth and Income,
International Equity, Short-Term Government, International Bond and Corporate
Bond Funds, respectively (such shares hereinafter called "Shares" and such funds
the "Funds"), in conformance with Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act").
Section 1. Expenses. The Company may incur expenses under
the Plan in an amount not to exceed 1.00% annually of the average daily net
assets of a Fund's outstanding Shares.
Section 2. Distribution Payments. The Company may pay the
distributor of the Company (the "Distributor") (or any other person) a fee of up
to .75% annually of the average daily net assets of a Fund's outstanding Shares
(a "Distribution Fee"). Such Distribution Fee shall be calculated and accrued
daily, paid monthly and shall be in consideration for distribution services and
the assumption of related expenses (including the payment of commissions and
transaction fees) in conjunction with the offering and sale of Shares of the
Funds. In determining the amounts payable on behalf of a Fund under the Plan,
the net asset value of such Shares shall be computed in the manner specified in
the Company's then current Prospectuses and Statement of Additional Information
describing such Shares.
Section 3. Distribution Expenses and Activities Covered by
Plan. Payments to the Distributor under Section 2 shall be used by the
Distributor to cover expenses and activities primarily intended to result in the
sale of Shares, including the payment of commissions and transaction fees. Such
expenses and
<PAGE> 2
activities may include but are not limited to: (a) direct out-of-pocket
promotional expenses incurred by the Distributor in advertising and marketing
Shares; (b) expenses incurred in connection with preparing, printing, mailing,
and distributing or publishing advertisements and sales literature; (c) expenses
incurred in connection with printing and mailing Prospectuses and Statements of
Additional Information to other than current shareholders; (d) periodic payments
or commissions to one or more securities dealers, brokers, financial
institutions or other industry professionals, such as investment advisors,
accountants, and estate planning firms (severally, "a Distribution
Organization") with respect to a Fund's Shares beneficially owned by customers
for whom the Distribution Organization is the Distribution Organization of
record or holder of record of such Shares; (e) the direct or indirect cost of
financing the payments or expenses included in (a) and (d) above; or (f) for
such other services as may be construed by any court or governmental agency or
commission, including the Securities and Exchange Commission (the "Commission"),
to constitute distribution services under the 1940 Act or rules and regulations
thereunder.
Section 4. Administrative Services Covered by Plan. The
Company may also pay securities dealers, brokers, financial institutions or
other industry professionals, such as investment advisors, accountants, and
estate planning firms (severally, a "Service Organization") for administrative
support services provided with respect to its customers' Shares. Such
administrative support services shall be provided pursuant to the administrative
servicing agreement in substantially the form attached ("Administrative
Servicing Agreement"). Any organization providing distribution assistance may
also become a Service Organization and receive administrative servicing fees
pursuant to a Servicing Agreement under this Plan.
Section 5. Administrative Servicing Fees Covered by Plan. Fees
paid to a Service Organization shall be in consideration for the administrative
support services provided pursuant to its Administrative Servicing Agreement and
may be paid at an annual rate of up to .25% of the average daily net assets of a
Fund's outstanding Shares owned of record or beneficially by that Service
Organization's customers for whom such Service Organization is the dealer of
record or holder of record or with whom it has a servicing relationship. Such
fees shall be calculated and accrued daily, paid monthly, and computed in the
manner set forth in the Administrative Servicing Agreement.
Section 6. Expenses Allocated, Compliance. Amounts paid by
a Fund must be for distribution and/or shareholder administrative support
services rendered for or on behalf of the holders of the Fund's Shares. However,
joint distribution financing with respect to such Shares (which may involve
other
<PAGE> 3
investment funds or companies that are affiliated persons of the Company or
affiliated persons of the Distributor) shall be permitted in accordance with
applicable regulations of the Commission as in effect from time to time.
Section 7. Reports to Company. So long as this Plan is in
effect, the Distributor shall provide the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
Section 8. Approval of Plan. This Plan will become effective
with respect to a particular Fund's Shares (a) on the date the public offering
of such shares commences after the approval by written consent of the sole
shareholder of outstanding Shares of that Fund, and (b) upon the approval by a
majority of the Board of Directors, including a majority of those directors who
are not "interested persons" (as defined in the 1940 Act) of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements entered into in connection with the Plan (the "Disinterested
Directors"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the approval of the Plan.
Section 9. Continuance of Plan. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until October 31,
1995, and thereafter, shall continue in effect for so long as its continuance is
specifically approved at least annually by the Company's Board of Directors in
the manner described in Section 8(b) hereof.
Section 10. Amendments. This Plan may be amended at any time
by the Board of Directors provided that (a) any amendment to increase materially
the costs which the Shares of a Fund may bear for distribution pursuant to the
Plan shall be effective only upon approval by a vote of a majority of the
outstanding Shares affected by such matter, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval in the manner
described in Section 8(b) hereof.
Section 11. Termination. This Plan, as to any Fund, is
terminable without penalty at any time by (a) a vote of a majority of the
Disinterested Directors, or (b) a vote of a majority of the outstanding Shares
of such Fund.
Section 12. Selection/Nomination of Directors. While this Plan
is in effect, the selection and nomination of those Disinterested Directors
shall be committed to the discretion of such Disinterested Directors.
<PAGE> 4
Section 13. Miscellaneous. The captions in this Agreement
are included for convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their construction or effect.
<PAGE> 5
Approved July 26, 1995
PACIFIC HORIZON FUNDS, INC.
(the "Company")
ADMINISTRATIVE SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Administrative Servicing Agreement with you
concerning the provision of administrative support services to your customers
("Clients") who may from time to time be the record or beneficial owners of "B"
shares (such shares referred to herein as the "Shares") of one or more of the
Company's investment portfolios (individually, a "Fund" and collectively, the
"Funds"), which are listed on Appendix A.
The terms and conditions of this Administrative Servicing Agreement are as
follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Fund's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Fund on behalf of Clients;
(ii) providing information periodically to your Clients showing their positions
in the Shares; (iii) arranging for bank wires; (iv) responding to routine Client
inquiries concerning their investment in Shares; (v) providing the information
to the Funds necessary for accounting or sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Fund (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (vii) aggregating and processing
purchase, exchange, and redemption requests from Clients and placing net
purchase, exchange, and redemption orders for your customers; (viii) providing
customers with a service that invests the assets of their accounts in the Shares
pursuant to specific or pre-authorized instructions; (ix) establishing and
maintaining accounts and records relating to Clients that invest in Shares; (x)
assisting customers in changing dividend options, account designations and
addresses; or (xi) other similar services if requested by the Company.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any
<PAGE> 6
personnel employed by you) as may be reasonably necessary or beneficial in order
to provide the aforementioned services to Clients.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Fund, or its Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by law. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .__% of the average daily net assets of the
particular Fund's outstanding Shares owned of record or beneficially by your
Clients from time to time for whom you are the dealer of record or holder of
record or with whom you have a servicing relationship. Said fee will be computed
daily and payable monthly. For purposes of determining the fees payable under
this Section 5, the average daily net asset value of the Clients' Shares will be
computed in the manner specified in our then current Registration Statement in
connection with the computation of the net asset value of the particular Fund's
Shares for purposes of purchases and redemptions. The fee rate stated above may
be prospectively increased or decreased by us, in our sole discretion, at any
time upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Shares, including the sale of such Shares to you
for the account of any Client(s).
Section 6. You acknowledge that you will provide to the Funds' Board of
Directors, at least quarterly, a written report of the amounts expended pursuant
to this Agreement and the purposes for which such expenditures were made. In
connection with such revenues, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of some or all of
the services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to the Funds' Board
<PAGE> 7
of Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of Shares; (ii) the
compensation payable to you hereunder, together with any other compensation you
receive from Clients in connection with the investment of their assets in Shares
of the Funds, will be disclosed to your Clients, will be authorized by your
Clients and will not be excessive or unreasonable.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1995, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Funds in the
manner described in Section 12 hereof. This Agreement is terminable with respect
to any Class of Shares, without penalty, at any time by the Funds (which
termination may be by vote of a majority of our Disinterested Directors as
defined in Section 12 hereof or by vote of the holders of a majority of the
outstanding Shares of such Class) or by you upon notice to the other party
hereto. This Agreement will terminate in the event of its assignment (as defined
in the Investment Company Act of 1940 (the "Act")).
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of the
State of New York without giving effect to principles of conflict of laws.
Section 12. This Agreement has been approved by vote of a majority of (i) a
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Act) of the Company and have no direct or indirect
financial interest in the operation of the Distribution and Services Plan
adopted by us regarding the provision of administrative support services to the
record or beneficial owners of Shares or in any agreements related thereto
("Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on such approval.
<PAGE> 8
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, Concord Financial Group, Inc., 125 W. 55th Street, New York, New York
10019.
Very truly yours,
PACIFIC HORIZON FUNDS, INC.
By:__________________________________________________
Authorized Officer
Accepted and Agreed to:
_____________________________________________________
Name of Organization
By:__________________________________________________
Authorized Officer
Date:________________________________________________
_____________________________________________________
Taxpayer Identification Number
_____________________________________________________
Account Number
_____________________________________________________
Dealer Code
<PAGE> 9
Please check the appropriate boxes to indicate the Funds of the Company
for which you wish to act as a Service Organization with respect to the Shares:
[ ] Aggressive Growth Fund (Class D - Special Series 3)
[ ] U.S. Government Securities Fund (Class E - Special Series 3)
[ ] Capital Income Fund (Class F - Special Series 3)
[ ] California Tax-Exempt Bond Fund (Class G - Special Series 3)
[ ] Flexible Bond Fund (Class M - Special Series 3)
[ ] Blue Chip Fund (Class N - Special Series 3)
[ ] Asset Allocation Fund (Class O - Special Series 3)
[ ] National Municipal Bond Fund (Class Q - Special Series 3)
[ ] Utilities Fund (Class R - Special Series 3)
[ ] Growth and Income Fund (Class S - Special Series 3)
[ ] International Equity Fund (Class T - Special Series 3)
[ ] Short-Term Government Fund (Class U - Special Series 3)
[ ] International Bond Fund (Class V - Special Series 3)
[ ] Corporate Bond Fund (Class W - Special Series 3)
__________________________________________
(Service Organization Name)
By:_______________________________________
_______________________________________
Authorized Officer
Dated:____________________________________
A-1
<PAGE> 10
Approved July 26, 1995
PACIFIC HORIZON FUNDS, INC.
(the "Company")
DISTRIBUTION AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Distribution Agreement ("Agreement") with
you concerning the provision of distribution services in connection with Special
Series 3 shares ("Shares") of each of the Company's Funds which are listed on
Appendix A, of which we are the principal underwriter as defined in the
Investment Company Act of 1940 (the "Act") and the exclusive agent for the
continuous distribution of said Shares.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide reasonable assistance in connection
with the distribution of Shares to your Clients as requested from time to time
by us, which assistance may include without limitation forwarding sales
literature and advertising provided by us for Clients, and such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us or the Shares except
those contained in the Company's applicable prospectuses and statements of
additional information for the Shares, copies of which will be supplied by us to
you, or in such supplemental literature or advertising as may be authorized by
us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for us or
the Company in any matter or in any respect. Each broker-dealer shall warrant
and represent that it is licensed as a dealer under applicable law. By your
written acceptance of this Agreement, you agree to and do release, indemnify and
hold us harmless and the Company harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees or agents regarding your
responsibilities hereunder or the purchase, redemption, transfer of registration
of Shares (or orders relating to the same) by or on behalf of Clients. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of __% of the average daily net asset value of the
Shares beneficially owned by your Clients for whom you are the dealer of record
or holder of record (the "Clients' Shares"), which fee will be computed daily
and payable monthly. For purposes of determining the fees payable under this
Section 5, the average daily net asset value of the Clients' Shares will be
computed in the manner specified in the Company's Registration Statement (as the
same is in effect from time to time) in connection with the computation of the
net asset value of the particular Shares involved for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion and without notice, suspend or withdraw the
sale of Shares, including the sale of Shares for the account of any Client or
Clients
Section 6. Any person authorized to direct the disposition of monies
paid or payable by us pursuant to this Agreement will provide to us and the
Company, and the Company's Directors will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of the services
described herein), and will otherwise cooperate with us and our designees
(including, without limitation, any auditors designated by us), in connection
with the preparation of reports to the Company's Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
<PAGE> 11
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that this Agreement has been entered into pursuant to Rule
12b-1 under the Act, and is subject to the provisions of said Rule, as well as
any other applicable rules or regulations promulgated by the Securities and
Exchange Commission.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1995 and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Company in the
manner described in Section 12. This Agreement is terminable with respect to any
series of Shares, without penalty, at any time by the Company (which termination
may be by a vote of a majority of the Disinterested Directors as defined in
Section 12 or by vote of the holders of a majority of the outstanding Shares of
such series) or by us or you upon notice to the other party hereto. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the Act).
Section 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the
laws of the State of Maryland.
Section 12. This Agreement has been approved by vote of a majority of
(i) the Company's Board of Directors and (ii) those Directors of the Company who
are not "interested persons" (as defined in the Act) of the Company and have no
direct or indirect financial interest in the operation of the Distribution and
Services Plan adopted by the Company regarding the provision of distribution
services in connection with the Shares or in any agreement related thereto cast
in person at a meeting called for the purpose of voting on such approval
("Disinterested Directors").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, Concord Financial Group, Inc., 125 W. 55th Street, New York, New York
10019.
Very truly yours,
PACIFIC HORIZON FUNDS, INC.
By: ____________________________
Date: ________________ Authorized Officer
Accepted and Agreed to:
Name of Organization
By: ____________________________
Date: ________________ Authorized Officer
________________________________
Taxpayer Identification Number
________________________________
Account Number
________________________________
Dealer Code
-2-
<PAGE> 12
Please check the appropriate boxes to indicate the Funds of
the Company for which you wish to act as a Distribution Organization with
respect to the Shares:
[ ] Prime Fund (Class B - Special Series 3)
[ ] Aggressive Growth Fund (Class D - Special Series 3)
[ ] U.S. Government Securities Fund (Class E - Special Series 3)
[ ] Capital Income Fund (Class F - Special Series 3)
[ ] California Tax-Exempt Bond Fund (Class G - Special Series 3)
[ ] Tax-Exempt Money Fund (Class I - Special Series 3)
[ ] California Tax-Exempt Money Market Fund (Class J - Special Series 3)
[ ] Flexible Bond Fund (Class M - Special Series 3)
[ ] Blue Chip Fund (Class N - Special Series 3)
[ ] Asset Allocation Fund (Class O - Special Series 3)
[ ] National Municipal Bond Fund (Class Q - Special Series 3)
[ ] Utilities Fund (Class R - Special Series 3)
[ ] Growth and Income Fund (Class S - Special Series 3)
[ ] International Equity Fund (Class T - Special Series 3)
[ ] Short-Term Government Fund (Class U - Special Series 3)
[ ] International Bond Fund (Class V - Special Series 3)
[ ] Corporate Bond Fund (Class W - Special Series 3)
________________________________________________
(Distribution Organization Name)
By:_____________________________________________
________________________________________________
Authorized Officer
Dated:__________________________________________
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<PAGE> 1
EXHIBIT 15(i)
PACIFIC HORIZON FUNDS, INC.
DISTRIBUTION PLAN
-----------------
This Distribution Plan (the "Plan") has been adopted by the
Board of Directors of Pacific Horizon Funds, Inc. (the "Company") in connection
with the Class D - Special Series 5, Class E - Special Series 5, Class F -
Special Series 5, Class G Special Series 5, Class M - Special Series 5, Class N
- - Special Series 5, Class O - Special Series 5, Class Q - Special Series 5,
Class R - Special Series 5, Class S - Special Series 5, Class T Special Series
5, Class U - Special Series 5, Class V - Special Series 5 and Class W - Special
Series 5 shares of the Aggressive Growth, U.S. Government Securities, Capital
Income, California Tax-Exempt Bond, Intermediate Bond, Blue Chip, Asset
Allocation, National Municipal Bond, Utilities, Growth and Income, International
Equity, Short-Term Government, International Bond and Corporate Bond Funds,
respectively (all such shares hereinafter called "K Shares" and such funds the
"Funds"), in conformance with Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act").
SECTION 1. EXPENSES. The Company may incur aggregate expenses
under the Plan in an amount not to exceed 0.75% annually of the average daily
net assets of a Fund's outstanding K Shares. The total expenses incurred under
this Plan and the Administrative and Shareholder Services Plan for K Shares may
not exceed, in the aggregate, 1.00% annually of the average daily net assets of
a Fund's outstanding K Shares.
SECTION 2. DISTRIBUTION PAYMENTS. Subject to Section 1 of
this Plan, the Company may pay the distributor of the Company (the
"Distributor") (or any other person) a fee (a "Distribution Fee"): of up to .75%
annually of the average daily net assets of a Fund's outstanding K Shares. Such
Distribution Fee shall be calculated and accrued daily, paid monthly and shall
be in consideration for distribution services and the assumption of related
expenses (including the payment of commissions and transaction fees) in
conjunction with the offering and sale of K Shares of the Funds. In determining
the amounts payable on behalf of a Fund under the Plan, the net asset value of
such K Shares shall be computed in the manner specified in the Company's then
current Prospectuses and Statement of Additional Information describing such
Shares.
SECTION 3. DISTRIBUTION EXPENSES AND ACTIVITIES COVERED BY
PLAN. Payments to the Distributor under Section 2 shall be used by the
Distributor to cover expenses and activities
<PAGE> 2
primarily intended to result in the sale of K Shares, including the payment of
commissions and transaction fees. Such expenses and activities may include but
are not limited to: (a) direct out-of-pocket promotional expenses incurred by
the Distributor in advertising and marketing K Shares; (b) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature; (c) expenses incurred in connection with
printing and mailing Prospectuses and Statements of Additional Information to
other than current shareholders; (d) periodic payments or commissions to one or
more securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms, including any of the Company's service providers (severally, "a
Distribution Organization") with respect to a Fund's K Shares beneficially owned
by customers for whom the Distribution Organization is the Distribution
Organization of record or holder of record of such K Shares; (e) the direct or
indirect cost of financing the payments or expenses included in (a) and (d)
above; or (f) for such other services as may be construed by any court or
governmental agency or commission, including the Securities and Exchange
Commission (the "Commission"), to constitute distribution services under the
1940 Act or rules and regulations thereunder. Such distribution services shall
be provided pursuant to a distribution agreement ("Distribution Agreement").
Distribution Organizations providing distribution assistance may also become a
service organization and receive administrative and/or shareholder servicing
fees pursuant to an Administrative and Shareholder Services Agreement under the
related Administrative and Shareholder Services Plan for K Shares.
SECTION 4. EXPENSES ALLOCATED, COMPLIANCE. Amounts paid by a
Fund must be for distribution services rendered for or on behalf of the holders
of the Fund's K Shares. However, joint distribution financing with respect to
such K Shares (which may involve other investment funds or companies that are
affiliated persons of the Company or affiliated persons of the Distributor)
shall be permitted in accordance with applicable regulations of the Commission
as in effect from time to time.
SECTION 5. REPORTS TO COMPANY. So long as this Plan is in
effect, the Distributor shall provide the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
SECTION 6. APPROVAL OF PLAN. This Plan will become effective
with respect to a particular Fund's K Shares (a) on the date the public offering
of such shares commences after the approval by written consent of the sole
shareholder of outstanding K Shares of that Fund, and (b) upon the approval by a
majority of the Board of Directors, including a majority of those
-2-
<PAGE> 3
directors who are not "interested persons" (as defined in the 1940 Act) of the
Company and who have no direct or indirect financial interest in the operation
of the Plan or in any agreements entered into in connection with the Plan (the
"Disinterested Directors"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the approval of the Plan.
SECTION 7. CONTINUANCE OF PLAN. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until October 31,
1996, and thereafter, shall continue in effect for so long as its continuance is
specifically approved at least annually by the Company's Board of Directors in
the manner described in Section 6(b) hereof.
SECTION 8. AMENDMENTS. This Plan may be amended at any time
by the Board of Directors provided that (a) any amendment to increase materially
the costs which the K Shares of a Fund may bear for distribution pursuant to the
Plan shall be effective only upon approval by a vote of a majority of the
outstanding K Shares affected by such matter, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval in the manner
described in Section 6(b) hereof.
SECTION 9. TERMINATION. This Plan, as to any Fund or any
Class of any Fund, is terminable without penalty at any time by (a) a vote of a
majority of the Disinterested Directors, or (b) a vote of a majority of such
outstanding K Shares of such Class.
SECTION 10. SELECTION/NOMINATION OF DIRECTORS. While this Plan
is in effect, the selection and nomination of those Disinterested Directors
shall be committed to the discretion of such Disinterested Directors.
SECTION 11. MISCELLANEOUS. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
-3-
<PAGE> 4
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
FORM OF DISTRIBUTION AGREEMENT
TO
DISTRIBUTION PLAN
Ladies and Gentlemen:
We wish to enter into this Distribution Agreement ("Agreement") with you
concerning the provision of distribution services to your customers ("Clients")
who may from time to time be the record or beneficial owners of "K" shares (such
shares referred to herein as the "Shares") of one or more of the Company's
investment portfolios (individually, a "Fund" and collectively, the "Funds"),
which are listed on Appendix A.
The terms and conditions of this Agreement are as follows:
SECTION 1. You agree to provide reasonable assistance, as reasonably requested
from time to time by us, in connection with the distribution of Shares to
Clients who may from time to time own of record or beneficially a Fund's Shares.
SECTION 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide distribution services to
Clients.
SECTION 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Fund, or its Shares
except those contained in the Company's then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
SECTION 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You will not engage in activities pursuant to this
Agreement which constitute acting as a broker or dealer under state law unless
you have obtained the licenses required by law. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
SECTION 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee for distribution services at the annual rate of % of the average daily
net assets of the
<PAGE> 5
particular Fund's outstanding K Shares, owned of record or beneficially by your
Clients from time to time for whom you are the dealer of record or holder of
record or with whom you have a distribution relationship ("Clients' Shares").
Said fee will be computed daily and payable monthly. For purposes of determining
the fees payable under this Section 5, the average daily net asset value of the
Clients' Shares will be computed in the manner specified in the Company's then
current Registration Statement in connection with the computation of the net
asset value of the particular Fund's Shares for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion and without notice, suspend or withdraw the
sale of Shares, including the sale of such Shares to you for the account of any
Client(s).
SECTION 6. You acknowledge that you will provide to the Funds' Board of
Directors, at least quarterly, a written report of the amounts expended pursuant
to this Agreement and the purposes for which such expenditures were made. In
connection with such revenues, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of some or all of
the distribution services described in the Distribution Plan), and will
otherwise cooperate with us and our designees (including, without limitation,
any auditors designated by us), in connection with the preparation of reports to
the Funds' Board of Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings that may
be required by law.
SECTION 7. We may enter into other similar Distribution Agreements with any
other person or persons without your consent.
SECTION 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) the compensation payable to you hereunder and the receipt of
such compensation by you hereunder, together with any other compensation you
receive from Clients in connection with the investment of their assets in Shares
of the Funds, is permissible under applicable law, including without limitation
the Employee Retirement Income Security Act of 1974, as amended, will be
disclosed to your Clients, will be authorized by your Clients and will not be
excessive or unreasonable; and (ii) (a) you are a member of the National
Association of Securities Dealers, Inc. ("NASD"), that such membership has not
been suspended, and that you agree to maintain membership in the NASD, or (b)
you are a foreign broker/dealer not eligible for membership in the NASD, and are
fully licensed and legally empowered to act as a securities broker-dealer under
the laws of each jurisdiction in which you conduct such business. You further
agree to abide by all
-2-
<PAGE> 6
applicable laws, including without limitation, all applicable provisions of the
Investment Company Act of 1940, as amended, the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended and all applicable
rules and regulations thereunder.
SECTION 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1996, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Funds in the
manner described in Section 12 hereof. This Agreement is terminable with respect
to any Class of Shares, without penalty, at any time by the Funds (which
termination may be by vote of a majority of the Company's Disinterested
Directors as defined in Section 12 hereof or by vote of the holders of a
majority of the outstanding Shares of such Class) or by you upon notice to the
other party hereto. This Agreement will terminate in the event of its assignment
(as defined in the Investment Company Act of 1940 (the "Act")).
SECTION 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
SECTION 11. This Agreement will be construed in accordance with the laws of the
State of New York without giving effect to principles of conflict of laws.
SECTION 12. This Agreement has been approved by vote of a majority of (i) the
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Act) of the Company and have no direct or indirect
financial interest in the operation of the Distribution Plan adopted by the
Company regarding the provision of administrative support services to the record
or beneficial owners of Shares or in any agreements related thereto
("Disinterested Directors"), cast in person at a meeting called for the purpose
of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, Concord Financial Group,
-3-
<PAGE> 7
Inc., 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219-8000.
Very truly yours,
CONCORD FINANCIAL GROUP, INC.
By:____________________________________________________
Authorized Officer
Accepted and Agreed to:
_______________________________________________________
Name of Organization
By:____________________________________________________
Authorized Officer
Date:__________________________________________________
_______________________________________________________
Taxpayer Identification Number
_______________________________________________________
Account Number
_______________________________________________________
Dealer Code
-4-
<PAGE> 8
APPENDIX A
Please check the appropriate boxes to indicate the Funds of the Company
for which you wish to act as a Distribution Organization with respect to the
Shares:
[ ] Aggressive Growth Fund (Class D - Special Series 5)
[ ] U.S. Government Securities Fund (Class E - Special Series 5)
[ ] Capital Income Fund (Class F - Special Series 5)
[ ] California Tax-Exempt Bond Fund (Class G - Special Series 5)
[ ] Intermediate Bond Fund (Class M - Special Series 5)
[ ] Blue Chip Fund (Class N - Special Series 5)
[ ] Asset Allocation Fund (Class O - Special Series 5)
[ ] National Municipal Bond Fund (Class Q - Special Series 5)
[ ] Utilities Fund (Class R - Special Series 5)
[ ] Growth and Income Fund (Class S - Special Series 5)
[ ] International Equity Fund (Class T - Special Series 5)
[ ] Short-Term Government Fund (Class U - Special Series 5)
[ ] International Bond Fund (Class V - Special Series 5)
[ ] Corporate Bond Fund (Class W - Special Series 5)
___________________________________________
(Distribution Organization Name)
By:________________________________________
___________________________________________
Authorized Officer
Dated:_____________________________________
A-1
<PAGE> 1
EXHIBIT 15(j)
PACIFIC HORIZON FUNDS, INC.
ADMINISTRATIVE AND SHAREHOLDER SERVICES PLAN
This Administrative and Shareholder Services Plan (the "Plan")
has been adopted by the Board of Directors of Pacific Horizon Funds, Inc. (the
"Company") in connection with the Class D - Special Series 5, Class E - Special
Series 5, Class F Special Series 5, Class G - Special Series 5, Class M -
Special Series 5, Class N - Special Series 5, Class O - Special Series 5, Class
Q - Special Series 5, Class R - Special Series 5, Class S Special Series 5,
Class T - Special Series 5, Class U - Special Series 5, Class V - Special Series
5 and Class W - Special Series 5 shares of the Aggressive Growth, U.S.
Government Securities, Capital Income, California Tax-Exempt Bond, Intermediate
Bond, Blue Chip, Asset Allocation, National Municipal Bond, Utilities, Growth
and Income, International Equity, Short-Term Government, International Bond and
Corporate Bond Funds, respectively (all such shares hereinafter called "K
Shares" and such funds the "Funds").
SECTION 1. EXPENSES. The Company may incur aggregate expenses
under the Plan in an amount not to exceed 1.00% annually of the average daily
net assets of a Fund's outstanding K Shares. The total expenses incurred under
this Plan and the Distribution Plan for K Shares may not exceed, in the
aggregate, 1.00% annually of the average daily net assets of a Fund's
outstanding K Shares.
SECTION 2. ADMINISTRATIVE SERVICES COVERED BY PLAN. The
Company may pay securities dealers, brokers, financial institutions or other
industry professionals, such as investment advisors, accountants, and estate
planning firms, including any of the Company's service providers (severally, a
"Service Organization") for administrative support services provided with
respect to its customers' K Shares. Such administrative support services shall
be provided pursuant to an Administrative and Shareholder Services Agreement.
SECTION 3. ADMINISTRATIVE SERVICING FEES COVERED BY PLAN.
Subject to Section 1 of this Plan, administrative support servicing fees paid to
a Service Organization shall be in consideration for the administrative support
services provided pursuant to its Administrative and Shareholder Services
Agreement and may be paid at an annual rate of up to .75% of the average daily
net assets of a Fund's outstanding K Shares owned of record or beneficially by
that Service Organization's customers for whom such Service Organization is the
dealer of record or holder of
<PAGE> 2
record or with whom it has a servicing relationship. Such fees shall be
calculated and accrued daily, paid monthly, and computed in the manner set forth
in the Administrative and Shareholder Services Agreement.
SECTION 4. SHAREHOLDER SERVICES COVERED BY PLAN. The Company
may also pay Service Organizations for shareholder services provided with
respect to its customers' K Shares. Such shareholder services shall be provided
pursuant to an Administrative and Shareholder Services Agreement.
SECTION 5. SERVICING FEES COVERED BY PLAN. Subject to Section
1 of this Plan, shareholder servicing fees paid to a Service Organization shall
be in consideration for the shareholder services provided pursuant to its
Administrative and Shareholder Services Agreement and may be paid at an annual
rate of up to .25% of the average daily net assets of a Fund's outstanding K
Shares owned of record or beneficially by that Service Organization's customers
for whom such Service Organization is the dealer of record or holder of record
or with whom it has a servicing relationship. Such fees shall be calculated and
accrued daily, paid monthly, and computed in the manner set forth in the
Administrative and Shareholder Services Agreement.
SECTION 6. EXPENSES ALLOCATED, COMPLIANCE. Amounts paid by
a Fund must be for administrative support and/or shareholder services rendered
for or on behalf of the holders of the Fund's K Shares.
SECTION 7. REPORTS TO COMPANY. So long as this Plan is in
effect, the distributor of the Company (the "Distributor") shall provide the
Company's Board of Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended pursuant to the Plan and the
purposes for which such expenditures were made.
SECTION 8. APPROVAL OF PLAN. This Plan will become effective
with respect to a particular Fund's K Shares (a) on the date the public offering
of such shares commences after the approval by written consent of the sole
shareholder of outstanding K Shares of that Fund, and (b) upon the approval by a
majority of the Board of Directors, including a majority of those directors who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Company and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements entered into in
connection with the Plan (the "Disinterested Directors"), pursuant to a vote
cast in person at a meeting called for the purpose of voting on the approval of
the Plan.
-2-
<PAGE> 3
SECTION 9. CONTINUANCE OF PLAN. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until October 31,
1996, and thereafter, shall continue in effect for so long as its continuance is
specifically approved at least annually by the Company's Board of Directors in
the manner described in Section 8(b) hereof.
SECTION 10. AMENDMENTS. This Plan may be amended at any time
by the Board of Directors provided that any material amendments of the terms of
the Plan shall become effective only upon approval in the manner described in
Section 8(b) hereof.
SECTION 11. TERMINATION. This Plan, as to any Fund or any
Class of any Fund, is terminable without penalty at any time by (a) a vote of a
majority of the Disinterested Directors, or (b) a vote of a majority of such
outstanding K Shares of such Class.
SECTION 12. MISCELLANEOUS. The captions in this Agreement
are included for convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their construction or effect.
-3-
<PAGE> 4
PACIFIC HORIZON FUNDS, INC.
(THE "COMPANY")
FORM OF ADMINISTRATIVE AND SHAREHOLDER SERVICES AGREEMENT
TO
ADMINISTRATIVE AND SHAREHOLDER SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Administrative and Shareholder Services Agreement
("Agreement") with you concerning the provision of administrative and/or
shareholder support services to your customers ("Clients") who may from time to
time be the record or beneficial owners of "K" shares (such shares referred to
herein as the "Shares") of one or more of the Company's investment portfolios
(individually, a "Fund" and collectively, the "Funds"), which are listed on
Appendix A.
The terms and conditions of this Agreement are as follows:
SECTION 1. You agree to provide reasonable assistance in connection with the
following administrative support services* to your Clients who may from time to
time own of record or beneficially a Fund's Shares: (i) processing dividend and
distribution payments from a Fund on behalf of Clients; (ii) providing
statements periodically to your Clients showing their positions in the Shares;
(iii) providing the information to the Funds necessary for accounting or
sub-accounting; (iv) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Clients; (v)
aggregating and processing purchase, exchange, and redemption requests from
Clients and placing net purchase, exchange, and redemption orders for your
customers; (vi) establishing and maintaining accounts and records relating to
Clients that invest in Shares; and (vii) other similar services we may
reasonably request to the extent you are permitted to so under applicable law.
SECTION 2. You further agree to provide reasonable assistance in connection with
the following shareholder support services* to your Clients who may from time to
time own of record or beneficially a Fund's Shares: (i) arranging for bank
wires; (ii) responding to routine Client inquiries concerning their investment
in Shares; (iii) assisting customers in changing dividend options, account
designations and addresses; and (iv)
* Services may be added or deleted in a particular Agreement.
For example, administrative support or shareholder support
services may be deleted.
<PAGE> 5
other similar shareholder support services we may reasonably request to the
extent you are permitted to so under applicable law.
SECTION 3. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to Clients.
SECTION 4. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Fund, or its Shares
except those contained in the Company's then current prospectus for such Shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
SECTION 5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. You and your employees will, upon request, be
available during normal business hours to consult with us or our designees
concerning the performance of your responsibilities under this Agreement.
SECTION 6. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of % ( % and % for administrative support
services and shareholder support services, respectively) of the average daily
net assets of the particular Fund's outstanding K Shares, owned of record or
beneficially by your Clients from time to time for whom you are the dealer of
record or holder of record or with whom you have a servicing relationship
("Clients' Shares"). Said fee will be computed daily and payable monthly. For
purposes of determining the fees payable under this Section 6, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in the Company's then current Registration Statement in connection with the
computation of the net asset value of the particular Fund's Shares for purposes
of purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us, in our sole discretion, at any time upon notice to
you. Further, we may, in our discretion and without notice, suspend or withdraw
the sale of Shares, including the sale of such Shares to you for the account of
any Client(s).
SECTION 7. You acknowledge that you will provide to the Funds' Board of
Directors, at least quarterly, a written report of the amounts expended pursuant
to this Agreement and the purposes for which such expenditures were made. In
connection with such revenues, you will furnish us or our designees with such
information as we or they may reasonably request (including,
-2-
<PAGE> 6
without limitation, periodic certifications confirming the provision to Clients
of some or all of the services described herein), and will otherwise cooperate
with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to the Funds'
Board of Directors concerning this Agreement and the monies paid or payable by
us pursuant hereto, as well as any other reports or filings that may be required
by law.
SECTION 8. We may enter into other similar Administrative and Shareholder
Services Agreements with any other person or persons without your consent.
SECTION 9. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) the compensation payable to you hereunder and the receipt of
such compensation by you hereunder, together with any other compensation you
receive from Clients in connection with the investment of their assets in Shares
of the Funds, is permissible under applicable law, including without limitation
the Employee Retirement Income Security Act of 1974, as amended, will be
disclosed to your Clients, will be authorized by your Clients and will not be
excessive or unreasonable; and (ii) the services provided by you under this
Agreement will in no event be primarily intended to result in the sale of K
shares. You further agree to abide by all applicable laws, including without
limitation, all applicable provisions of the Investment Company Act of 1940, as
amended, the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended and all applicable rules and regulations thereunder.
SECTION 10. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until October 31, 1996, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by the Funds in the
manner described in Section 13 hereof. This Agreement is terminable with respect
to any Class of Shares, without penalty, at any time by the Funds (which
termination may be by vote of a majority of the Company's Disinterested
Directors as defined in Section 13 hereof or by vote of the holders of a
majority of the outstanding Shares of such Class) or by you upon notice to the
other party hereto. This Agreement will terminate in the event of its assignment
(as defined in the Investment Company Act of 1940 (the "Act")).
SECTION 11. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
-3-
<PAGE> 7
SECTION 12. This Agreement will be construed in accordance with the laws of the
State of New York without giving effect to principles of conflict of laws.
SECTION 13. This Agreement has been approved by vote of a majority of (i) the
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Act) of the Company and have no direct or indirect
financial interest in the operation of the Administrative and Shareholder
Services Plan adopted by the Company regarding the provision of administrative
and shareholder support services to the record or beneficial owners of Shares or
in any agreements related thereto ("Disinterested Directors"), cast in person at
a meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, Concord Financial Group, Inc., 3435 Stelzer Road, Columbus, Ohio
43219-8000.
Very truly yours,
CONCORD FINANCIAL GROUP, INC.
By:_________________________________________________
Authorized Officer
Accepted and Agreed to:
____________________________________________________
Name of Organization
By:_________________________________________________
Authorized Officer
Date:_______________________________________________
____________________________________________________
Taxpayer Identification Number
____________________________________________________
Account Number
____________________________________________________
Dealer Code
-4-
<PAGE> 8
APPENDIX A
----------
Please check the appropriate boxes to indicate the Funds of the Company
for which you wish to act as a Service Organization with respect to the Shares:
[ ] Aggressive Growth Fund (Class D - Special Series 5)
[ ] U.S. Government Securities Fund (Class E - Special Series 5)
[ ] Capital Income Fund (Class F - Special Series 5)
[ ] California Tax-Exempt Bond Fund (Class G - Special Series 5)
[ ] Intermediate Bond Fund (Class M - Special Series 5)
[ ] Blue Chip Fund (Class N - Special Series 5)
[ ] Asset Allocation Fund (Class O - Special Series 5)
[ ] National Municipal Bond Fund (Class Q - Special Series 5)
[ ] Utilities Fund (Class R - Special Series 5)
[ ] Growth and Income Fund (Class S - Special Series 5)
[ ] International Equity Fund (Class T - Special Series 5)
[ ] Short-Term Government Fund (Class U - Special Series 5)
[ ] International Bond Fund (Class V - Special Series 5)
[ ] Corporate Bond Fund (Class W - Special Series 5)
___________________________________________
(Service Organization Name)
By:________________________________________
___________________________________________
Authorized Officer
Dated:_____________________________________
A-1
<PAGE> 1
PACIFIC HORIZON FUNDS
EXHIBIT 16(d)
TOTAL RETURN
K SHARES
NO LOAD CALCULATIONS
Pacific Horizon International Equity Fund
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
--------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 05/13/96 TO 08/31/96 ):
( 971.0 /1,000) - 1 = -2.90%
YEAR TO DATE: ( 05/13/96 TO 08/31/96 ):
( 971.0 /1,000) - 1 = -2.90%
QUARTERLY: ( 06/01/96 TO 08/31/96 ):
( 969.1 /1,000) - 1 = -3.09%
MONTHLY: ( 08/01/96 TO 08/31/96 ):
( 1,001.0 /1,000) - 1 = 0.10%
<PAGE> 2
Pacific Horizon Funds
EXHIBIT 16
TOTAL RETURN
A SHARES
LOAD CALCULATIONS
Pacific Horizon International Equity Fund
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 05/13/96 TO 08/31/96 ):
( 928.4 /1,000) - 1 = -7.16%
YEAR TO DATE: ( 05/13/96 TO 08/31/96 ):
( 928.4 /1,000) - 1 = -7.16%
QUARTERLY: ( 06/01/96 TO 08/31/96 ):
( 926.6 /1,000) - 1 = -7.34%
MONTHLY: ( 08/01/96 TO 08/31/96 ):
( 956.7 /1,000) - 1 = -4.33%
<PAGE> 3
PACIFIC HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
A SHARES
NO LOAD CALCULATIONS
Pacific Horizon International Equity Fund
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 05/13/96 TO 08/31/96 ):
( 972.0 /1,000) - 1 = -2.80%
YEAR TO DATE: ( 05/13/96 TO 08/31/96 ):
( 972.0 /1,000) - 1 = -2.80%
QUARTERLY: ( 06/01/96 TO 08/31/96 ):
( 970.1 /1,000) - 1 = -2.99%
MONTHLY: ( 08/01/96 TO 08/31/96 ):
( 1,002.1 /1,000) - 1 = 0.21%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 171
<NAME> PACIFIC HORIZON INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAY-13-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 9332238
<INVESTMENTS-AT-VALUE> 9230080
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9230080
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40379
<TOTAL-LIABILITIES> 40379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9308225
<SHARES-COMMON-STOCK> 945740<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 6802
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 23168
<ACCUM-APPREC-OR-DEPREC> (102158)
<NET-ASSETS> 9189701
<DIVIDEND-INCOME> 9966
<INTEREST-INCOME> 5048
<OTHER-INCOME> 0
<EXPENSES-NET> 8248
<NET-INVESTMENT-INCOME> 6802
<REALIZED-GAINS-CURRENT> (23169)
<APPREC-INCREASE-CURRENT> (102157)
<NET-CHANGE-FROM-OPS> (118524)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 984526<F1>
<NUMBER-OF-SHARES-REDEEMED> 30778<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 9189701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93402
<AVERAGE-NET-ASSETS> 3613447
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .010<F1>
<PER-SHARE-GAIN-APPREC> (.290)<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 9.720<F1>
<EXPENSE-RATIO> .750<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711663
<NAME> PACIFIC HORIZON FUNDS, INC.
<SERIES>
<NUMBER> 172
<NAME> PACIFIC HORIZON INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> JUN-22-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 9332230
<INVESTMENTS-AT-VALUE> 9230080
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9230080
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40379
<TOTAL-LIABILITIES> 40379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9308225
<SHARES-COMMON-STOCK> 902<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 6802
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 23160
<ACCUM-APPREC-OR-DEPREC> (102158)
<NET-ASSETS> 9189701
<DIVIDEND-INCOME> 9966
<INTEREST-INCOME> 5048
<OTHER-INCOME> 0
<EXPENSES-NET> 8248
<NET-INVESTMENT-INCOME> 6802
<REALIZED-GAINS-CURRENT> (23169)
<APPREC-INCREASE-CURRENT> (102157)
<NET-CHANGE-FROM-OPS> (118524)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 102<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 9189701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93402
<AVERAGE-NET-ASSETS> 3613447
<PER-SHARE-NAV-BEGIN> 9.760<F1>
<PER-SHARE-NII> .000<F1>
<PER-SHARE-GAIN-APPREC> (.050)<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 9.710<F1>
<EXPENSE-RATIO> 1.250<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class K Shares
</FN>
</TABLE>
