PACIFIC HORIZON FUNDS INC, N-30D/A, 1996-06-11

PACIFIC HORIZON FUNDS INC
N-30D/A, 1996-06-11

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<PAGE> 1
P
A
C PACIFIC HORIZON GROWTH FUNDS
I
F ANNUAL REPORT
I
C February 29, 1996

H
O
R
I Blue Chip Fund
Z
O
N

G Investing For All
R The Times Of Your Life
O
W
T
H

F
U
N
D
S NOT FDIC INSURED

<PAGE> 2

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

INVESTMENT ADVISER INDEPENDENT ACCOUNTANTS
Bank of America National Trust Price Waterhouse LLP
and Savings Association 1177 Avenue of the Americas
555 California Street New York, NY 10036
San Francisco, CA 94104

ADMINISTRATOR FUND COUNSEL
Concord Holding Corporation Drinker Biddle & Reath
3435 Stelzer Road 1345 Chestnut Street
Columbus, OH 43219 Philadelphia, PA 19107

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

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

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

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

<TABLE>
<S> <C>
- -------------------------------------------------------------------------
INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT BANK
DEPOSITS AND ARE NOT OBLIGATIONS OF OR GUARANTEED BY BANK NOT
OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN MUTUAL FDIC
FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE INSURED
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- -------------------------------------------------------------------------
</TABLE>

<PAGE> 3

Contents

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6
ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 7
INTERVIEW WITH YOUR
INVESTMENT MANAGER 8-11
PACIFIC HORIZON BLUE CHIP FUND
Statement of Assets
and Liabilities 12
Statement of Operations 13
Statements of Changes
in Net Assets 14
Notes to Financial
Statements 15-18
Financial Highlights 19
Report of Independent Accountants 20
MASTER INVESTMENT TRUST, SERIES
I -- BLUE CHIP PORTFOLIO
Portfolio of Investments 21-25
Statement of Assets
and Liabilities 26
Statement of Operations 27
Statements of Changes
in Net Assets 28
Notes to Financial
Statements 29-31
Supplementary Data 32
Report of Independent Accountants 33
</TABLE>

<PAGE> 4

PACIFIC HORIZON FUND FACTS

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

- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
<FN>

- --------------------------------------------------------------------------------
* Certain investors may be subject to the federal alternative minimum tax and to
certain state and local taxes.

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

2
<PAGE> 5

With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your investment
specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- ------------------------------------------------------------------------------------
<S> <C>
Small Capitalization Stocks Higher than average long-term growth potential with
higher than average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stock of well established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double-tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.

Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
</TABLE>

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

3
<PAGE> 6

UNDERSTANDING YOUR SHAREHOLDER REPORT

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

This guide will help you extract the information from
the report.

The TABLE OF CONTENTS helps
you locate the information you
want.

The ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER provides a
brief overview of the economy
and how it affects the
financial markets.
[GRAPHIC]
The INTERVIEW WITH YOUR
INVESTMENT MANAGER enables you
to gain insight into the Fund
investments and learn more
about the Fund manager's
strategies.

Because a picture or chart can
help clarify the text, the
investment manager may have
illustrated the most important
features of the Fund. The
illustrations may represent the portfolio composition,
the largest holdings or a simplification of the
investment manager's investment style.
[GRAPHIC]
In annual reports, mutual funds, which are not "money
market" funds, are required by the Securities and
Exchange Commission (SEC) to provide shareholders with
a comparison of a hypothetical $10,000 investment in
the Fund to a benchmark of the broader market. The
performance of the benchmark index depicts the
aggregate performance of investments similar to those
in the Fund for the same time period. While the
benchmark index provides a general representation of
the market, there are two
reasons
why
it should be used only as a
guide. First, the Fund, in its
prospectus, must clearly define
which investments can be made by
the Fund. The index does not [GRAPHIC]
necessarily have the same
limitations. Second, the index
does not reflect any expenses
that accompany a real investment,
such as

4
<PAGE> 7

sales charges, management fees, portfolio transaction costs or the cash reserves
required to provide daily liquidity. The performance of the Fund must show these
costs as well as any front-end or deferred sales charges.

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

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

TYPE OF SECURITY

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

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

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

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

NET RESULTS OF ASSETS LESS LIABILITIES

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

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

5
<PAGE> 8

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

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS
[GRAPHIC]
OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD

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

NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

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

OPERATIONS: SEE STATEMENT OF OPERATIONS

DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
[GRAPHIC]
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS

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

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

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

6
<PAGE> 9

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

The 12 months ended February 29, 1996, witnessed a year of surprising strength
in the financial markets. Stock prices rose sharply, with the Dow Jones
Industrial Average surging 38% and other stock market indices posting very
strong gains. The bond market also turned in healthy results, particularly in
the long-term sector, with the bellwether 30-year Treasury bond registering an
18.45% total return.

The stock and bond markets were propelled largely by the Federal Reserve Board's
apparent success at slowing the economy to a sustainable annual growth rate of
around 2% and, at the same time, keeping inflation under control.

FUNDAMENTAL ECONOMIC
STRENGTHS

This favorable combination of modest economic growth and a low-inflation
environment allowed long-term interest rates to decline through most of the
period, spurring gains for both stocks and bonds. In fact, with mounting
evidence of slower economic growth, the Federal Reserve began lowering
short-term rates last summer to help prevent the economy from slowing down too
much.

Meanwhile, corporate profits continued to grow at a solid clip. The major
factors driving earnings included productivity gains and rising exports. In
addition, the U.S. dollar generally was weak, so the overseas profits that many
American companies earned in foreign currencies became more valuable in dollar
terms.

ASSET ALLOCATION KEY
TO PERFORMANCE

For investors, the key investment decision during the period was asset
allocation. The best-performing stock market sectors included financial services
and technology (despite a weak fourth quarter) -- but many other groups also
delivered strong gains.

LOOKING AHEAD

We expect the market environment in 1996 to favor our approach, as investors
look for companies that can produce consistent earnings gains in an economy
growing at a relatively modest 2%-to-3% annual rate. Corporate profits should
continue to grow as companies continue to reap the benefits of productivity
gains made during the past decade. However, earnings aren't likely to rise as
quickly as they did last year.

The economy's pace probably will be slow enough to prevent a sharp rebound in
interest rates, which is good news for both stock and bond investors. But it's
also unlikely that rates will decline sharply from their current levels, which
are high relative to inflation. Thus, stock and bond investors might expect more
modest returns during the coming year than they received in 1995. Still, that
leaves plenty of room for respectable performance.

7
<PAGE> 10

PACIFIC HORIZON
BLUE CHIP FUND

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

[PHOTO]

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

JAMES D. MILLER, CFA
Chief Investment Officer
Bank of America Illinois
Investment Advisors Division

Mr. Miller is a leading member of the investment management team for the Blue
Chip Fund.

GOAL:

The Pacific Horizon Blue Chip Fund seeks long-term capital appreciation.

INVESTMENTS:

The Fund invests primarily in a diversified group of "blue chip" common stocks,
which are included in either the Dow Jones Industrial Average or the Standard &
Poor's 500 Index.

APPROPRIATE FOR:

Investors who want to participate in the growth potential of some of America's
major companies. The Fund is a diversified equity product that can be used as
part of many investment strategies.

INCEPTION:

January 13, 1994

SIZE OF FUND AS OF
FEBRUARY 29, 1996:

Over $66 million

Q HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?

A We continued to manage the Fund in our very disciplined quantitative style
and concentrated heavily on risk management. We start by neutralizing most of
the divergent risk factors to the benchmark S&P 500. This includes sector and
size risk, among others. By this, we mean that the portfolio's holdings are
designed to mirror the sector allocations of the Standard & Poor's 500 Stock
Index. Likewise, the portfolio's average weighted size should approximate that
of the index.

The result is that our Fund is designed not to suffer or benefit any more than
the index when a particular sector performs well or badly. Likewise, the Fund is
designed not to decline more or less than the index when small- or
large-capitalization stocks have an especially good or bad year. Since we keep
risks in line with those in the benchmark, we attempt to add value through stock
selection.

For the 12 months ended February 29, 1996, the Fund performed more or less in
line with the index with a total return of 33.39% (without the sales charge),
compared to 34.60% for the S&P 500.+

Q HOW IS THE FUND DIFFERENT FROM AN INDEX FUND?

A As I said before, unlike an index fund, we attempt to add value through
individual security selection. Our goal is to buy the best stocks in each
sector -- by which we mean the stocks that add the most potential reward to our
portfolio for the least risk.

Q HOW DID YOU CHOOSE STOCKS DURING THE RECENT PERIOD?

A We looked at a number of different factors that can affect a stock's per-

8
<PAGE> 11

formance and weighted most heavily those having the most impact during the
period. Then we used that information to select stocks that we believed would
do well.

For example, during the past year one of the most important factors
determining stock prices included something we call "earnings certainty." We
found that people were buying shares of companies that had similar earnings
estimates from different analysts.

Likewise, investors liked stocks of companies that had experienced the biggest
increases in analysts' earnings estimates -- our "rising earnings expectations"
model. And we discovered that investors were looking for companies whose shares
were selling at a low multiple of earnings. Consequently, we purchased lower
P/E stocks that demonstrated a clearer, brighter future earnings potential.

Q WHAT ARE SOME STOCKS YOU BOUGHT BASED ON THOSE THREE FACTORS?

A A number of our picks were large, well-known companies such as Chrysler
(1.14% of net assets as of February 29, 1996) and Merck (1.56%), both of which
scored well based on all three factors. Pepsico (2.43%) was particularly
attractive as well, largely on the basis of rising earnings expectations and
earnings certainty.++

Q ARE YOU PLANNING ANY IMPORTANT STRATEGIC CHANGES FOR THE COMING PERIOD?

A No. As always, we will make no attempt to forecast the direction of stock
prices in general or specific market sectors. Instead, we will continue to keep
track of the factors that are most likely to affect the returns of specific
stocks. Then we will invest in stocks with the appropriate characteristics.

- ---------------
+ Fund performance with the 4.50% maximum sales charge was 27.39% for the
period.

++ The composition of the Fund's holdings is subject to change.

9
<PAGE> 12

PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 29, 1996)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

<TABLE>
<CAPTION>
MEASUREMENT PERIOD LIPPER GROWTH
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE S&P 500
<S> <C> <C> <C>
01/31/94 9550.00 10000.00 10000.00
02/28/94 9374.66 9667 9730
03/31/94 8989.56 9201.69 9303.96
04/30/94 9064.89 9232.36 9424.26
05/31/94 9177.88 9271.20 9579.29
06/30/94 8971.89 8960.00 9342.29
07/31/94 9306.05 9196.19 9651.24
08/31/94 9709.57 9620.33 10043.95
09/30/94 9448.58 9442.53 9801.79
10/31/94 9676.87 9591.79 10025.96
11/30/94 9353.46 9235.37 9657.91
12/31/94 9455.20 9320.91 9798.82
01/31/95 9646.60 9395.20 10053.49
02/28/95 10086.82 9749.98 10443.56
03/31/95 10363 10034 10757
04/30/95 10620 10246 11070
05/31/95 11030 10551 11507
06/30/95 11309 11001 11777
07/31/95 11746 11532 12170
08/31/95 11734 11617 12202
09/30/95 12212 11961 12714
10/31/94 12173 11791 12669
11/30/95 12664 12208 13227
12/31/95 12839 12256 13471
01/31/96 13304 12528 13935
02/29/96 13679.00 12806.00 14058.00
</TABLE>

HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon Blue
Chip Fund to the S&P 500, which is an un-
managed index often used as a performance
benchmark for equity investments. The
hypothetical investment in the S&P 500 does
not
reflect any sales or management fees that would be incurred if an investor were
to actually purchase individual securities or mutual funds, while the
performance of the Fund reflects all expenses and management fees and the effect
of the maximum sales charge.

The Fund fared well compared to other growth funds. The average of growth funds
as tracked by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Pacific
Horizon Blue Chip Fund. An initial $10,000 investment in the Fund made on

--------------------------
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL RETURN

<CAPTION>
----------------------------
<S> <C>
1 year: 27.39%
.............................
Since inception
(1/13/94): 15.92%
</TABLE>

--------------------------
January 31, 1994 would now be worth $13,679, while the same investment made in
the Lipper Growth Funds Average would be worth only $12,806.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.

The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing expenses for the Fund. If the adviser and administrator had
not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.

Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.

S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.

Neither the S&P 500 nor the Lipper Growth Funds Average may be invested in
directly.

10
<PAGE> 13

PACIFIC HORIZON
BLUE CHIP FUND
(AS OF FEBRUARY 29, 1996)

PORTFOLIO COMPOSITION

FUND QUALITY

A Strategy for Long-Term Capital
Appreciation

The Fund maintains a "quality" investment orientation by placing an
emphasis on the securities of well-known established companies. This "blue
chip" approach may be appropriate for investors seeking long-term growth of
capital. At least 80% of the Fund's assets are normally invested in blue chip
stocks. To meet the criteria set by the Fund's investment objectives, these
stocks must be components of the Dow Jones Industrial Average or the Standard &
Poor's 500 Index.

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

The Fund adviser's research orientation seeks to identify individual
stocks, within the sector allocations mirroring those of the S&P 500, with the
greatest potential for long-term growth. The Fund's primary emphasis is on
stocks that, in the opinion of the Fund's adviser, have the greatest potential
of superior performance with the least amount of risk.
<TABLE>
<CAPTION>

TOP TEN HOLDINGS*
- ------------------------------------------------------
PERCENT OF
COMPANY NET ASSETS
<S> <C>
- ------------------------------------------------------
Mobil Corp. 2.5%
......................................................
PepsiCo. 2.4%
......................................................
Citicorp 2.2%
......................................................
Philip Morris Cos. 2.1%
......................................................
General Electric 2.0%
......................................................
International Business Machines 1.8%
......................................................
Bell South 1.7%
......................................................
United Technologies Corp. 1.7%
......................................................
Sears Roebuck & Co. 1.7%
......................................................
Exxon Corp. 1.7%
- ------------------------------------------------------
TOTAL 19.8%
- ------------------------------------------------------
</TABLE>

A RESEARCH-DRIVEN APPROACH*
<TABLE>
<S> <C>
Utilities 12.8
Finance 13.1
Consumer Staples 11.9
Health Care 10.7
Technology 11.3
Capital Goods 9.7
Energy 8.6
Basics 6.2
Transportation 1.7
Consumer Cyclical 14.0
</TABLE>

* The composition of the Fund's holdings is subject to change.
<PAGE> 14

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I --
Blue Chip Portfolio, at value...................................... $66,901,094
Receivable from Administrator........................................ 13,816
Deferred organization costs and prepaid expenses..................... 57,555
-----------
Total assets........................................................... 66,972,465
-----------
LIABILITIES:
Accrued reports to shareholders expense.............................. 14,532
Accrued legal fees................................................... 11,122
Accrued fund accounting fees and expenses............................ 5,947
Accrued audit fees................................................... 5,948
Other accrued expenses............................................... 1,462
-----------
Total liabilities...................................................... 39,011
-----------
NET ASSETS............................................................. $66,933,454
===========
Shares Outstanding ($0.001 par value, 100 million shares authorized)... 3,259,781
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share............................................ $20.53
Sales charge -- 4.50% of public offering price....................... 0.97
-----
Maximum Offering Price............................................... $21.50
=====
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 3,260
Additional paid-in capital........................................... 59,565,319
Accumulated net realized gains....................................... 740,209
Accumulated undistributed net investment income...................... 136,938
Net unrealized appreciation on investments........................... 6,487,728
-----------
NET ASSETS, FEBRUARY 29, 1996.......................................... $66,933,454
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
12
<PAGE> 15

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio:
Dividends................................................ $ 675,317
Interest................................................. 63,786
----------
739,103
Expenses................................................. $ 260,140
Less: Fee waivers and expense reimbursements............. (164,170) 95,970
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Blue Chip Portfolio................................. 643,133
EXPENSES:
Shareholder service fees................................. 74,950
Administration fees...................................... 44,971
Transfer agent fees and expenses......................... 62,458
Legal fees............................................... 47,260
Reports to shareholders expenses......................... 40,827
Fund accounting fees and expenses........................ 37,375
Amortization of organization costs....................... 28,263
Registration fees and expenses........................... 22,553
Audit fees............................................... 21,052
Directors' fees.......................................... 6,354
Other expenses........................................... 37,475
---------
423,538
Less: Fee waivers and expense reimbursements............. (270,393) 153,145
--------- ----------
Net Investment Income...................................... 489,988
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- BLUE CHIP PORTFOLIO:
Net realized gain on securities transactions............. 1,358,263
Net change in unrealized appreciation on investments..... 6,093,194
----------
Net Gain on Investments from Master Investment Trust,
Series I -- Blue Chip Portfolio.......................... 7,451,457
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................................... $7,941,445
==========
</TABLE>

- ---------------
See Notes to Financial Statements.
13
<PAGE> 16

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 489,988 $ 95,584
Net realized gain (loss) on securities
transactions....................................... 1,358,263 (46,800)
Net change in unrealized appreciation (depreciation)
of investments..................................... 6,093,194 401,993
----------- -----------
Net increase in net assets resulting from
operations......................................... 7,941,445 450,777
----------- -----------
Dividends and distribution to shareholders:
Dividends to shareholders from net investment
income............................................. (375,867) (74,501)
Distribution to shareholders from net realized
gains.............................................. (570,774) --
----------- -----------
Total dividends and distributions to shareholders...... (946,641) (74,501)
Fund Share Transactions:
Net proceeds from shares subscribed.................. 59,881,212 5,217,128
Net asset value of shares issued to shareholders in
reinvestment of dividends.......................... 903,918 73,034
Shares redeemed...................................... (6,848,470) (844,793)
----------- -----------
Net increase in net assets resulting from Fund share
transactions....................................... 53,936,660 4,445,369
----------- -----------
Total Increase......................................... 60,931,464 4,821,645
NET ASSETS:
Beginning of year.................................... 6,001,990 1,180,345
----------- -----------
End of year (including undistributed net investment
income of $136,938 and $22,817, respectively)...... $66,933,454 $6,001,990
=========== ===========
</TABLE>

- ---------------
See Notes to Financial Statements.
14
<PAGE> 17

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Pacific Horizon Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
operated as a series company comprising fifteen funds. The accompanying
financial statements and notes are those of the Pacific Horizon Blue Chip Fund
(the "Fund") only.

The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the Blue Chip Portfolio of Master Investment
Trust, Series I (the "Portfolio"), an open-end management company that has the
same investment objective as that of the Fund. The value of the Fund's
investment in the Portfolio included in the accompanying Statement of Assets and
Liabilities reflects the Fund's proportionate beneficial interest in the net
assets of the Portfolio (24.3% at February 29, 1996). The financial statements
of the Portfolio, including its portfolio of investments are included elsewhere
within this report and should be read in conjunction with the Fund's financial
statements.

Concord Holding Corporation ("Concord") serves as the Fund's administrator
and Concord Financial Group, Inc. (the "Distributor"), a wholly owned subsidiary
of Concord, serves as the distributor of the Fund's shares. Effective March 29,
1995, Concord became a wholly owned subsidiary of The BISYS Group, Inc.
("BISYS").

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

A) SECURITY VALUATIONS:

The valuation of securities of the Fund's investment in the Portfolio is
discussed in Note 2 of the Portfolio's financial statements.

B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:

The Fund records its share of the investment income, expenses and realized
and unrealized gains and losses recorded by the Portfolio on a daily basis. The
investment income, expenses and realized and unrealized gains and losses are
allocated daily to investors in the Portfolio based upon the value of their
investments in the Portfolio. Such investments are adjusted on a daily basis.

15
<PAGE> 18

C) DIVIDENDS AND DISTRIBUTIONS:

The Fund declares and pays dividends from net investment income, if any, at
least quarterly. Distributions of net realized gains, if any, will be paid at
least annually. However, to the extent that net realized gains of the Fund can
be offset by capital loss carryovers, such gains will not be distributed.
Dividends and distributions are recorded on the ex-dividend date.

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

D) FEDERAL INCOME TAXES:

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

E) OTHER:

The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized on a straight line basis over
five years.

Expenses directly attributable to the Fund are charged directly to the Fund,
while Company expenses attributable to more than one Fund of the Company are
allocated among the respective funds.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES

The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.

As Administrator, Concord assists in supervising the operations of the Fund.
For its services, Concord is entitled to a fee, which is accrued daily and
payable monthly, at an annual rate of 0.15%, of the Fund's average net assets.
For the year ended February 29, 1996, Concord agreed to waive its entire fee as
administrator.

For the same period, Concord reimbursed the Fund $150,472 in operating
expenses.

For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $255,167 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $1,875,240 from commissions earned on sales of the Fund's shares.

16
<PAGE> 19

Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary, served the Fund as transfer agent and dividend disbursing agent. In
this capacity, BISYS Fund Services, Inc., earned $23,505 for the period from
December 11, 1995 through February 1996. Prior to December 11, 1995 an unrelated
party provided these services.

For the year ended February 29, 1996, the Fund incurred legal charges
totalling $47,260, which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.

NOTE 4 -- DIRECTORS' COMPENSATION

Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives an annual retainer
of $1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997, in consideration of his years of service.

The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Company during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service that the Director served as Chairman of the Board. Each
Director may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum payment or ten annual install-

17
<PAGE> 20

ments. A Director's years of service for the purpose of calculating the payments
described above shall be based upon service as a Director or Chairman after
February 28, 1994. Aggregate costs to the Fund pursuant to the Retirement Plan
amounted to $69, for the year ended February 29, 1996.

NOTE 5 -- CAPITAL SHARE TRANSACTIONS

At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class N Common Stock (Blue Chip Fund).

Transactions in shares of common stock of the Fund are summarized below (000
omitted):

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold.......... 3,204 353
Shares issued in
reinvestment of
dividends........... 47 5
Shares redeemed...... (371) (57)
----- ---
Net increase......... 2,880 301
===== ===
</TABLE>

NOTE 6 -- FEDERAL INCOME TAX STATUS

During the year ended February 29, 1996 the company utilized its net capital
loss carryover of approximately $47,000.

18
<PAGE> 21

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED PERIOD
---------------------- ENDED
FEBRUARY FEBRUARY FEBRUARY
29, 28, 28,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net asset value per share, beginning of
period....................................... $ 15.81 $14.97 $15.00
------- ------ ------
Income from Investment Operations:
Net investment income........................ 0.26 0.31 0.02
Net realized and unrealized gain on
securities................................. 4.96 0.80 (0.05)
------- ------ ------
Total gain from investment operations........ 5.22 1.11 (0.03)
------- ------ ------
Less Dividends and Distributions:
Dividends to shareholders from net investment
income..................................... (0.28) (0.27) --
Distributions to shareholders from net
realized gains on securities............... (0.22) -- --
------- ------ ------
Total dividends and distributions.............. (0.50) (0.27) --
------- ------ ------
Net change in net asset value.................. 4.72 0.84 (0.03)
------- ------ ------
Net asset value per share, end of period....... $ 20.53 $15.81 $14.97
======= ====== ======
Total return++................................. 33.39% 7.60% (0.20)%
Ratios/Supplemental Data:
Net assets, end of period (000).............. $66,933 $6,002 $1,180
Ratio of expenses to average net assets**.... 0.83% 0.00% 0.00%+
Ratio of net investment income to average net
assets**................................... 1.63% 2.46% 2.92%+
<FN>

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

* For the period January 13, 1994 (commencement of operations) through February
28, 1994.

** Reflects the Fund's proportionate share of the Portfolio's expenses, the
Portfolio's fee waivers and expense reimbursements by the Portfolio's
Investment Adviser and Administrator and fee waivers and expense
reimbursements by 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 1.45%, 6.32% and 55.00% (annualized) for the periods
ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively.

+ Annualized.

++ The total returns listed are not annualized for the period ended February 28,
1994 and do not include the effect of the maximum 4.50% sales charge.
</TABLE>

See Notes to Financial Statements.
19
<PAGE> 22

PACIFIC HORIZON BLUE CHIP FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Blue Chip Fund (one of the portfolios constituting Pacific
Horizon Funds, Inc., hereafter referred to as the "Funds") at February 29, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

- --------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)

-------------------------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.1958 per share from long-term capital gains.
- --------------------------------------------------------------------------------

20
<PAGE> 23

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE -- 2.5%
Lockheed Martin Corp. .............................................. 38,500 $ 2,935,625
General Dynamics Corp. ............................................. 28,700 1,711,238
Rockwell Intl., Corp. .............................................. 38,600 2,200,200
------------
6,847,063
------------
AIRLINES & FREIGHT -- 0.4%
AMR Corp. .......................................................... 11,800 1,035,450
------------
APPAREL/TEXTILE -- 0.5%
Nike, Inc. ......................................................... 19,800 1,284,525
------------
AUTOMOTIVE -- 2.7%
Chrysler Corp. ..................................................... 55,600 3,134,450
Goodyear Tire & Rubber Co. ......................................... 53,500 2,541,250
Johnson Controls, Inc. ............................................. 23,500 1,686,125
------------
7,361,825
------------
BANKS -- 7.6%
Citicorp............................................................ 78,900 6,154,200
First Interstate Bancorp............................................ 18,500 3,022,438
First Union Corp. .................................................. 47,000 2,843,500
Bank Of Boston Inc. ................................................ 78,400 3,812,200
Bank Of New York Inc. .............................................. 65,400 3,392,625
Nations Bank Corporation............................................ 23,200 1,711,000
------------
20,935,963
------------
BUILDING RELATED/APPLIANCE -- 0.5%
Fleetwood Enterprises............................................... 46,700 1,255,063
------------
BUSINESS EQUIPMENT/SERVICES -- 2.6%
Cisco Systems....................................................... 69,900 3,320,250
Hewlett Packard Co. ................................................ 37,400 3,768,050
------------
7,088,300
------------
CHEMICALS -- 3.2%
Eastman Chemical Co. ............................................... 35,700 2,570,400
Morton International,Inc. .......................................... 31,600 1,196,850
E.I. Du Pont De Nemours & Co. ...................................... 29,500 2,256,750
Monsanto Corp. ..................................................... 20,000 2,692,500
------------
8,716,500
------------
CONSUMER STAPLES -- 7.8%
Coca-Cola Co. ...................................................... 54,400 4,392,800
Conagra Inc. ....................................................... 54,800 2,308,450
Pepsico Inc. ....................................................... 105,700 6,685,525
Philip Morris Cos, Inc. ............................................ 57,900 5,732,100
Sara Lee Corp. ..................................................... 70,300 2,275,963
------------
21,394,838
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
21
<PAGE> 24

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 4.6%
Johnson & Johnson................................................... 42,700 $ 3,992,450
Newell Co. ......................................................... 59,200 1,642,800
Bay Networks........................................................ 25,300 1,027,813
Clorox Co. ......................................................... 21,200 1,796,700
Avon Products Inc. ................................................. 26,300 2,113,863
Premark Intl., Inc. ................................................ 38,500 2,016,437
------------
12,590,063
------------
DIVERSIFIED MANUFACTURING -- 3.7%
General Electric Co. ............................................... 72,300 5,458,650
United Technologies Corp. .......................................... 44,600 4,794,500
------------
10,253,150
------------
DRUGS BIOTECHNOLOGY -- 5.5%
Medronic Inc. ...................................................... 47,200 2,708,100
Bristol-Meyers...................................................... 52,800 4,494,600
Schering Plough Corp. .............................................. 63,400 3,558,325
Pfizer, Inc. ....................................................... 64,600 4,255,525
------------
15,016,550
------------
ELECTRIC UTILITIES -- 3.5%
Unicom Corp. ....................................................... 75,300 2,409,600
FPL Group, Inc. .................................................... 41,300 1,843,013
General Public Utilities Corp. ..................................... 80,800 2,696,700
DTE Energy Co. ..................................................... 78,400 2,793,000
------------
9,742,313
------------
ELECTRICAL & OTHER ELEC EQUIPMENT -- 0.5%
Applied Materials, Inc. ............................................ 35,100 1,254,825
------------
ELECTRONIC COMPUTERS -- 3.3%
Intel Corp. ........................................................ 37,600 2,211,350
Compaq Computer Corp. .............................................. 42,600 2,156,625
Oracle Corp. ....................................................... 57,900 3,010,800
Sun Microsystems Inc. .............................................. 29,500 1,548,750
------------
8,927,525
------------
ENERGY RELATED -- 0.9%
Halliburton Co. .................................................... 44,200 2,425,475
------------
ENTERTAINMENT -- 0.4%
King World Productions, Inc. Ltd.................................... 26,500 1,109,688
------------
FINANCIAL SERVICES -- 1.1%
Travelers Group..................................................... 44,800 2,996,000
------------
FOODS -- 1.2%
Campbell Soup Co. .................................................. 53,200 3,285,100
------------
FOREST PRODUCTS -- 1.5%
Bemis Co. Inc. ..................................................... 37,800 1,157,625
Kimberly-Clark Corp. ............................................... 40,400 3,085,550
------------
4,243,175
------------
GAS UTILITIES -- 0.9%
Pacific Enterprises, Inc. .......................................... 93,800 2,509,150
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
22
<PAGE> 25

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
HEALTH CARE -- 1.6%
Merck & Co., Inc. .................................................. 64,700 $ 4,286,375
------------
HOSPITAL MANAGEMENT -- 1.2%
Columbia Healthcare Corp. .......................................... 24,400 1,335,900
United Healthcare Corp. ............................................ 30,000 1,957,500
------------
3,293,400
------------
HOSPITAL SUPPLY -- 0.8%
Becton Dickinson & Co. ............................................. 28,400 2,328,800
------------
INDUSTRIAL SERVICES -- 0.6%
Fluor Corp. ........................................................ 26,600 1,785,525
------------
INSURANCE -- 1.6%
Aetna Life & Casualty Co. .......................................... 8,100 612,562
Allstate............................................................ 64,497 2,765,309
ITT Hartford Group Inc. ............................................ 21,400 1,102,100
------------
4,479,971
------------
INTERNATIONAL OIL -- 3.3%
Atlantic Richfield Co. ............................................. 20,300 2,222,850
Mobil Corp. ........................................................ 61,700 6,763,863
------------
8,986,713
------------
LEISURE -- 0.9%
Walt Disney Co. .................................................... 38,400 2,515,200
------------
MACHINERY -- 0.7%
Ingersoll Rand Co. ................................................. 49,400 2,019,225
------------
MEDIA -- 1.6%
Capital Cities/ABC, Inc. ........................................... 23,900 3,029,325
Gannett, Inc. ...................................................... 22,400 1,523,200
------------
4,552,525
------------
METALS -- 1.4%
Nucor Corp. ........................................................ 36,600 1,971,825
Phelps Dodge Corp. ................................................. 30,800 1,882,650
------------
3,854,475
------------
MULTI INDUSTRY -- 2.0%
Textron............................................................. 25,300 1,992,375
Honeywell Inc. ..................................................... 65,900 3,492,700
------------
5,485,075
------------
MULTI INSURANCE -- 1.1%
Providian Corp. .................................................... 69,100 3,195,875
------------
OIL - DOMESTIC & CRUDE -- 3.0%
Exxon Corp. ........................................................ 57,600 4,579,200
Amoco Corp. ........................................................ 53,200 3,697,400
------------
8,276,600
------------
PETROLEUM REFINING -- 1.4%
Royal Dutch Petroleum Co. .......................................... 27,600 3,801,900
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
23
<PAGE> 26

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
PROPERTY CASUALTY INSURANCE -- 0.6%
Safeco. Corp. ...................................................... 50,500 $ 1,830,625
------------
PUBLISHING -- 0.6%
New York Times Co. ................................................. 63,800 1,754,500
------------
RAIL/TRUCKING FREIGHT -- 1.3%
Norfolk Southern Corp. ............................................. 42,800 3,488,200
------------
RESTAURANTS/LODGING -- 1.7%
McDonald's Corp. ................................................... 38,500 1,925,000
Marriott International Inc. ........................................ 30,900 1,517,963
ITT Corp. .......................................................... 21,400 1,292,025
------------
4,734,988
------------
RETAIL -- 3.9%
Home Depot, Inc. ................................................... 52,400 2,266,300
Sears Roebuck & Co. ................................................ 104,700 4,750,762
Gap, Inc. .......................................................... 67,500 3,619,688
------------
10,636,750
------------
RETAIL FOOD & DRUG -- 1.0%
American Stores Co. ................................................ 98,500 2,868,813
------------
SECURITIES, BROKERS & DEALERS -- 1.0%
Dean Witter......................................................... 52,500 2,821,875
------------
SOFTWARE SERVICES -- 1.6%
Microsoft Inc. ..................................................... 45,900 4,529,756
------------
TECHNOLOGY -- 2.8%
International Business Machines..................................... 39,900 4,892,738
National Semiconductor Corp. ....................................... 56,400 881,250
Harris Corp. ....................................................... 16,800 1,117,200
Texas Instruments Inc. ............................................. 18,600 927,675
------------
7,818,863
------------
TELEPHONE -- 7.0%
AT & T.............................................................. 67,900 4,320,138
Bellsouth Corp. .................................................... 120,200 4,792,975
GTE Corp. .......................................................... 76,400 3,275,650
Nynex Corp. ........................................................ 59,800 3,079,700
Ameritech Corp. .................................................... 65,600 3,780,200
------------
19,248,663
------------
TELEPHONE & TELEGRAPH APPARATUS -- 1.2%
Sprint Corp. ....................................................... 75,700 3,255,100
------------
Total Common Stocks -- 98.8%
(cost $225,698,360 )................................................ 272,122,328
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
24
<PAGE> 27

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
DESCRIPTION (000) (NOTE 2)
- ---------------------------------------------------------------------- --------- ------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 3.0%
U.S. Treasury Bill 4.62%............................................. 2,230 $ 2,222,273
U.S. Treasury Bill 4.57%............................................. 805 802,241
U.S. Treasury Bill 4.57%............................................. 795 792,275
U.S. Treasury Bill 4.73%............................................. 306 304,633
U.S. Treasury Bill 4.74%............................................. 370 366,840
U.S. Treasury Bill 4.80%............................................. 460 456,072
U.S. Treasury Bill 4.86%............................................. 1,503 1,490,164
U.S. Treasury Bill 4.87%............................................. 347 344,037
U.S. Treasury Bill 4.88%............................................. 349 346,020
U.S. Treasury Bill 4.79%............................................. 1,211 1,200,657
------------
Total U.S. Government Obligations
(cost $8,326,185).................................................... 8,325,212
------------
TOTAL INVESTMENTS -- 101.8% $280,447,540
(COST $234,024,545)
Other Liabilities In Excess Of Assets -- (1.8)% (4,925,266)
------------
NET ASSETS -- 100%.................................................... $275,522,274
============
</TABLE>

- ---------------
See Notes to Financial Statements.
25
<PAGE> 28

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $234,024,545).............. $280,447,540
Cash................................................................ 36,086
Contribution receivable............................................. 1,441,870
Dividends receivable................................................ 603,862
Deferred organization costs and prepaid expenses.................... 42,390
------------
Total assets.......................................................... 282,571,748
------------
LIABILITIES:
Withdrawal payable.................................................. 147,114
Payable for investment securities purchased......................... 6,761,140
Advisor fees payable................................................ 75,382
Administration fees payable......................................... 5,024
Accrued accounting fees............................................. 17,633
Accrued audit fees.................................................. 15,958
Accrued custody fees................................................ 6,624
Accrued legal fees.................................................. 6,707
Other accrued expenses.............................................. 13,892
------------
Total liabilities..................................................... 7,049,474
------------
NET ASSETS............................................................ $275,522,274
============
</TABLE>

- ---------------
See Notes to Financial Statements.
26
<PAGE> 29

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 427,131
Dividends.............................................. 4,764,288
-----------
5,191,419
-----------
EXPENSES:
Advisory fees.......................................... 1,574,388
Administration fees.................................... 104,889
Fund accounting fees and expenses...................... 134,230
Custodian fees and expenses............................ 38,672
Audit fees............................................. 18,423
Legal fees............................................. 12,848
Amortization of organization costs..................... 13,615
Insurance expense...................................... 4,704
Trustees fees.......................................... 3,500
-----------
1,905,269
Less: Fee waivers and expense reimbursements........... (1,242,250) 663,019
----------- -----------
Net Investment Income.................................... 4,528,400
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on securities transactions........... 21,310,546
Net change in unrealized appreciation on investments... 34,689,746
-----------
Net Gain on Investments.................................. 56,000,292
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $60,528,692
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
27
<PAGE> 30

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
BLUE CHIP PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 4,528,400 $ 3,333,204
Net realized gain on securities transactions........... 21,310,546 373,340
Net change in unrealized appreciation/depreciation on
investments.......................................... 34,689,746 7,922,681
------------ ------------
Net increase in net assets resulting from operations... 60,528,692 11,629,225
------------ ------------
Trust Share Transactions:
Contributions.......................................... 96,776,148 33,341,186
Withdrawals............................................ (39,120,232) (21,900,310)
------------ ------------
Net increase in net assets resulting from Trust share
transactions......................................... 57,655,916 11,440,876
------------ ------------
Total Increase........................................... 118,184,608 23,070,101
NET ASSETS
Beginning of year...................................... 157,337,666 134,267,565
------------ ------------
End of year............................................ $275,522,274 $157,337,666
============ ============
</TABLE>

- ---------------
See Notes to Financial Statements.
28
<PAGE> 31

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Blue Chip Portfolio (the "Portfolio") only.

The investment objective of the Portfolio is long term capital appreciation
through investments in blue chip stocks.

Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser. Concord Holding Corporation ("Concord") serves as the
Portfolio's administrator through BISYS Fund Services (Ireland) Ltd., a wholly
owned subsidiary of Concord. Effective March 29, 1995, Concord became a wholly
owned subsidiary of The BISYS Group, Inc. ("BISYS").

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

A) SECURITY VALUATIONS:

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 sales price on the date of valuation or, if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. Securities that are primarily traded on the NASDAQ national
securities market are valued at the last reported sales price on the date of
valuation or, if none is available, at the last quoted bid price on the date of
valuation. The Portfolio may use an independent pricing service, approved by the
Board of Trustees, to value certain of its securities. Such prices reflect
market values which may be established through the use of electronic data
processing techniques and matrix systems. Restricted securities and securities
for which market quotations are not readily available, if any, are valued at
fair value using methods approved by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost

29
<PAGE> 32

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

B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including accretion of discount and amortization of
premium, is accrued daily. Dividend income is recorded on the ex-dividend date.

C) EXPENSES:

Expenses directly attributable to the Portfolio are charged to the Portfolio
while Trust expenses attributable to more than one portfolio of the Trust and
general Trust expenses are allocated among the respective portfolios of the
Trust.

D) FEDERAL INCOME TAXES:

The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with Concord.

As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.75% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived $1,164,328 in fees as Adviser of the Portfolio.

As Administrator, Concord assists in supervising the operations of the
Portfolio. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.05% of the Portfolio's average daily net
assets. For the year ended February 29, 1996, Concord waived $77,922 in fees as
Administrator of the Portfolio.

For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $12,848
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.

30
<PAGE> 33

NOTE 4 -- SECURITIES TRANSACTIONS

During the year ended February 29, 1996, the Portfolio purchased and sold
portfolio securities, excluding short-term securities, in the amount of
$283,161,200 and $219,320,666, respectively.

At February 29, 1996, the cost of the securities of the Portfolio for
federal income tax purposes was substantially the same as for financial
reporting purposes. Accordingly net unrealized appreciation of investments
amounted to $46,422,995 consisting of gross unrealized appreciation of
$48,183,393 and gross unrealized depreciation of $1,760,397.

31
<PAGE> 34

MASTER INVESTMENT TRUST, SERIES I --
BLUE CHIP PORTFOLIO
- --------------------------------------------------------------------------------
Supplementary Data
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.31% 0.17% 0.27%***
Ratio of net investment income to average
net assets**............................. 2.16% 2.30% 1.97%***
Portfolio Turnover......................... 108% 44% 86%
<FN>

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

* For the period December 6, 1993 (commencement of operations) through
February 28, 1994.

** Net of fee waivers which 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 0.59%, 0.80% and 0.80% (annualized) for the periods
ended February 29, 1996, February 28, 1995 and February 28, 1994,
respectively.

*** Annualized.
</TABLE>

See Notes to Financial Statements.
32
<PAGE> 35

MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Trustees
and Investors of
Master Investment Trust, Series I

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Blue
Chip Portfolio (the "Portfolio") at February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the supplementary data for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

33
<PAGE> 36

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

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

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

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

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

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

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

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

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

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

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

PACIFIC HORIZON FUNDS

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

Additional Comments:

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

- NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 37
P
A
C
I
Bulk Rate F
U.S. Postage I
PAID C
Cleveland, OH
Permit No. 1 H
O
R
I
Z
O
N

G
R
O
W
T
H

F
U
N
D
[PACIFIC HORIZON FUNDS LOGO] S

Concord Financial Group, Inc. Distributor

COPBLCP96A
<PAGE> 38
P
A
C PACIFIC HORIZON TAX-EXEMPT INCOME FUNDS
I
F ANNUAL REPORT
I
C February 29, 1996

H
O
R
I National Municipal Bond Fund
Z
O
N

T Investing For All
A The Times Of Your Life
X
- -
E
X
E
M
P
T

I
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C
O
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E

F
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S NOT FDIC INSURED

<PAGE> 39

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

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

ADMINISTRATOR
Concord Holding Corporation
3435 Stelzer Road
Columbus, OH 43219

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

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

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

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

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

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

<PAGE> 40

Contents

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3

UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6

ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 7

INTERVIEW WITH YOUR
INVESTMENT MANAGER 8-11

PACIFIC HORIZON NATIONAL MUNICIPAL
BOND FUND

Statement of Assets
and Liabilities 12

Statement of Operations 13

Statements of Changes
in Net Assets 14

Notes to Financial Statements 15-18

Financial Highlights 19

Report of Independent Accountants 20

MASTER INVESTMENT TRUST, SERIES
II -- NATIONAL MUNICIPAL BOND
PORTFOLIO

Portfolio of Investments 21-25

Statement of Assets
and Liabilities 26

Statement of Operations 27

Statements of Changes
in Net Assets 28

Notes to Financial
Statements 29-31

Supplementary Data 32

Report of Independent Accountants 33
</TABLE>

<PAGE> 41

PACIFIC HORIZON FUND FACTS

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

- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
- -------------------------------------------------------------------------------------
<FN>
* Certain investors may be subject to the federal alternative minimum tax and to
certain state and local taxes.

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

2
<PAGE> 42

With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your investment
specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- -----------------------------------------------------------------------------------------------
<S> <C>
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double-tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.

Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
- -----------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE> 43

UNDERSTANDING YOUR SHAREHOLDER REPORT

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

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

[GRAPHIC]

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

[GRAPHIC]

In annual reports, mutual funds, which are not "money market" funds, are
required by the Securities and Exchange Commission (SEC) to provide
shareholders with a comparison of a hypothetical $10,000 investment in the Fund
to a benchmark of the broader market. The performance of the benchmark index
depicts the aggregate performance of investments similar to those in the Fund
for the same time period. While the benchmark index provides a general
representation of the market, there are two reasons why it should be used only
as a guide. First, the Fund, in its prospectus, must clearly define which
investments can be made by the Fund. The index does not necessarily have the
same limitations. Second, the index does not reflect any expenses that
accompany a real investment, such as sales charges, management fees,
portfolio transaction

[GRAPHIC]

4
<PAGE> 44

costs or the cash reserves required to provide daily liquidity. The performance
of the Fund must show these costs as well as any front-end or deferred sales
charges.

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

[GRAPHIC]

TYPE OF SECURITY

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

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

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

[GRAPHIC]

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

SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

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

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

5
<PAGE> 45

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

[GRAPHICS]

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

OPERATING EXPENSES INCURRED BY THE FUND DURING THE PERIOD

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

NET CHANGE IN NET ASSETS DUE TO FUND OPERATIONS

[GRAPHICS]

OPERATIONS: SEE STATEMENT OF OPERATIONS

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

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

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

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

6
<PAGE> 46

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

FUNDAMENTAL ECONOMIC
STRENGTHS

ASSET ALLOCATION KEY
TO PERFORMANCE

LOOKING AHEAD

7
<PAGE> 47

PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND

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

GOAL:

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

INVESTMENTS:

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

APPROPRIATE FOR:

Investors seeking monthly interest income exempt from federal income tax.

INCEPTION:

January 28, 1994

SIZE OF FUND AS OF
FEBRUARY 29, 1996:

Over $12 million

Q
WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE PERIOD?

A
The 12 months ended February 29, 1996, were a good time to be invested in
bonds. Interest rates fell during most of the period as the economy slowed
faster than most people expected. The biggest gains occurred in funds that held
longer-term issues. Prices of longer-term bonds typically rise more than those
of short-term bonds when interest rates fall.

The Fund's average maturity at the start of the period was about equal to the
average maturity of its benchmark, the Lehman Brothers Municipal Bond Index. But
when bond prices temporarily declined during the summer, we used the opportunity
to lock in higher yields by purchasing more long-term issues. That decision
helped the Fund's performance when rates fell again. By December, however, bond
prices had climbed sharply, and the risk of a bond market correction seemed
higher. The Fund took advantage of this opportunity by reducing the Fund's
average maturity to help maintain price stability.

For the 12 months ended February 29, 1996, the Fund had a total return of 11.16%
(without the sales charge), outperforming the Lehman Brothers Municipal Bond
Index, which was up 11.05% for the period.+

Q
WHAT ABOUT THE FUND'S FOCUS ON CREDIT QUALITY?

A
As the Fund's average maturity was reduced in January and February of 1996,
its exposure was increased to lower-quality, investment-grade issues rated A-
and BBB. The higher yields from those securities helped make up for the slight
loss in income caused by shortening the average maturity of the Fund. Despite
this

8
<PAGE> 48

shift, the Fund contains only investment-grade securities, and the overall
credit quality of the securities in the portfolio remained around AA-.

Q WHAT OTHER SECURITIES DID THE FUND HOLD?

A The Fund continued to emphasize revenue bonds, which are backed by revenues
from specific municipal projects. Revenue bonds typically pay higher yields than
general obligation bonds (GOs), which draw on the taxing power of the issuer to
cover principal and interest payments.

Q AREN'T REVENUE BONDS
RISKIER?

A Not always. Bonds backed by revenues from essential services such as
supplying municipal water often can rely on consistent revenues even when the
economy is struggling. By contrast, the taxing power of GOs can be strongly
affected by economic conditions.

Q WHAT ARE EXAMPLES OF REPRESENTATIVE REVENUE BONDS IN THE
PORTFOLIO?

A Two of the Fund's three largest holdings were industrial revenue bonds. They
were issued by communities to promote development or help a company finance
pollution control equipment; however, the real borrower is the corporation. For
example, we held Maury County Tennessee industrial revenue bonds with a 6.5%
coupon, due 2024 and rated A- by Standard & Poor's. The bonds are backed by
Saturn Corporation, a subsidiary of General Motors. The Fund's largest holding
is a pollution control bond issued by Lower Neches Valley Authority, Texas, with
a 5.65% coupon; the bond is due in 2029 and rated AA. This bond is backed by
Mobil Oil Corp. (As of February 29, 1996, the former bond accounted for 4.23% of
net assets; the latter accounted for 4.71%.++)

Q DID DISCUSSIONS OF A FLAT TAX HURT THE FUND?

A Early in the period, investors were concerned that some version of a flat
tax could eventually eliminate the tax advantages of municipal bonds. Those
fears grew as Steve Forbes' presidential campaign temporarily flourished. But
concerns diminished late in the period, and municipal bonds recovered some of
the ground they had lost to taxable issues.

Q WHAT'S AHEAD FOR THE FUND AND THE MUNICIPAL MARKET?

A It seems likely that the economy will continue to grow modestly, and
interest rates should be relatively stable. That means we will continue to
maintain a relatively neutral average maturity for the Fund's portfolio (that
is, we'll try to match the average maturity of our benchmark index). We'll
adjust our holdings to take advantage of opportunities if bond prices
decline -- or to reduce the Fund's risk if long-term municipal bonds seem
overvalued.

- ---------------
+ Fund performance with the 4.50% maximum sales charge was 6.15% for the
period.

++ The composition of the Fund's holdings is subject to change.

9
<PAGE> 49

PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 29, 1996)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

[GRAPH]

<TABLE>
<CAPTION>
LIPPER GENERAL LEHMAN BROTHERS
MEASUREMENT PERIOD MUNICIPAL DEBT MUNICIPAL BOND
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE INDEX
<S> <C> <C> <C>
1/31/94 9552 10000 10000
2/28/94 9437 9532 9741
3/31/94 9129 9115 9344
4/30/94 9194 9148 9424
5/31/94 9281 9230 9505
6/30/94 9214 9171 9447
7/31/94 9363 9334 9620
8/31/94 9395 9358 9654
9/30/94 9271 9206 9512
10/31/94 9098 9029 9343
11/30/94 8931 8839 9174
12/31/94 9154 9053 9376
1/30/95 9438 9320 9644
2/28/95 9700 9593 9924
3/31/95 9808 9698 10039
4/30/95 9815 9698 10050
5/31/95 10138 9998 10371
6/30/95 10041 9887 10280
7/31/95 10139 9951 10378
8/31/95 10269 10059 10509
9/30/95 10345 10121 10576
10/31/95 10508 10275 10730
11/30/95 10721 10471 10908
12/31/95 10830 10589 11013
1/31/96 10886 10642 11020
2/29/96 10782 10560 11026
</TABLE>

HOW PERFORMANCE COMPARES

The chart compares the Pacific Horizon National Municipal Bond Fund to the
Lehman Brothers Municipal Bond Index, which is an unmanaged index typically used
as a performance benchmark for municipal debt investments. The hypothetical
investment in the Lehman Brothers Municipal Bond Index does not reflect any
sales or management fees that would be incurred if an investor were to actually
purchase individual securities or mutual funds, while the performance of the
Fund reflects all expenses and management fees and the effect of the maximum
sales charge.

<TABLE>
<CAPTION>
- ------------------------------
AVERAGE ANNUAL RETURN
---------------------------
<S> <C>
1 year: 6.15%
..............................
Since inception
(1/28/94): 3.77%
- ------------------------------
</TABLE>

The Fund fared well compared to municipal debt funds. The average of municipal
debt funds as tracked by Lipper Analytical Services, Inc. measures the
performance of other funds with investment objectives and policies similar to
those of the Pacific Horizon National Municipal Bond Fund. An initial $10,000
investment in the Fund made on January 31, 1994 would now be worth $10,782,
while the same investment made in the Lipper General Municipal Debt Funds
Average would be worth $10,560.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.

The advisor and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing expenses for the Fund. If the adviser and administrator had
not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.

Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.

Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization.

Neither the Lipper General Municipal Debt Funds Average nor the Lehman Brothers
Municipal Bond Index may be invested in directly.

10
<PAGE> 50
PACIFIC HORIZON
NATIONAL MUNICIPAL BOND FUND
(AS OF FEBRUARY 29, 1996)

TAX-EXEMPT INCOME
A Monthly Opportunity

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

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

* Bond Buyer Municipal Index and Merrill Lynch Corporate Bond Index, as reported
in The Wall Street Journal, February 29, 1996.

TAXABLE EQUIVALENT YIELD:
THE INCOME YOU CAN KEEP

Tax-Exempt Yield on
$100,000 at 5.92%*

Taxable Yield on
$100,000 at 6.94%*

<TABLE>
<S> <C>
You Keep $4789
Uncle Sam Takes $2151
</TABLE>

<TABLE>
<CAPTION>
1996 FEDERAL TAX RATES+
- ------------------------------------------------------------------
28% 31% 36% 39.6%
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joint $40,100 $96,900 $147,700 Over
Return: $96,900 $147,700 $263,750 $263,750
..................................................................
Single $24,000 $58,150 $121,300 Over
Return: $58,150 $121,300 $263,750 $263,750
- ------------------------------------------------------------------

</TABLE>

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

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

+ Source: Internal Revenue Service.
* Certain investors may be subject to the federal alternative minimum tax or
certain state and local taxes. Shareholders should consult with a tax adviser.

11
<PAGE> 51
<TABLE>
<CAPTION>

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

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------------

<S> <C>
ASSETS:
Investment in Master Investment Trust, Series II -- National
Municipal Bond Fund, at value...................................... $12,308,474
Receivable for Portfolio shares sold................................. 4,058
Deferred organization costs.......................................... 39,233
Prepaid expenses..................................................... 15,670
-----------
Total assets........................................................... 12,367,435
-----------
LIABILITIES:
Dividends payable.................................................... 12,879
Payable for Portfolio shares redeemed................................ 15,220
Other accrued expenses............................................... 96,933
-----------
Total liabilities...................................................... 125,032
-----------
NET ASSETS............................................................. $12,242,403
===========
Shares Outstanding ($0.001 par value, 100 million shares authorized)... 1,205,801
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value and redemption price per share....................... $10.15
Sales charge -- 4.50% of public offering price....................... 0.48
-----
Maximum Offering Price............................................... $10.63
-----
-----
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 1,206
Additional paid-in capital........................................... 11,947,183
Accumulated net realized gains on investments........................ 19,191
Net unrealized appreciation of investments........................... 274,823
-----------
NET ASSETS, FEBRUARY 29, 1996.......................................... $12,242,403
===========
</TABLE>

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

12
<PAGE> 52

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

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series II --
National Municipal Bond Portfolio:
Interest................................................... $ 377,593
Expenses................................................... $ 169,773
Less: Fee waivers and expense reimbursements............... (169,773) --
--------- --------
Net Investment Income from Master Investment Trust, Series
II -- National Municipal Bond Portfolio.................... 377,593
--------
EXPENSES:
Administration fees........................................ 10,543
Shareholder service fees................................... 17,571
Custodian fees and expenses................................ 1,685
Audit fees................................................. 6,634
Legal fees................................................. 33,877
Directors' fees............................................ 2,910
Amortization of organization costs......................... 15,899
Registration fees.......................................... 32,082
Other expenses............................................. 69,749
---------
190,950
Less: Fee waivers and expense reimbursements............... (182,614) 8,336
--------- --------
Net Investment Income........................................ 369,257
--------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES II -- NATIONAL MUNICIPAL BOND
PORTFOLIO:
Net realized gains on securities transactions.............. 22,823
Net change in unrealized appreciation of investments....... 288,587
--------
Net Gain on Investments...................................... 311,410
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................ $ 680,667
========
</TABLE>

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

13
<PAGE> 53

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

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

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................. $ 369,257 $ 96,048
Net realized gains (losses) on securities
transactions..................................... 22,823 (3,632)
Net change in unrealized appreciation
(depreciation) of investments.................... 288,587 (6,586)
----------- ----------
Net increase in net assets resulting from
operations....................................... 680,667 85,830
----------- ----------
Dividends to shareholders from net investment
income............................................. (369,257) (96,048)
----------- ----------
Fund Share Transactions:
Net proceeds from shares subscribed................ 10,755,826 2,199,107
Net asset value of shares issued to shareholders in
reinvestment of dividends........................ 279,903 73,453
Cost of shares redeemed............................ (1,624,728) (475,483)
----------- ----------
Net increase in net assets from Fund share
transactions..................................... 9,411,001 1,797,077
----------- ----------
Total Increase....................................... 9,722,411 1,786,859
NET ASSETS:
Beginning of year.................................. 2,519,992 733,133
----------- ----------
End of year........................................ $12,242,403 $2,519,992
=========== ==========
</TABLE>

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

14
<PAGE> 54

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

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Pacific Horizon Funds, Inc. (the "Company"), a Maryland Corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Company
operated as a series company comprising fifteen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon National
Municipal Bond Fund (the "Fund") only. The Fund seeks to achieve as high a level
of current income exempt from Federal income tax as is consistent with prudent
investment management and preservation of capital.

The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the National Municipal Bond Portfolio of
Master Investment Trust, Series II (the "Trust"), an open-end management
investment company that has the same investment objective as that of the Fund.
The value of the Fund's investment in the Trust included in the accompanying
statement of assets and liabilities reflect the Fund's proportionate beneficial
interest in the net assets of the Trust (100% at February 29, 1996). The
financial statements of the Trust, including its portfolio of investments, are
included elsewhere within this report and should be read in conjunction with the
Fund's financial statements.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

A) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:

The Fund records its shares of the investment income, expenses and realized
and unrealized gains and losses recorded by the Trust on a daily basis. The
investment income, expenses and realized and unrealized gains and losses are
allocated daily to investors in the Trust based upon the relative values of
their investments in the Trust. Such investments are adjusted on a daily basis.
For the year ended February 29, 1996, the Fund was the only inves-

15
<PAGE> 55

tor in the Trust. The valuation of securities by the Trust is discussed in Note
2 to the Trust's financial statements.

Expenses directly attributable to the Fund are charged to the Fund while
Company expenses attributable to more than one fund of the Company are allocated
among the respective funds.

B) DIVIDENDS TO SHAREHOLDERS:

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

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

C) FEDERAL INCOME TAXES:

It is the policy of the Fund to continue to qualify as a regulated
investment company which can distribute tax-exempt dividends by complying with
the requirements of the Internal Revenue Code applicable to regulated investment
companies, including the requirement that it distribute substantially all of its
net investment income to its shareholders. Therefore, no provision for federal
income taxes is required.

During the year ended February 29, 1996, the Fund utilized its net capital
loss carryover of $3,632.

D) OTHER:

The Fund incurred costs in connection with its organization of $68,467. Such
costs have been deferred and are being amortized.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor. Pursuant to the terms of the Administration
Agreement, Concord is entitled to a fee from the Fund, which is accrued daily
and payable monthly, at an annual rate of 0.15% of the Fund's average daily net
assets. For the year ended February 29,

16
<PAGE> 56

1996, Concord agreed to waive its entire fee as Administrator. Total fee waivers
and expense reimbursements by Concord for the year totaled $182,614.

During the year ended February 29, 1996, the Distributor advised the Fund
that it retained $40,099 from commissions earned on sales of the Fund's shares.
During the same period, Bank of America and its affiliates advised the Fund that
they retained $325,350 from commissions earned on sales of the Fund's shares.

The Fund has adopted a Shareholder Service Plan (the "Plan") under which the
Fund pays the Distributor for shareholder servicing expenses related to shares
of the Fund. Under the Plan, payments by the fund for shareholder servicing
expenses may not exceed 0.25% (annualized) of the Fund's average daily net
assets. For the year ended February 29, 1996, the Distributor waived all
shareholder servicing fees. The Plan provides that if, in any month, the fees
paid to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs are incurred.

Effective December 11, 1995, BISYS Fund Services, Inc., a wholly owned
subsidiary of BISYS, serves the Fund as transfer agent and dividend disbursing
agent. In this capacity for the portfolio, BISYS Fund Services, Inc. earned
$5,130 for the period from December 11, 1995 through February 29, 1996. Prior to
December 11, 1995, an unaffiliated party provided these services.

For the year end February 29, 1996, the Fund incurred legal charges totaling
$33,877 which were earned by a law firm, a partner of which serves as Secretary
of the Fund. Certain officers of the Fund are "affiliated persons" (as defined
in the Act) of BISYS.

NOTE 4 -- DIRECTORS' COMPENSATION

Each director of the Company is entitled to an annual retainer of $25,000
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives an annual
retainer of $1,000 for services as Chairman of the Committee. In addition, the
Company's President is entitled to an annual salary of $20,000 for services as
President. The former President and Chairman of the Fund receives an additional
$40,000 per year through February 28, 1997 in consideration for his years of
service.

The Board also has established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that Director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
the Directors of the Fund during the year of such payment. A Director who dies
or resigns after nine years of service as

17
<PAGE> 57

a director will be entitled to receive ten annual payments equal to the greater
of: (i) 100% of the annual Director's retainer that was payable during the year
of that Director's death or resignation, or (ii) 100% of the annual Director's
retainer then in effect for Directors of the Fund during the year of such
payment. In addition, the amount payable each year to a Director who dies or
resigns shall be increased by $1,000 for each year of services that the Director
served as Chairman of the Board. Each Director may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum
payment or ten annual installments. A Director's years of service for the
purpose of calculating the payments described above shall be based upon service
as a Director or Chairman after February 28, 1994. Aggregate costs to the Fund
pursuant to the Retirement Plan amounted to $23 for the year ended February 29,
1996. Total charges for directors' fees incurred for the year ended February 29,
1996 were $2,910.

NOTE 5 -- CAPITAL SHARE TRANSACTIONS

At February 29, 1996 there were 200 billion shares of the company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class Q Common Stock (National Municipal Bond Fund).

Transactions in shares of common stock of the Fund were as follows (000's
omitted):

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares subscribed.... 1,077 230
Shares issued in
reinvestment of
dividends and
distributions....... 28 8
Shares redeemed...... (161) (51)
----- -----
Net increase......... 944 187
===== =====
</TABLE>

NOTE 6 -- SUBSEQUENT EVENT

On April 24, 1996, the Board of Trustees of Master Investment Trust, Series
II -- National Municipal Bond Portfolio voted to approve the reorganization of
the Portfolio whereby all of the assets and liabilities of the Portfolio would
be transferred to the Pacific Horizon National Municipal Bond Fund. Following
the reorganization, the Adviser would enter into a new Investment Advisory
Agreement with the Fund with substantially the same terms and conditions.
Certain other contracts with service providers require the approval of the Board
of Directors of the Fund.

18
<PAGE> 58

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

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

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value per share, beginning of
year.................................. $ 9.64 $ 9.89 $ 10.00
------- ------ -------
Income (loss) from Investment
Operations:
Net investment income................. 0.54 0.50 0.01
Net realized and unrealized gains
(losses) on securities.............. 0.51 (0.25) (0.11)
------- ------ -------
Total income (loss) from investment
operations.......................... 1.05 0.25 (0.10)
------- ------ -------
Less dividends from net investment
income................................ (0.54) (0.50) (0.01)
------- ------ -------
Net change in net asset value........... 0.51 (0.25) (0.11)
------- ------ -------
Net asset value per share, end of
year.................................. $ 10.15 $ 9.64 $ 9.89
======= ====== =======
Total return (excludes sales charge).... 11.16% 2.78% (1.00)%+

Ratios/Supplemental Data:

Net assets, end of year (000)......... $ 12,242 $2,520 $ 733

Ratio of expenses to average net
assets (with fee waivers and/or
reimbursements)..................... 0.12% 0.00% 0.00%***

Ratio of net investment income to
average net assets (with fee waivers
and/or reimbursements).............. 5.24% 5.30% 1.15%***

Ratio of expenses to average net
assets (without fee waivers and/or
reimbursements)**................... 2.71% 17.46% 170.99%***

Ratio of net investment income (loss)
to average net assets (without fee
waivers and/or reimbursements)**.... 2.65% (12.16)% (169.84)%

Portfolio turnover.................... 38% 20% 15%
<FN>
- ---------------

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

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

*** Annualized.

+ Not annualized.
</TABLE>

See Notes to Financial Statements.

19
<PAGE> 59

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

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Pacific Horizon National Municipal Bond Fund (one of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
29, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 22, 1996, except for Note 6 as to which date is April 24, 1996

- --------------------------------------------------------------------------------
INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
------------------------------------------------------
Pacific Horizon Funds, Inc. -- National Municipal Bond Fund has determined
that all dividends paid during the year ended February 29, 1996 were paid
from net investment income. As such, all dividends paid are exempt from
Federal income tax.
- --------------------------------------------------------------------------------

20
<PAGE> 60

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- 98.4%
ALASKA -- 0.2%
Anchorage Alaska Telephone Revenue
(MBIA Insured)..................... Aaa/AAA 5.25% 5/01/00 $ 25 $ 25,875
-----------
CALIFORNIA -- 9.3%
California Health Facilities
Financing Revenue, Ponoma Valley
Hospital Medical Center (MBIA
Insured)........................... Aaa/AAA 6.75% 1/01/07 250 272,808
California Public Works Board Lease
Revenue 1994, Community College
Project, Series A.................. A/A 5.65% 10/01/06 50 52,187
California State Department of
Veterans Affairs Home Purchase
Revenue, Series A (AMT)............ Aa/A+ 7.38% 8/01/12 30 30,912
Foothill Eastern Transportation
Corridor Agency, California Toll
Road Revenue Senior Lien,
Series A........................... Baa/BBB- 6.00% 1/01/34 150 143,438
Foothill Eastern Transportation
Corridor Agency, California Toll
Road Revenue Senior Lien,
Series A........................... Baa/BBB- 5.00% 1/01/35 400 330,000
Los Angeles (Prerefunded 12/01/01
@102) (MBIA Insured)............... Aaa/AAA 6.80% 12/01/06 50 57,188
Los Angeles Certificate of
Participation...................... A/A+ 5.40% 6/01/03 75 76,219
Southern California Public Power
Authority, Series A................ A1/AA- 6.88% 7/01/15 50 51,187
Stockton California Health, St.
Joseph's Hospital, Palo Verde
Proj., Series A.................... A/A- 6.70% 6/01/15 50 50,626
West Covina, Certificate of
Participation, Queen of The Valley
Hospital........................... A/A 6.50% 8/15/24 75 76,969
-----------
1,141,534
-----------
COLORADO -- 2.4%
Lower Colorado River Authority
Revenue, (AMBAC Insured)........... Aaa/AAA 6.00% 1/01/17 50 51,125
Pueblo County Single Family
Mortgage........................... NR/AA- 6.85% 12/01/25 240 248,700
-----------
299,825
-----------
CONNECTICUT -- 0.6%
Connecticut State Clean Water
Revenue............................ Aaa/AA+ 5.65% 6/01/10 75 77,813
-----------
</TABLE>

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

21
<PAGE> 61

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA -- 0.4%
District of Columbia Refunding
General Obligation, Series B3 (MBIA
Insured)........................... Aaa/AAA 5.10% 6/01/03 $ 50 $ 50,750
-----------
FLORIDA -- 5.1%
Florida State Board of Education,
Capital Outlay Public Education,
Series B........................... Aa/AA 5.88% 6/01/25 300 304,500
Florida State Board of Education,
Capital Outlay Public Education,
Series A........................... Aa/AA 6.10% 6/01/24 75 78,281
Jacksonville Electric Authority
Revenue, St. John's River, Issue 2,
Series 9........................... Aa1/AA 5.25% 10/01/21 255 240,338
-----------
623,119
-----------
GEORGIA -- 0.9%
Georgia Municipal Electric Authority,
Power Authority, Series V (MBIA
Insured)........................... Aaa/AAA 6.40% 1/01/06 100 111,500
-----------
HAWAII -- 0.9%
Maui County, General Obligation Bond
(FGIC Insured)..................... Aaa/AAA 6.00% 12/15/05 100 110,125
-----------
IDAHO -- 0.8%
Idaho Health Facility Authority...... Aa2/NR 3.40% 5/01/22 100 100,000
-----------
ILLINOIS -- 14.9%
Chicago, Illinois O'Hare
International Airport, Series A.... A1/A+ 4.80% 1/01/05 500 489,375
Cook County, Series B (FGIC
Insured)........................... Aaa/AAA 5.50% 11/15/22 300 288,750
Illinois Health Facility Authority
Revenue, Series B.................. A1/NR 3.65% 1/01/20 500 500,000
Illinois Health Facility Authority
Revenue Dupage, Series 90.......... A1/NR 3.65% 11/01/20 100 100,000
Illinois Health Facility Authority
Revenue Edward Hospital,
Series A........................... A/A 6.00% 2/15/19 75 73,875
Illinois Health Facility Authority
Revenue, Illinois Masonic Medical
Center, Series A................... A/A- 7.60% 10/01/07 300 328,125
Illinois State Sales Tax Revenue,
Series O........................... A1/AAA 6.00% 6/15/18 50 51,125
-----------
1,831,250
-----------
INDIANA -- 5.0%
Bloomington Sewer Works Revenue (MBIA
Insured)........................... Aaa/AAA 5.88% 1/01/25 150 151,500
Indiana Bond Bank Revolving Fund,
Program A.......................... NR/A 6.88% 2/01/12 100 111,125
Indianapolis Local Public Improvement
Revenue............................ Aaa/AAA 7.90% 2/01/07 300 358,875
-----------
621,500
-----------
</TABLE>

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

22
<PAGE> 62

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
KENTUCKY -- 1.8%
Kentucky State Property & Buildings
Refunding, Project No. 55.......... A/A+ 6.00% 9/01/08 $ 200 $ 216,500
-----------
LOUISIANA -- 1.7%
Louisiana State General Obligation
Bond, Series A (MBIA Insured)...... Aaa/AAA 5.38% 8/01/05 200 210,250
-----------
MASSACHUSETTS -- 0.8%
Massachusetts State Water Resource
Authority, Series C................ A/A 5.25% 12/01/20 100 94,375
-----------
MINNESOTA -- 3.9%
Northern Municipal Power Agency,
Series A........................... A/A 7.25% 1/01/16 445 475,594
-----------
MISSISSIPPI -- 4.1%
Hattiesburg, Mississippi Water &
Sewer (AMBAC Insured).............. Aaa/AAA 5.25% 8/01/07 500 508,125
-----------
NEBRASKA -- 1.8%
Omaha Public Power District Electric
Revenue, Series A.................. Aa/AA 5.10% 2/01/03 50 51,688
Omaha Public Power District Electric
Revenue, Series C.................. Aa/AA 5.50% 2/01/14 175 176,750
-----------
228,438
-----------
NEVADA -- 4.0%
Clark County Passenger Facilities
Charge, Las Vegas/Macarran
International Airport, Series A
(MBIA Insured) (AMT)............... Aaa/AAA 5.75% 7/01/23 500 490,000
-----------
NEW JERSEY -- 4.4%
New Jersey Economic Development
Authority, Market Transition
Facilities Revenue, Series A
(MBIA Insured)..................... Aaa/AAA 5.70% 7/01/05 150 160,125
New Jersey State Turnpike,
Series C........................... Aaa/AAA 6.40% 1/01/07 350 379,313
-----------
539,438
-----------
NEW YORK -- 4.8%
New York City, Industrial Development
Agency, Special Facilities Revenue,
Terminal One Group Assistant
Project (AMT)...................... A/A 6.00% 1/01/15 75 75,563
New York State Energy Research and
Development Authority, Electric
Facility Revenue, Series A (AMT)... A1/A+ 7.75% 1/01/24 65 69,225
New York State Local Government
Assistant Corp., Series B.......... A/A 6.00% 4/01/18 50 51,312
New York State Urban Development
Facilities......................... Baa1/BBB 5.75% 4/01/11 400 398,000
-----------
594,100
-----------
</TABLE>

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

23
<PAGE> 63

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
OHIO -- 0.2%
Ohio Turnpike Revenue Bond, Series
A.................................. A1/AA- 5.30% 2/15/08 $ 25 $ 25,750
-----------
OKLAHOMA -- 0.2%
Grand River Dam Authority Power
Revenue, Series 93................. A/A- 5.88% 6/01/07 25 26,719
-----------
OREGON -- 1.2%
Portland Airport Revenue, Portland
International Airport, Series 10
(FGIC Insured)(AMT)................ Aaa/AAA 5.88% 7/01/15 150 154,500
-----------
PENNSYLVANIA -- 6.9%
Pennsylvania State General Obligation
Bonds, First Series................ A1/AA- 4.88% 5/01/02 250 255,937
Philadelphia Airport Revenue (AMBAC
Insured), Series A (AMT)........... Aaa/AAA 5.70% 6/15/07 200 207,000
Philadelphia Wastewater Revenue
(AMBAC Insured).................... Aaa/AAA 5.50% 6/15/07 250 260,313
Pittsburgh Urban Redevelopment
Authority, Home Improvement, Series
A (AMT)............................ A/A 5.65% 8/01/15 20 19,275
Southeastern Pennsylvania
Transportation Authority, Series A
(FGIC Insured)..................... Aaa/AAA 5.63% 3/01/07 100 104,125
-----------
846,650
-----------
PUERTO RICO -- 0.6%
Puerto Rico Electric Power Authority,
Power Revenue, Series T............ Baa1/A- 6.13% 7/01/08 75 79,406
-----------
TENNESSEE -- 4.9%
Humphreys County Tenn. Industrial
Development Board, Solid Waste
Revenue Board, E.I. Du Pont De
Nemours and Co. Project (AMT)...... Aa3/AA- 6.70% 5/01/24 75 81,094
Maury County Industrial Development
Board/Pollution Control Revenue.... NR/A- 6.50% 9/01/24 500 520,625
-----------
601,719
-----------
TEXAS -- 7.8%
Brazos River Authority Special
Facilities Revenue
(FGIC Insured)..................... Aaa/AAA 5.50% 8/15/15 200 197,750
Harris County, Imp. Dist. # 1 General
Obligation Bond
(AMBAC Insured).................... Aaa/AAA 5.63% 9/01/09 75 76,781
Lower Neches Valley River Treatment
Project (AMBAC Insured)............ Aa2/AA 5.65% 2/01/29 600 579,750
Texas Water Development Board
Revenue............................ Aa1/AAA 6.00% 7/15/13 100 104,625
-----------
958,906
-----------
</TABLE>

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

24
<PAGE> 64

<TABLE>
<CAPTION>
MOODY'S/
S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- -------------------------------------- ------------ ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
UTAH -- 1.2%
Intermountain Power Agency, Utah
Power Supply Revenue, Series C..... Aa/AA- 5.25% 7/01/14 $ 150 $ 145,125
-----------
WASHINGTON -- 4.9%
Washington State General Obligation
Bonds (Prerefunded 12/01/98
@ 100)............................. AAA/AAA 7.30% 12/01/99 430 467,625
Washington State General Obligation
Bonds, Series 93A.................. Aa/AA 5.70% 10/01/05 100 107,000
Washington State Public Power Supply,
System Nuclear Project 3, Series
A.................................. Aa/AA 6.50% 7/01/02 25 27,094
-----------
601,719
-----------
WISCONSIN -- 1.8%
Wisconsin State General Obligation
Bond............................... Aa/AA 6.00% 5/01/03 200 219,750
-----------
WYOMING -- 0.9%
Wyoming Community Development
Authority, Single Family Mortgage,
Series G, FHA/VA Mtgs.............. Aa/AA 7.20% 6/01/10 100 107,125
-----------
TOTAL INVESTMENTS
(COST $11,842,657)(a) -- 98.4%....... 12,117,480
Other assets in excess of
liabilities -- 1.6%.................. 190,994
-----------
NET ASSETS -- 100.0%.................. $12,308,474
=============
</TABLE>

- ---------------
Percentages indicated are based on net assets of $12,308,474.

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

<TABLE>
<S> <C>
Unrealized appreciation...................................... $ 301,711
Unrealized depreciation...................................... (26,888)
---------
Net unrealized appreciation.................................. $ 274,823
==========
<FN>

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

AMBAC -- AMBAC Indemnity Corporation.

FGIC -- Financial Guaranty Insurance Company.

MBIA -- Municipal Bond Insurance Association.

NR -- No rating assigned by Moody's or S&P.
</TABLE>

See Notes to Financial Statements.

25
<PAGE> 65

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $11,842,657)............... $12,117,480
Cash................................................................. 63,122
Interest receivable.................................................. 150,792
Receivable for Trust contributions................................... 19,149
Deferred organization costs.......................................... 3,014
-----------
Total assets........................................................... 12,353,557
-----------
LIABILITIES:
Accrued legal fees................................................... 6,362
Other accrued expenses............................................... 38,721
-----------
Total liabilities...................................................... 45,083
-----------
NET ASSETS............................................................. $12,308,474
===========
</TABLE>

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

26
<PAGE> 66

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................... $ 377,593

EXPENSES:
Advisory fees.............................................. $ 24,739
Administration fees........................................ 3,534
Custodian fees and expenses................................ 14,484
Audit fees................................................. 32,232
Legal fees................................................. 33,824
Amortization of organization costs......................... 15,694
Accounting fees............................................ 15,006
Directors' Fees............................................ 25,533
Other expenses............................................. 4,727
---------
169,773
Less: Fee waivers and expense reimbursements................. (169,773) --
--------- --------
Net Investment Income........................................ 377,593
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gains on securities transactions.............. 22,823
Net change in unrealized appreciation of investments....... 288,587
--------
Net Gain on Investments...................................... 311,410
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................ $ 689,003
========
</TABLE>

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

27
<PAGE> 67

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 377,593 $ 96,048
Net realized gains (losses) on securities
transactions......................................... 22,823 (3,632)
Net change in unrealized appreciation (depreciation) of
investments.......................................... 288,587 (6,586)
----------- ----------
Net increase in net assets resulting from operations... 689,003 85,830
----------- ----------
Trust Share Transactions:
Contributions.......................................... 10,959,047 2,390,276
Withdrawals............................................ (1,822,446 ) (720,063)
----------- ----------
Net increase in net assets from Trust share
transactions......................................... 9,136,601 1,670,213
----------- ----------
Total Increase........................................... 9,825,604 1,756,043
NET ASSETS:
Beginning of year...................................... 2,482,870 726,827
----------- ----------
End of year............................................ $12,308,474 $2,482,870
=========== ==========
</TABLE>

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

28
<PAGE> 68

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Master Investment Trust, Series II (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act"),
as an open-end management investment company. At February 29, 1996, the Trust
consisted of one portfolio, the National Municipal Bond Portfolio (the
"Portfolio") which commenced investment operations on January 28, 1994. The
Portfolio seeks to achieve as high a level of current income exempt from Federal
income tax as is consistent with prudent investment management and preservation
of capital.

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

A) SECURITY VALUATIONS:

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 mean between the current quoted bid and ask prices on the date of
valuation. Restricted securities and securities for which market quotations are
not readily available, if any, are valued at fair value using methods approved
by the Board of Trustees. The Portfolio may use an independent pricing service,
approved by the Board of Trustees, to value certain of its securities. Such
prices reflect market values which may be established through the use of
electronic data processing techniques and matrix systems. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase or, in the case of securities purchased with
more than 60 days until maturity, at their market value each day until the 61st
day prior to maturity, and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and such
valuation.

29
<PAGE> 69

B) SECURITIES TRANSACTIONS AND
INVESTMENT INCOME:

Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income, including amortization of premium and accretion of
discount where required by the Internal Revenue Code (the "Code"), is accrued
daily.

C) FEDERAL INCOME TAXES:

D) OTHER:

The Portfolio incurred initial costs in connection with its organization of
$29,714. Such costs have been deferred and are being amortized.

NOTE 3 -- AGREEMENTS AND OTHER
TRANSACTIONS WITH
AFFILIATES

The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with Concord.

As Adviser, Bank of America is responsible for managing the investment
portfolio of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.35% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived its entire fee as Adviser.

For services provided to the Trust, each Trustee receives an annual fee of
$1,500 and a meeting fee of $500. For the year ended February 29, 1996, the
Portfolio incurred legal charges totaling $33,824 which were earned by a law
firm, a partner of which serves as Secretary of the Trust. Certain officers of
the Trust are "affiliated persons" (as defined in the Act) of BISYS.

NOTE 4 -- PURCHASES AND SALES OF SECURITIES

For the year ended February 29, 1996, the cost of portfolio securities
purchased and the proceeds from portfolio securities sold, excluding short-term
investments, amounted to $11,931,990 and $2,596,533, respectively.

NOTE 5 -- SUBSEQUENT EVENT

On April 24, 1996, the Board of Trustees of Master Investment Trust, Series
II -- National Municipal Bond Portfolio voted to approve the reorganiza-

30
<PAGE> 70

tion of the Portfolio whereby all of the assets and liabilities of the Portfolio
would be transferred to the Pacific Horizon National Municipal Bond Fund.
Following the reorganization, the Adviser would enter into a new Investment
Advisory Agreement with the Fund with substantially the same terms and
conditions. Certain other contracts with service providers require the approval
of the Board of Directors of the Fund.

31
<PAGE> 71

MASTER INVESTMENT TRUST, SERIES II --
NATIONAL MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------

Supplementary Data
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net assets
(with fee waivers and/or
reimbursements)....................... 0.00% 0.00% 0.00%+
Ratio of net investment income to
average net assets (with fee waivers
and/or reimbursements)................ 5.32% 5.45% 1.16%+
Ratio of expenses to average net assets
(without fee waivers and/or
reimbursements)**..................... 2.39% 7.31% 112.35%+
Ratio of net investment income (loss) to
average net assets (without fee
waivers and/or reimbursements)**...... 2.93% (1.86%) (111.19%)+
Portfolio Turnover...................... 37.11% 6.19% 0.00%

<FN>
- ---------------

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

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

+ Annualized.
</TABLE>

See Notes to Financial Statements.

32
<PAGE> 72

MASTER INVESTMENT TRUST, SERIES II
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Trustees
and Investor of
Master Investment Trust, Series II

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series
II -- National Municipal Bond Portfolio (the "Portfolio") at February 29, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and its supplementary
data for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 22, 1996, except for Note 5 as to which date is April 24, 1996

33
<PAGE> 73

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

Pacific Horizon Funds
1230 Columbia Street, Suite 500
San Diego, CA 92101
<TABLE>
<CAPTION>

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

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

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

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

PLEASE CHECK ONE OF THE TWO BOXES BELOW SO WE CAN BETTER MEET YOUR NEED FOR
SERVICE.

/ / A broker assisted me with the purchase of my Pacific Horizon Fund.

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

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

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

PACIFIC HORIZON FUNDS

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

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

34
<PAGE> 74
P
A
C
I
Bulk Rate F
U.S. Postage I
PAID C
Cleveland, OH
Permit No. 1 H
O
R
I
Z
O
N

T
A
X
-
E
X
E
M
P
T

[PACIFIC HORIZON FUNDS LOGO] I
N
Concord Financial Group, Inc. Distributor C
O
M
E

F
U
N
D
S

COPNATB96A
<PAGE> 75
PACIFIC HORIZON INCOME FUNDS
ANNUAL REPORT
February 29, 1996

Flexible Bond Fund

Investing For All
The Times Of Your Life

NOT FDIC INSURED

PACIFIC HORIZON INCOME FUNDS

<PAGE> 76

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

ADMINISTRATOR FUND COUNSEL
Concord Holding Corporation Drinker Biddle & Reath
3435 Stelzer Road 1345 Chestnut Street
Columbus, OH 43219 Philadelphia, PA 19107

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

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

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

<TABLE>
<S> <C>
- -------------------------------------------------------------------------
INVESTMENTS IN PACIFIC HORIZON FUNDS, INC. ARE NOT BANK
DEPOSITS AND ARE NOT OBLIGATIONS OF OR GUARANTEED BY NOT
BANK OF AMERICA OR ANY AFFILIATES. AN INVESTMENT IN FDIC
MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE INSURED
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- -------------------------------------------------------------------------
</TABLE>

<PAGE> 77

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

Contents

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3
UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6
ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 7
INTERVIEW WITH YOUR
INVESTMENT MANAGER 8-11
PACIFIC HORIZON FLEXIBLE
BOND FUND
Statement of Assets
and Liabilities 12
Statement of Operations 13
Statements of Changes
in Net Assets 14
Notes to Financial Statements 15-18
Financial Highlights 19
Report of Independent
Accountants 20
MASTER INVESTMENT TRUST, SERIES
I -- INVESTMENT
GRADE BOND PORTFOLIO
Portfolio of Investments 21-22
Statement of Assets
and Liabilities 23
Statement of Operations 24
Statements of Changes
in Net Assets 25
Notes to Financial Statements 26-28
Supplementary Data 29
Report of Independent
Accountants 30
</TABLE>
<PAGE> 78

PACIFIC HORIZON FUND FACTS

- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability

- --------------------------------------------------------------------------------
<FN>
* Certain investors may be subject to the federal alternative minimum tax and to
certain state and local taxes.

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

2
<PAGE> 79

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

Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.
</TABLE>

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

3
<PAGE> 80

UNDERSTANDING YOUR SHAREHOLDER REPORT

This guide will help you extract the information from
the report.

The TABLE OF CONTENTS helps
you locate the information you
want.

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

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

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

In annual reports, mutual funds, which are not "money
market" funds, are required by the Securities and
Exchange Commission (SEC) to provide shareholders with
[GRAPH] a comparison of a hypothetical $10,000 investment in
the Fund to a benchmark of the broader market. The
performance of the benchmark index depicts the
aggregate performance of investments similar to those
in the Fund for the same time period. While the
benchmark index provides a general representation of
the market, there are two
reasons
why
it should be used only as a
guide. First, the Fund, in its
prospectus, must clearly define
which investments can be made by
the Fund. The index does not [GRAPH]
necessarily have the same
limitations. Second, the index
does not reflect any expenses
that accompany a real investment,
such as

4
<PAGE> 81

sales charges, management fees, portfolio accompany a real investment, such as
sales charges, management fees, portfolio transaction costs or the cash reserves
required to provide daily liquidity. The performance of the Fund must show these
costs as well as any front-end or deferred sales charges.

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

TYPE OF SECURITY

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

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

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

SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
[GRAPH] BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

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

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

5
<PAGE> 82

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

OPERATING EXPENSES INCURRED BY THE FUND DURING
[GRAPH] THE PERIOD

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

NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

OPERATIONS: SEE STATEMENT OF OPERATIONS

DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
[GRAPH] PERIODS

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

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

6
<PAGE> 83

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

FUNDAMENTAL ECONOMIC
STRENGTHS

ASSET ALLOCATION KEY
TO PERFORMANCE

For investors, the key investment decision during the period was asset
allocation. The best-performing stock market sectors included financial services
and technology (despite a weak fourth quarter)-- but many other groups also
delivered strong gains.

LOOKING AHEAD

7
<PAGE> 84

PACIFIC HORIZON
FLEXIBLE BOND FUND

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

STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA

Mr. Vielhaber is a leading member of the investment management team for the
Flexible Bond Fund.

GOAL:

The Pacific Horizon Flexible Bond Fund seeks interest income and capital
appreciation.

INVESTMENTS:

The Fund invests in a diversified portfolio of investment-grade, intermediate-
and longer-term bonds, including corporate and government fixed-income
obligations, mortgage-backed securities, municipal securities and cash
equivalents.

APPROPRIATE FOR:

Investors who want interest income and capital appreciation from a diversified
portfolio of fixed-income securities.

INCEPTION:

January 24, 1994

SIZE OF FUND AS OF
FEBRUARY 29, 1996:

Over $13 million

Q
HOW DID YOU MANAGE THE FUND DURING THE RECENT PERIOD?

A
The Fund maintained a relatively
stable average duration of about 3.25 years during the 12 months ended
February 29, 1996. That was relatively close to the average duration of the
Fund's benchmark, the Lehman Brothers Government/Corporate Index. Duration is a
measure of a fund's price sensitivity to changes in interest rates; thus, our
Fund's share price was about as sensitive as the index to interest-rate changes.
A duration of about three years is fairly short and means that the Fund's net
asset value (NAV) is likely to be more stable than the NAVs of longer-duration
portfolios. (The tradeoff for enhanced stability: potentially lower returns if
interest rates fall.)

There are different ways to meet a specific duration target. For example, one
way is to create an average duration of three years by combining very short-term
issues with longer term issues. Instead of this strategy, we chose a "bulleted"
approach, with a concentration in intermediate-term issues. We feel that our
approach tends to provide better returns when the Federal Reserve reduces
short-term interest rates, as it did during the recent period.

Our strategy resulted in a total return of 10.45% (without the sales charge) for
the Fund for the 12-months ended February 29, 1996, compared to 10.76% for the
Lehman Brothers Government/Corporate Intermediate Bond Index, for the same
period.+
Q
HOW DID YOU CHANGE THE FUND'S EXPOSURE TO DIFFERENT SECTORS OF THE BOND
MARKET?

A
We upgraded the credit quality of the Fund as the economy continued to slow.
When the economy slows, investors

8
<PAGE> 85

tend to prefer bonds whose issuers are in a strong position to weather a
sluggish environment. We sold our 5% stake in bonds rated BBB, which are at the
low end of the investment-grade spectrum. We also reduced the maturity of our
corporate holdings. That trimmed our risk in the corporate sector while allowing
us to pick up some extra yield over Treasury bonds. Because of their high credit
quality, the Fund's longer-maturity holdings were concentrated in Treasury
securities.

Q
WHAT DO YOU SEE AHEAD FOR THE BOND MARKET AND THE FUND?

A
It seems likely that the economy will continue to grow at a relatively slow
rate during the coming period. In this environment, the Fund will continue to
emphasize higher-quality issues. We'll also concentrate on intermediate-term
securities and maintain a relatively neutral average duration -- that is, one
that is close to that of the Lehman Brothers index. And we'll continue to look
for opportunities to add value by purchasing undervalued securities.

- ---------------
+ Fund performance with the 4.50% maximum sales charge was 5.48% for the period.

9
<PAGE> 86

PACIFIC HORIZON
FLEXIBLE BOND FUND
(AS OF FEBRUARY 29, 1996)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

<TABLE>
<CAPTION>
LEHMAN BROTHERS
LIPPER INTER- GOVERNMENT
MEDIATE /CORPORATE
MEASUREMENT PERIOD INVESTMENT FUNDS INTERMEDIATE
(FISCAL YEAR COVERED) FUND AVERAGE BOND INDEX
<S> <C> <C> <C>
1/31/94 9551 10000 10000
02/28/94 9428.01 9691.54 9782.00
03/31/94 9299.11 9481.69 9542.34
04/30/94 9232.22 9398.46 9463.14
05/31/94 9235.03 9383.63 9446.11
06/30/94 9241.71 9365.66 9424.38
07/31/94 9359.38 9506.33 9612.87
08/31/94 9377.91 9525.75 9616.71
09/30/94 9327.81 9414.81 9471.50
10/31/94 9330.90 9400.45 9461.08
11/30/94 9298.83 9372.20 9444.05
12/31/94 9334.07 9418.40 9506.38
01/30/95 9469.25 9571.17 9688.90
02/28/95 9642.48 9772.16 9913.69
03/31/95 9698 9843 9971
04/30/95 9801 9972 10094
05/31/95 10082 10328 10399
06/30/95 10135 10393 10469
07/31/95 10141 10368 10470
08/31/95 10243 10483 10565
09/30/95 10323 10576 10641
10/31/95 10433 10706 10759
11/30/95 10561 10858 10900
12/31/95 10670 10994 11015
01/31/96 10767 11069 11109
2/29/96 10629.00 10882.00 10981
</TABLE>

HOW PERFORMANCE COMPARES
The chart compares the Pacific Horizon
Flexible Bond Fund to the Lehman Brothers
Government/ Corporate Intermediate Bond
Index, which is an unmanaged index used as a
performance benchmark for intermediate term
investments.
The hypothetical investment in the index does not reflect any sales or
management fees that would be incurred if an investor were to actually purchase
individual

--------------------------
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL RETURN

<CAPTION>
---------------------------
<S> <C>
1 year: 5.48%
..............................
Since inception
(1/24/94): 3.14%
</TABLE>

--------------------------
bonds, securities or mutual funds, while the performance of the Fund reflects
all expenses and management fees and the effect of the maximum sales charge.

The Fund tracked other bond funds. The average of intermediate investment funds
reported by Lipper Analytical Services, Inc. measures the performance of other
funds with investment objectives and policies similar to those of the Pacific
Horizon Flexible Bond Fund. An initial $10,000 investment in the Fund made on
January 31, 1994 would be worth $10,629 on February 29, 1996, while the same
investment made in the Lipper Intermediate Investment Funds Average would be
worth $10,882.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.

Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.

Lipper Analytical Services, Inc. is an independent mutual fund-monitoring
organization.

Neither the Lipper Intermediate Investment Funds Average nor the Lehman Brothers
Government/Corporate Intermediate Bond Index may be invested in directly.

12
<PAGE> 87

PACIFIC HORIZON
FLEXIBLE BOND FUND
(AS OF FEBRUARY 29, 1996)
PORTFOLIO COMPOSITION

MOODY'S RATING OF PORTFOLIO
COMPOSITION QUALITY*

<TABLE>
<S> <C>
Aaa 66.4
Aa 4.6
A 29.0

</TABLE>

QUALITY
The credit research team at Bank of America, the Fund's adviser,
monitors debt instruments and issuer quality to identify fixed-income
securities for the Fund. With its emphasis on quality, the Fund
invests primarily in securities that are rated investment grade by an
independent rating service or that are issued by the U.S. Government. The
security selection process also depends on information about broad economic
factors that can affect the bond markets.

- -----------------
* The composition of the Fund's
holdings is subject to change.

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

FLEXIBILITY [GRAPH]
Capitalizing on Changing Markets

The Fund invests in a varied
portfolio of quality bonds in an
effort to protect principal against
sharp price fluctuations and
stabilize net asset value. The
Fund's adviser has great latitude in
deciding how assets are invested
among corporate, government and
mortgage-backed obligations. That
means the Fund enjoys total
flexibility to make the most of
changing market conditions.

11
<PAGE> 88

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Investment Grade
Bond Portfolio, at value.......................................... $13,147,500
Receivable from Administrator....................................... 20,992
Deferred organization costs and prepaid expenses.................... 60,087
-----------
Total assets.......................................................... 13,228,579
-----------
LIABILITIES:
Accrued reports to shareholders expenses............................ 21,204
Accrued legal fees.................................................. 11,405
Accrued audit fees.................................................. 6,304
Accrued fund accounting............................................. 6,448
Other accrued fees and expenses..................................... 3,819
-----------
Total liabilities..................................................... 49,180
-----------
NET ASSETS............................................................ $13,179,399
===========
Shares Outstanding ($0.001 par value, 100 million shares
authorized)......................................................... 1,351,159
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share........................................... $ 9.75
Sales charge -- 4.50% of public offering price...................... 0.46
-----
Maximum Offering Price.............................................. $10.21
=====
Capital stock, at par............................................... $ 1,351
Paid-in capital..................................................... 13,122,538
Accumulated net realized gains...................................... 96,796
Net unrealized depreciation on investments.......................... (41,286)
-----------
NET ASSETS, FEBRUARY 29, 1996......................................... $13,179,399
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
12
<PAGE> 89

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Investment Grade Bond Portfolio:
Interest.................................................. $ 424,314
Expenses.................................................. $ 43,122
Less: Fee waivers and expense reimbursements.............. (33,018) 10,104
---------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 414,210
----------
EXPENSES:
Shareholder service fees.................................. 16,582
Administration fees....................................... 9,952
Legal fees................................................ 47,105
Reports to shareholders expenses.......................... 41,311
Fund accounting fees and expenses......................... 37,398
Transfer agent fees and expenses.......................... 32,408
Amortization of organization costs........................ 29,964
Registration fees......................................... 20,001
Audit fees................................................ 21,190
Directors' fees........................................... 6,935
Other operating expenses.................................. 25,403
----------
288,249
Less: Fee waivers and expense reimbursements.............. (280,525) 7,724
---------- ----------
Net Investment Income....................................... 406,486
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS FROM MASTER INVESTMENT TRUST,
SERIES I -- INVESTMENT GRADE BOND PORTFOLIO:
Net realized gain on securities transactions.............. 154,841
Net change in unrealized depreciation on investments...... (58,037)
----------
Net Gain on Investments from Master Investment Trust, Series
I -- Investment Grade Bond Portfolio...................... 96,804
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $ 503,290
=========
</TABLE>

- ---------------
See Notes to Financial Statements.
13
<PAGE> 90

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................ $ 406,486 $ 74,137
Net realized gain (loss) on securities
transactions....................................... 154,841 (30,755)
Net change in unrealized appreciation (depreciation)
of investments..................................... (58,037) 19,011
----------- -----------
Net increase in net assets resulting from
operations......................................... 503,290 62,393
----------- -----------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment
income............................................. (406,485) (74,137)
Dividends to shareholders from net realized gains on
securities......................................... (26,279) --
----------- -----------
Total Dividends and Distributions to Shareholders...... (432,764) (74,137)
Fund Share Transactions:
Net proceeds from shares subscribed.................. 12,184,154 2,413,917
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions........ 273,214 53,731
Shares redeemed...................................... (1,312,597) (848,073)
----------- -----------
Net increase in net assets from
Fund share transactions............................ 11,144,771 1,619,575
----------- -----------
Total Increase......................................... 11,215,297 1,607,831
NET ASSETS:
Beginning of year.................................... 1,964,102 356,271
----------- -----------
End of year.......................................... $13,179,399 $ 1,964,102
=========== ===========
</TABLE>

- ---------------
See Notes to Financial Statements.
14
<PAGE> 91

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

The Fund seeks to achieve its investment objectives by investing
substantially all of its assets in the Investment Grade Bond Portfolio of Master
Investment Trust, Series I (the "Portfolio"), an open-ended management
investment company, that has the same investment objective as that of the Fund.
The value of the Fund's investment in the Portfolio included in the accompanying
statements of assets and liabilities reflects the Fund's proportionate
beneficial interest in the net assets of the Portfolio (19.8% at February 29,
1996). The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with the Fund's financial statements.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

A) SECURITY VALUATIONS:

The valuation of securities by the Portfolio is discussed in Note 2 of the
Portfolio's financial statements.

B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:

15
<PAGE> 92

C) DIVIDENDS AND DISTRIBUTIONS:

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

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

D) FEDERAL INCOME TAXES:

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

E) OTHER:

The Fund incurred certain costs in connection with their organization. Such
costs have been deferred and are being amortized by the Fund on a straight line
basis over five years.

Expenses directly attributable to the Fund are charged to the Fund, while
Company expenses attributable to more than one portfolio of the Company are
allocated among the respective funds.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.

As Administrator, Concord assists in supervising the operations of the Fund.
For its services, Concord is entitled to a fee accrued daily and payable
monthly, at an annual rate of 0.15% of the Fund's average net assets. For the
year ended February 29, 1996 Concord agreed to waive its entire fee as
Administrator.

Concord reimbursed the Fund $253,991 in operating expenses for the year
ended February 29, 1996.

For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $51,076 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $408,407 from commissions earned on sales of the Fund's shares.

16
<PAGE> 93

Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary, served the Fund as transfer agent and dividend disbursing agent. In
this capacity, BISYS Fund Services, Inc. earned $4,265 for the period from
December 11, 1995 through February 1996. Prior to December 11, 1995 an unrelated
party provided these services.

For the year ended February 29, 1996, the Fund incurred legal charges
totaling $47,105 which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.

NOTE 4 -- DIRECTORS' COMPENSATION

Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives an annual retainer
of $1,000 for services as Chairman of the Committee. In addition, the Fund's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997 in consideration of his services.

The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service that the Director served as Chairman of the Board. Each
Director may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum payment or ten annual installments. A
Director's years of service for the

17
<PAGE> 94

purpose of calculating the payments described above shall be based upon service
as a Director or Chairman after February 28, 1994. Aggregate costs to the Fund
pursuant to the Retirement Plan amounted to $20, for the year ended February 29,
1996.

NOTE 5 -- CAPITAL SHARE TRANSACTIONS

At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class M Common Stock, (Flexible Bond Fund).

Transactions in shares of the Fund are summarized below (000's omitted):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares subscribed.... 1,249 257
Shares issued in
reinvestment of
dividends........... 28 6
Shares redeemed...... (134) (91)
----- ---
Net increase........ 1,143 172
===== ===
</TABLE>

NOTE 6 -- FEDERAL INCOME TAX STATUS

During the year ended February 29, 1996, the Company utilized its net
capital loss carryovers of approximately $14,000.

18
<PAGE> 95

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value per share, beginning of
period................................ $ 9.44 $ 9.81 $10.00
-------- -------- --------
Income from Investment Operations:
Net investment income................. 0.59 0.59 0.08
Net realized and unrealized gain
(loss) on securities................ 0.33 (0.37) (0.19)
-------- -------- --------
Total income (loss) from investment
operations.......................... 0.92 0.22 (0.11)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income................... (0.59) (0.59) (0.08)
Distributions to shareholders from Net
realized gains on securities........ (0.02)
-------- -------- --------
Total dividends and distributions....... (0.61) (0.59) (0.08)
Net change in net asset value........... 0.31 (0.37) (0.19)
-------- -------- --------
Net asset value per share, end of
period................................ $ 9.75 $ 9.44 $ 9.81
======== ======== ========
Total return++.......................... 10.45% 2.27% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 13,179 $1,964 $ 356
Ratio of expenses to average
net assets**........................ 0.27% 0.00% 0.00%+
Ratio of net investment income to
average net assets**................ 6.13% 6.43% 5.70%+

- ---------------
<FN>

* For the period January 24, 1994 (commencement of operations) through February
28, 1994.

** Reflects the Fund's proportionate share of the Portfolio's 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 4.73%, 17.95% and 160.20% (annualized) for the periods
ended February 29, 1996 , February 28, 1995 and February 28, 1994
respectively.

+ Annualized.

++ The total returns listed are not annualized for the period February 28, 1994,
and do not include the effect of the maximum 4.50% sales charge.
</TABLE>

See Notes to Financial Statements.
19
<PAGE> 96

PACIFIC HORIZON FLEXIBLE BOND FUND
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Flexible Bond Fund (one of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
29, 1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

- --------------------------------------------------------------------------------
TAX STATUS OF DIVIDENDS (UNAUDITED)

--------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.0035 per share from long-term capital gains.
- --------------------------------------------------------------------------------

20
<PAGE> 97

MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 15.4%
Household International BV....... AB/A 5.25% 10/15/98 $ 2,000 $ 1,970,000
MCI Communications Corp. ........ A2/A- 6.25% 3/23/99 2,000 2,017,500
American Brands.................. A2/A 7.50% 5/15/99 1,000 1,038,750
Ford Motor Credit................ A1/A+ 9.50% 4/15/00 2,500 2,790,625
Hertz Corp. ..................... AB/A 6.00% 1/15/03 2,500 2,421,875
-----------
10,238,750
-----------
COMMERCIAL PAPER DISCOUNT -- 2.6%
Brown Forman..................... A-1/P-1 5.50% 3/01/96 1,760 1,760,000
-----------
MEDIUM TERM NOTES -- 17.5%
Chrysler Finl Corp. ............. AB/A- 6.60% 8/03/98 2,000 2,027,500
International Lease Finance...... A2/A+ 6.27% 2/10/99 2,500 2,515,625
Morgan Stanley Group............. A1/A+ 5.63% 3/01/99 2,000 1,977,500
General Motors Accept Corp. ..... A3/A- 7.38% 5/26/99 2,000 2,072,500
Associates Corp. ................ Aa3/AA- 6.35% 6/29/00 3,000 3,022,500
-----------
11,615,625
-----------
U.S. TREASURY NOTES -- 35.8%
U.S. Treasury Notes.............. Treasury 5.13% 11/30/98 7,900 7,816,812
U.S. Treasury Notes.............. Treasury 6.88% 8/31/99 2,000 2,079,380
U.S. Treasury Notes.............. Treasury 7.75% 11/30/99 3,500 3,744,650
U.S. Treasury Notes.............. Treasury 7.75% 1/31/00 2,500 2,680,175
U.S. Treasury Notes.............. Treasury 5.63% 11/30/00 1,500 1,491,210
U.S. Treasury Notes.............. Treasury 5.75% 8/15/03 6,000 5,906,879
-----------
23,719,106
-----------
U.S. TREASURY BONDS -- 7.3%
U.S.Treasury Bonds............... Treasury 10.38% 11/05/09 3,800 4,845,988
-----------
MUNICIPAL BONDS -- 0.2%
Alaska Housing Series G.......... Aaa/AAA 10.55% 1/15/18 110 108,488
-----------
COLLATERALIZED MORTGAGE OBLIGATION -- 12.5%
Standard Credit Card Master Tr... Aaa/AAA 7.85% 2/07/02 2,500 2,664,500
NationsBank Credit Card Master... Aaa/AAA 6.45% 4/15/03 2,700 2,749,186
Merrill Lynch Mtg Inv. Inc. ..... Aaa/AAA 6.85% 4/15/12 16 16,434
Discover Credit Card Trust....... Aaa/AAA 7.85% 11/20/98 2,700 2,833,380
-----------
8,263,500
-----------
U.S. GOVERNMENT AGENCY NOTES -- 7.0%
FNCX. Pool #303528............... Treasury 6.00% 8/01/01 2,491 2,461,742
Federal National Mortgage
Association Pool #131579....... Treasury 6.50% 7/01/04 240 231,770
Federal National Mortgage
Association Pool #286087....... Treasury 8.00% 6/01/24 872 894,218
Federal Home Loan Mortgage Corp.
Pool #160034................... Treasury 8.50% 12/01/07 76 78,750
Federal Home Loan Mortgage Corp.
Pool #549837................... Treasury 8.00% 7/01/10 241 245,406
</TABLE>

- ---------------
See Notes to Financial Statements.
21
<PAGE> 98

<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ---------------------------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- (CONTINUED)
Federal Home Loan Mortgage Corp.
Pool #284343................... Treasury 8.00% 12/01/16 $ 17 $ 17,227
Federal Home Loan Mortgage Corp.
Pool #297505................... Treasury 8.00% 6/01/17 25 25,327
Government National Mortgage
Assoc. Pool #136688............ Treasury 10.00% 9/15/15 38 41,779
Government National Mortgage
Assoc. Pool #166744............ Treasury 10.00% 7/15/16 361 398,893
Government National Mortgage
Assoc. Pool #209480............ Treasury 10.00% 7/15/17 81 89,483
Government National Mortgage
Assoc. Pool #227082............ Treasury 10.00% 8/15/17 115 126,636
-----------
4,611,231
-----------
TOTAL INVESTMENTS -- 98.3%
(COST $65,110,819)............... 65,162,688
Other Assets in excess of Liabilities -- 1.7% 1,126,887
-----------
NET ASSETS -- 100.0%.............. $66,289,575
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
22
<PAGE> 99

MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $65,110,819)................ $65,162,688
Cash................................................................. 85,452
Contribution receivable.............................................. 164,227
Interest receivable.................................................. 930,804
Deferred organization costs and prepaid expenses..................... 39,209
-----------
Total assets........................................................... 66,382,380
-----------
LIABILITIES:
Withdrawal payable................................................... 46,142
Accrued accounting fees.............................................. 5,113
Accrued audit fees................................................... 15,666
Accrued custody fees................................................. 2,118
Accrued legal fees................................................... 6,049
Other accrued expenses............................................... 17,717
-----------
Total liabilities...................................................... 92,805
-----------
NET ASSETS............................................................. $66,289,575
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
23
<PAGE> 100

MASTER INVESTMENT TRUST, SERIES I --

INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................ $3,989,704
----------
3,989,704
----------
EXPENSES:
Advisory fees........................................... 269,136
Administration fees..................................... 30,769
Fund accounting fees and expenses....................... 44,790
Custodian fees and expenses............................. 12,697
Audit fees.............................................. 17,687
Legal fees.............................................. 16,094
Amortization of organization costs...................... 13,691
Insurance expense....................................... 1,266
Trustees fees........................................... 3,499
----------
409,629
Less: Fee waivers and expense reimbursements............ (299,905) 109,724
---------- ----------
Net Investment Income..................................... 3,879,980
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on securities transactions............ 2,336,008
Net change in unrealized depreciation on investments.... (247,652)
----------
Net Gain on Investments................................... 2,088,356
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $5,968,336
==========
</TABLE>

- ---------------
See Notes to Financial Statements.
24
<PAGE> 101

MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
PORTFOLIO
---------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 3,879,980 $ 4,061,925
Net realized gain (loss) on securities transactions.... 2,336,008 (4,166,543)
Net change in unrealized appreciation/depreciation on
investments.......................................... (247,652) 1,011,785
----------- -----------
Net increase in net assets resulting from operations... 5,968,336 907,167
----------- -----------
Trust Share Transactions:
Contributions.......................................... 21,358,278 4,879,443
Withdrawals............................................ (18,755,421) (25,317,238)
----------- -----------
Net increase (decrease) in net assets resulting from
Trust share transactions............................. 2,602,857 (20,437,795)
----------- -----------
Total Increase (Decrease)................................ 8,571,193 (19,530,628)
NET ASSETS:
Beginning of year...................................... 57,718,382 77,249,010
----------- -----------
End of year............................................ $66,289,575 $57,718,382
=========== ===========
</TABLE>

- ---------------
See Notes to Financial Statements.
25
<PAGE> 102

MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940 as amended (the "Act"),
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Investment Grade Bond Portfolio (the "Portfolio") only.

The investment objective of the Portfolio is to obtain interest income and
capital appreciation by investing in investment grade intermediate and longer
term bonds, including corporate and governmental fixed income obligations and
mortgaged backed securities.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

A) SECURITY VALUATIONS:

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 sales price on the date of valuation, or if none is
available, at the mean between the current quoted bid and asked prices on the
date of valuation. The Portfolio may use an independent pricing service,
approved by the Board of Trustees, to value certain of their securities. Such
prices reflect market values which may be established through the use of
electronic data processing techniques and matrix systems. Restricted securities
and securities for which market quotations are not readily available, if any,
are valued at fair value using methods approved by the Board of Trustees. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase or, in the case of
securities purchased with more than 60 days until maturity, at their market
value each

26
<PAGE> 103

day until the 61st day prior to maturity, and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and such valuation.

B) SECURITIES TRANSACTIONS AND
INVESTMENT INCOME:

Securities transactions are accounted for on a trade date basis. Realized
gains and losses on securities transactions are determined on the identified
cost basis. Interest income is accrued daily.

C) EXPENSES:

D) FEDERAL INCOME TAXES:

The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
that Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Portfolio has an Investment Advisory Agreement with Bank of America and
an Administration Agreement with Concord.

As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.45% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived its entire fee as Adviser.

For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $16,094,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.

NOTE 4 -- PURCHASES AND SALES OF SECURITIES

The following table summarizes the securities transactions effected by the
Port-

27
<PAGE> 104

folio, excluding short-term securities, for the year ended February 29, 1996:

<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
U.S. Government
Securities.............. $ 32,171,911 $38,550,500
Other Securities......... 69,941,871 59,104,968
------------ -----------
$102,113,782 $97,655,468
============ ===========
</TABLE>

At February 29, 1996, the cost of securities of the Portfolio for federal
income tax purposes was substantially the same as for financial reporting
purposes. Accordingly net unrealized appreciation of investments amounted to
$51,869 consisting of gross unrealized appreciation of $618,210 and gross
unrealized depreciation of $566,341.

NOTE 5 -- CONCENTRATION OF
CREDIT RISK

The Portfolio had the following concentrations by industry sector at
February 29, 1996 (as a percentage of total investments):

<TABLE>
<S> <C>
U.S. Treasury Notes............ 36.4%
Medium Term Notes.............. 17.8%
U.S. Treasury Bonds............ 7.4%
Collateralized Mortgage
Obligation................... 12.7%
U.S. Government Agency Notes... 7.1%
Commercial Paper Discount...... 2.7%
Corporate Obligations.......... 15.7%
Municipal Bonds................ 0.2%
-----
100.0%
=====
</TABLE>

28
<PAGE> 105

MASTER INVESTMENT TRUST, SERIES I --
INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------

Supplementary Data
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.18% 0.25% 0.41%***
Ratio of net investment income to average
net assets**............................. 6.47% 6.22% 4.93%***
Portfolio Turnover......................... 172% 240% 32%
<FN>

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

* For the period December 6, 1993 (commencement of operations) through
February 28, 1994.

** Net of fee waivers which 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 0.50% for the periods ended February 29, 1996,
February 28, 1995 and February 28, 1994 (annualized) respectively.

*** Annualized.
</TABLE>

See Notes to Financial Statements.
29
<PAGE> 106

MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Trustees
and Investors of
Master Investment Trust, Series I

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series
I -- Investment Grade Bond Portfolio (the "Portfolio") at February 29, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and its supplementary data
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

30
<PAGE> 107

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

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

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

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

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

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

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

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

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

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

PACIFIC HORIZON FUNDS

Additional Comments:

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

- NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 108

[PACIFIC HORIZON FUNDS LOGO]

Concord Financial Group, Inc. Distributor

COPFLXB96A
<PAGE> 109
P
A
C PACIFIC HORIZON GROWTH & INCOME FUNDS
I
F ANNUAL REPORT
I
C February 29, 1996

H
O
R
I Asset Allocation Fund
Z
O
N

G Investing For All
R The Times Of Your Life
O
W
T
H

I
N
C
O
M
E

F
U
N
D
S NOT FDIC INSURED

<PAGE> 110

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

ADMINISTRATOR FUND COUNSEL
Concord Holding Corporation Drinker Biddle & Reath
3435 Stelzer Road 1345 Chestnut Street
Columbus, OH 43219 Philadelphia, PA 19107

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

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

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

<PAGE> 111

CONTENTS

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3

UNDERSTANDING YOUR SHAREHOLDER REPORT 4-6

ECONOMIC REVIEW FROM THE INVESTMENT
ADVISER 7

INTERVIEW WITH YOUR
INVESTMENT MANAGERS 8-11

PACIFIC HORIZON ASSET ALLOCATION FUND

Statement of Assets
and Liabilities 12

Statement of Operations 13

Statements of Changes
in Net Assets 14

Notes to Financial Statements 15-18

Financial Highlights 19

Report of Independent Accountants 20

MASTER INVESTMENT TRUST, SERIES
I -- ASSET ALLOCATION PORTFOLIO

Portfolio of Investments 21-26

Statement of Assets
and Liabilities 27

Statement of Operations 28

Statements of Changes
in Net Assets 29

Notes to Financial Statements 30-32

Supplementary Data 33

Report of Independent Accountants 34
</TABLE>
<PAGE> 112

PACIFIC HORIZON FUND FACTS

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

- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability

<FN>
- -------------------------------------------------------------------------------------
* Certain investors may be subject to the federal alternative minimum tax and to
certain state and local taxes.

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

2
<PAGE> 113

With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your investment
specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- ------------------------------------------------------------------------------------------------
<S> <C>
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double-tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.

Short-Term California Municipal A tax-free way to manage or accumulate cash while
Obligations waiting for other investment opportunities.

- ------------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE> 114

UNDERSTANDING YOUR SHAREHOLDER REPORT

This guide will help you extract the information from the report.

[GRAPHIC]

The TABLE OF CONTENTS helps you locate the information you want.

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

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

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

[GRAPHIC]

In annual reports, mutual funds, which are not "money market" funds, are
required by the Securities and Exchange Commission (SEC) to provide
shareholders with a comparison of a hypothetical $10,000 investment in
the Fund to a benchmark of the broader market. The performance of the
benchmark index depicts the aggregate performance of investments similar to
those in the Fund for the same time period. While the benchmark index provides
a general representation of the market, there are two reasons why it should be
used only as a guide. First, the Fund, in its prospectus, must clearly define
which investments can be made by the Fund. The index does not necessarily have
the same limitations. Second, the index does not reflect any expenses that
accompany a real investment, such as sales charges, management fees, portfolio
transaction

[GRAPHIC]

4
<PAGE> 115

costs or the cash reserves required to provide daily liquidity. The performance
of the Fund must show these costs as well as any front-end or deferred sales
charges.

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

TYPE OF SECURITY

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

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

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

SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
[GRAPHIC] BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

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

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

5
<PAGE> 116

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

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

OPERATING EXPENSES INCURRED BY THE FUND DURING
THE PERIOD
[GRAPHIC]
GAINS OR LOSSES REALIZED UPON THE SALE OF THE
FUND'S INVESTMENTS AND ANY CHANGE IN
UNREALIZED GAINS OR LOSSES ON FUND HOLDINGS
DURING THE PERIOD

NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

OPERATIONS: SEE STATEMENT OF OPERATIONS

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

[GRAPHIC] DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS

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

6
<PAGE> 117

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

FUNDAMENTAL ECONOMIC
STRENGTHS

ASSET ALLOCATION KEY
TO PERFORMANCE

For investors, the key investment decision during the period was asset
allocation. The best-performing stock market sectors included financial services
and technology (despite a weak fourth quarter)-- but many other groups also
delivered strong gains.

LOOKING AHEAD

7
<PAGE> 118

PACIFIC HORIZON
ASSET ALLOCATION FUND

[PHOTO]

ROBERT PYLES
Director of Equity
Bank of America NT&SA

Mr. Pyles manages the equity portion of the Asset Allocation Fund.

GOAL:

The Pacific Horizon Asset Allocation Fund seeks long-term growth from capital
appreciation and dividend and interest income.

INVESTMENTS:

The Fund uses a balanced approach by investing in stocks, bonds and cash-
equivalent securities.

APPROPRIATE FOR:

Investors seeking growth and income through a diversified portfolio of stocks
and bonds.

INCEPTION:

January 18, 1994

SIZE OF FUND AS OF
FEBRUARY 29, 1996
Over $22 million

[PHOTO]

STEVEN L. VIELHABER
Director of Taxable Fixed Income
Bank of America NT&SA

Mr. Vielhaber is a leading member of the investment management team for the
fixed-income portion of the Asset Allocation Fund.

Q
HOW DID YOU ALLOCATE THE FUND'S ASSETS AMONG STOCKS, BONDS AND CASH DURING
THE RECENT 12 MONTHS?

A
We held about 56% of the Fund's investments in stocks, with 40% in bonds and
4% in cash. That was roughly a neutral position for us, reflecting our belief
that stocks and bonds were fairly valued on a relative basis. For the 12 months
ended February 29, 1996, the Fund had a total return of 22.80% (without the
sales charge) compared to the Fund's benchmarks, the Standard & Poor's 500 Stock
Index and the Lehman Brothers Aggregate Index, which returned 34.60% and 12.24%,
respectively.+

Q
WHAT WAS THE BASIS FOR THAT DECISION?

A
Stock prices climbed sharply during the year, but that increase was
justified by strongly rising corporate earnings and lower bond yields. We also
felt that

8
<PAGE> 119

stocks were a better value than low-yield cash instruments.

Q
WHAT KIND OF STOCKS DID YOU CHOOSE FOR THE PORTFOLIO?

A
We believe that earnings drive stock prices. We look for firms that we think
can deliver strong profit growth over time and try to buy those firms' shares at
reasonable prices. We also make moderate bets on specific sectors of the stock
market -- we emphasize individual stock selection within the sectors.

During the recent period we felt that the economy was going through a temporary
slowdown that would likely last six to nine months before giving way to faster
economic growth. Those views encouraged us to reduce, but not eliminate, our
moderate overweighting in economically sensitive sectors such as capital goods
and technology. Firms such as Alco Standard (1.39% of net assets as of February
29, 1996), General Electric (2.04%), Intel (1.17%) and Emerson Electric (0.76%)
performed well. We believe that they will continue to benefit from faster
economic growth. What's more, they offer significant productivity benefits to
their customers.

We also held shares of large growth companies such as Household International
(1.23%) and Pfizer (0.60%). They performed well as investors sought to buy
stocks of firms that can deliver solid earnings growth even in a slow economic
environment.++

Q
HOW DO YOU MANAGE THE BONDS IN THE PORTFOLIO?

A
The bond portion of the portfolio includes government, corporate and
mortgage securities. Its average duration generally stays close to the average
for the Lehman Brothers Aggregate Bond Index. For the past 12 months, that meant
an average duration of 4.5 to 5 years. Since a portfolio's average duration
determines its sensitivity to changes in interest rates, we kept the average
duration of the Fund's bonds pretty much in line with the market as a whole.

Q
LOOKING AHEAD, DO YOU EXPECT TO MAKE SIGNIFICANT CHANGES IN THE FUND'S
PORTFOLIO?

A
It seems likely that the pace of economic growth will increase during the
coming period, while inflation will likely remain low. In that environment,
we'll continue to look for companies that can deliver steady earnings growth in
a variety of conditions -- but also can benefit from an economic expansion. We
expect to continue to hold a relatively stable mix of stocks, bonds and cash in
the near term.

- ---------------
+ Fund performance with the 4.50% maximum sales charge was 17.27% for
the period.

++ The composition of the Fund's holdings is subject to change.

9
<PAGE> 120
PACIFIC HORIZON
ASSET ALLOCATION FUND
(AS OF FEBRUARY 29, 1996)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MEASUREMENT PERIOD LIPPER FLEXIBLE AGGREGATE BOND
(FISCAL YEAR COVERED) FUND FUNDS AVERAGE INDEX S&P 500
<S> <C> <C> <C> <C>
1/31/94 9548 10000 10000 10000
2/28/94 9446 9663 9826 9730
3/31/94 9195 9311.08 9583.30 9303.96
4/30/94 9144 9330.45 9506.63 9424.26
5/31/94 9208 9359.77 9505.68 9579.29
6/30/94 9077 9196.77 9484.77 9342.29
7/31/94 9334 9388.69 9673.52 9651.24
8/31/94 9584 9618.83 9685.12 10043.95
9/30/94 9386 9449.71 9542.75 9801.79
10/31/94 9509 9501.61 9534.16 10025.96
11/30/94 9302 9273.96 9513.19 9657.91
12/31/94 9397 9351.99 9578.83 9798.82
1/30/95 9581 9453.05 9768.49 10053.49
2/28/95 9921 9732.77 10000.98 10443.56
3/31/95 10109 9956 10062 10757
4/30/95 10314 10149 10203 11070
5/31/95 10704 10485 10598 11507
6/30/95 10913 10702 10675 11777
7/31/95 11080 10972 10652 12170
8/31/95 11180 11064 10780 12202
9/30/95 11420 11310 10885 12714
10/31/95 11441 11247 11027 12669
11/30/95 11783 11590 11192 13227
12/31/95 11926 11744 11348 13471
1/31/96 12155 11988 11424 13935
2/29/96 12183 12066.00 11225.00 14058.00
</TABLE>

HOW PERFORMANCE COMPARES

The chart compares the Pacific Horizon Asset Allocation Fund to the S&P
500, which is an unmanaged index typically used as a performance benchmark for
equity investments and to the Lehman Brothers Aggregate Index, an unmanaged
index with investment policies similar to the Fund. Hypothetical investments in
the S&P 500 and Lehman Brothers Aggregate Bond Index do not reflect any sales or
management fees that would be incurred if an investor were to actually purchase
individual securities or mutual funds, while the performance of the Fund
reflects all expenses and management fees and the effect of the maximum sales
charge.

<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN
-------------------------------
<S> <C>
1 year: 17.27%
...............................
Since inception
(1/18/94): 9.83%
</TABLE>

The Fund fared well compared to other asset allocation funds. The average of
asset allocation funds as tracked by Lipper Analytical Services, Inc. measures
the performance of other funds with investment objectives and policies similar
to those of the Pacific Horizon Asset Allocation Fund. An initial $10,000
investment in the Fund made on January 31, 1994 would now be worth $12,183,
while the same investment made in the Lipper Flexible Funds Average would be
worth $12,066.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.

The adviser and administrator are voluntarily waiving advisory and
administrative fees for the Fund and administrative and advisory fees for the
Master Investment Trust, in which the Fund is wholly invested. The administrator
is also reimbursing all expenses for the Fund. If the adviser and administrator
had not waived fees and reimbursed expenses, total return would have been lower.
This voluntary waiver of fees and reimbursement of expenses may be modified or
terminated at any time, which would reduce the Fund's performance.

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.

Return figures for the Fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.

S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.

Neither the S&P 500 Index, the Lipper Flexible Funds Average, nor the Lehman
Brothers Aggregate Bond Index may be invested in directly.

10
<PAGE> 121

PACIFIC HORIZON ASSET ALLOCATION FUND
(AS OF FEBRUARY 29, 1996)
PORTFOLIO COMPOSITION*

A Market-Driven Process

The Fund's adviser seeks to determine relative values among stocks, bonds and
cash equivalents and weights the portfolio accordingly.

The Fund's adviser looks for the following characteristics within each asset
class: Stock holdings that display above-average growth potential and
reasonable valuation. The diversified bond portfolio may contain
mortgage-backed securities as well as fixed-income obligations that are
undervalued in the opinion of the Fund's adviser. The Fund's cash holdings
can be viewed as a defensive position in changing markets.

[GRAPHIC-PIE CHART]

ASSET ALLOCATION

<TABLE>
<CAPTION>
<S> <C>
COMMON STOCKS 55.80
CASH & EQUIVALENTS 4.42
BONDS 39.78
<FN>
- --------
* The composition of the Fund's
holdings is subject to change.
</TABLE>

A BALANCED INVESTMENT APPROACH

Allocation Among Asset Classes

The Fund may be appropriate for
investors seeking long-term growth
from capital appreciation as well as
dividend and interest income through
a balanced approach to investing
SHIFTING THE ASSET MIX using bonds, stocks and cash
equivalents. Investors can make one
[GRAPHIC] simple investment and their money
will be spread over a variety of
asset classes. The Fund's adviser
seeks a total return greater than
bonds or cash with less volatility
than an investment in stocks.
Through strategically allocating
assets among various investments,
the Fund's adviser will shift the
asset mix as market conditions
change, thereby seeking to profit
from market opportunities in any
economic environment.

<PAGE> 122

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in Master Investment Trust, Series I -- Asset Allocation
Portfolio, at value................................................ $22,333,948
Receivable from Administrator........................................ 21,345
Deferred organization costs and prepaid expenses..................... 55,200
-----------
Total assets........................................................... 22,410,493
-----------
LIABILITIES:
Accrued reports to shareholders expense.............................. 23,668
Accrued legal........................................................ 11,005
Accrued audit fee.................................................... 6,310
Accrued fund accounting fees and expense............................. 6,050
Other accrued expenses............................................... 8,787
-----------
Total liabilities...................................................... 55,820
-----------
NET ASSETS............................................................. $22,354,673
===========
Shares Outstanding ($0.001 par value, 100 million shares authorized)... 1,275,880
===========
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share............................................ $17.52
Sales charge -- 4.50% of public offering price....................... 0.83
-----
Maximum Offering Price............................................... $18.35
-----
-----
COMPOSITION OF NET ASSETS:
Capital stock, at par................................................ $ 1,276
Additional paid-in capital........................................... 20,617,125
Accumulated net realized gains....................................... 292,337
Accumulated undistributed net investment income...................... 112,461
Net unrealized appreciation on investments........................... 1,331,474
-----------
NET ASSETS, FEBRUARY 29, 1996.......................................... $22,354,673
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
12
<PAGE> 123

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Investment Income from Master Investment Trust, Series I --
Asset Allocation Portfolio:
Interest.................................................. $ 392,503
Dividends................................................. 154,485
---------
546,988
---------
Expenses.................................................. $ 96,101
Less: Fee waivers and expense reimbursements.............. (59,498) 36,603
--------- ----------
Net Investment Income from Master Investment Trust, Series
I -- Asset Allocation Portfolio........................... 510,385
EXPENSES:
Shareholder service fees.................................. 33,182
Administration fees....................................... 19,909
Legal fees................................................ 46,277
Reports to shareholders expense........................... 40,784
Fund accounting fees and expenses......................... 37,488
Transfer agent fees and expenses.......................... 32,798
Amortization of organization costs........................ 25,649
Registration fees and expenses............................ 18,361
Audit fees................................................ 15,650
Directors' fees........................................... 1,165
Other operating expenses.................................. 20,406
---------
291,669
Less: Fee waivers and expense reimbursements.............. (245,636) 46,033
--------- ----------
Net Investment Income....................................... 464,352
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS FROM MASTER
INVESTMENT TRUST, SERIES I -- ASSET ALLOCATION PORTFOLIO:
Net realized gain on securities transactions.............. 920,161
Net change in unrealized appreciation on investments...... 1,078,509
---------
Net Gain on Investments from Master Investment Trust, Series
I -- Asset Allocation Portfolio........................... 1,998,670
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $2,463,022
=========
</TABLE>

- ---------------
See Notes to Financial Statements.
13
<PAGE> 124

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 464,352 $ 132,223
Net realized gain (loss) on securities transactions.... 920,161 (81,088)
Net change in unrealized appreciation of investments... 1,078,509 257,410
----------- ----------
Net increase in net assets resulting from operations... 2,463,022 308,545
----------- ----------
Dividends and Distributions to Shareholders:
Dividends to shareholders from net investment income... (387,903) (97,653)
Dividends to shareholders from capital gains........... (544,588) --
----------- ----------
Total dividends and distributions to shareholders........ (932,491) (97,653)
Fund Share Transactions:
Net proceeds from shares subscribed.................... 17,093,597 5,286,729
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions.......... 903,640 92,809
Shares redeemed........................................ (2,866,740) (563,241)
----------- ----------
Net increase in net assets from Fund share
transactions......................................... 15,130,497 4,816,297
----------- ----------
Total Increase........................................... 16,661,028 5,027,189
NET ASSETS:
Beginning of year...................................... 5,693,645 666,456
----------- ----------
End of year (including undistributed net investment
income of $112,461 and $36,012, respectively)........ $22,354,673 $5,693,645
=========== ==========
</TABLE>

- ---------------
See Notes to Financial Statements.
14
<PAGE> 125

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the Asset Allocation Portfolio of Master
Investment Trust, Series I (the "Portfolio"), an open-end management investment
company that has the same investment objective as that of the Fund. The value of
the Fund's investment in the Portfolio included in the accompanying statement of
assets and liabilities reflects the Fund's proportionate beneficial interest in
the net assets of the Portfolio (12.34% as of February 29, 1996). The financial
statements of the Portfolio, including its portfolio of investments, are
included elsewhere within this report and should be read in conjunction with the
Fund's financial statements.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

A) SECURITY VALUATIONS:

The valuation of securities of the Fund's investment in the Portfolio is
discussed in Note 2 of the Portfolio's financial statements.

B) INVESTMENT INCOME, EXPENSES AND REALIZED AND UNREALIZED GAINS AND LOSSES:

15
<PAGE> 126

Portfolio. Such investments are adjusted on a daily basis.

C) DIVIDENDS AND DISTRIBUTIONS:

The Fund declares dividends to shareholders of record on the day of
declaration from net investment income. Such dividends are paid quarterly.
However, to the extent that net realized gains of the Fund can be offset by
capital loss carryovers, such gains will not be distributed. Dividends and
distributors are recorded on the ex-dividend date.

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

D) FEDERAL INCOME TAXES:

E) OTHER:

The Fund incurred certain costs in connection with its organization. Such
costs have been deferred and are being amortized on a straight line basis over
five years.

Expenses directly attributable to the Fund are charged directly to the Fund,
while Company expenses attributable to more than one Fund of the Company are
allocated among the respective funds.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Fund has an Administration Agreement with Concord and a Distribution
Agreement with the Distributor.

As Administrator, Concord assists in supervising the operations of the Fund.
For its services Concord is entitled to a fee from the Fund, which is accrued
daily and payable monthly, at an annual rate of 0.15% of the Fund's average net
assets. For the year ended February 29, 1996 Concord agreed to waive its entire
fee as Administrator. For the same period, Concord agreed to reimburse the Fund
$192,545 of its operating expenses.

16
<PAGE> 127

For the year ended February 29, 1996, the Distributor advised the Fund that
it retained $69,818 from commissions earned on sales of the Fund's shares. For
the same period, Bank of America and its affiliates advised the Fund that they
retained $569,332 from commissions earned on sales of the Fund's shares.

The Fund has adopted a Shareholder Service Plan (the "Plan") under which the
Fund pays the Distributor for shareholder servicing expenses incurred in
connection with shares of the Fund. Under the Plan, payments by the Fund may not
exceed 0.25% (annualized) of the Fund's average daily net assets. For the year
ended February 29, 1996, the Distributor waived all of its shareholder service
fees due from the Fund. The Plan provides that if, in any month, the fees paid
to the Distributor are less than the costs incurred by the Distributor, the
excess costs will be included in future computations of the fee, provided that
any excess costs will not be carried forward beyond the end of the fiscal year
in which such excess costs were incurred. Effective December 11, 1995, BISYS
Fund Services, Inc., also a wholly owned subsidiary, served the Fund as transfer
agent and dividend disbursing agent. In this capacity, BISYS Fund Services, Inc.
earned $8,804 for the period from December 11, 1995 through February 1996. Prior
to December 11, 1995 an unrelated party provided these services.

For the year ended February 29, 1996, the Fund incurred legal charges
totaling $46,277 which were earned by a law firm, a partner of which serves as
Secretary of the Company. Certain officers of the Company are "affiliated
persons" (as defined in the Act) of BISYS.

NOTE 4 -- DIRECTORS' COMPENSATION

Each director of the Company is entitled to an annual retainer of $25,000,
plus $1,000 for each day the director participates in all or part of a Board or
Committee meeting and the Chairman of each Committee receives a retainer of
$1,000 for services as Chairman of the Committee. In addition, the Company's
President is entitled to an annual salary of $20,000 for services as President.
The former president and chairman of the Company receives an additional $40,000
per year through February 28, 1997 in consideration of his years of services.

17
<PAGE> 128

tion, the amount payable each year to a Director who dies or resigns shall be
increased by $1,000 for each year of service that the Director served as
Chairman of the Board. Each Director may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum payment or ten
annual installments. A Director's years of service for the purpose of
calculating the payments described above shall be based upon service as a
Director or Chairman after February 28, 1994. Aggregate costs pursuant to the
Retirement plan amounted to $60 for the year ended February 29, 1996.

NOTE 5 -- CAPITAL SHARE TRANSACTIONS

At February 29, 1996, there were 200 billion shares of the Company's $0.001
par value capital stock authorized, of which 100 million shares were classified
as Class O Common Stock (Asset Allocation Fund).

Transactions in shares of common stock of the Fund are summarized below (000
omitted):

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares subscribed.... 1,016 363
Shares issued to
shareholders in
reinvestment of
dividends........... 53 6
Shares redeemed...... (169) (38)
----- ---
Net increase........ 900 331
===== ===
</TABLE>

NOTE 6 -- FEDERAL INCOME TAX STATUS

During the year ended February 29, 1996, the Company utilized its net
capital loss carryover of approximately $83,000.

18
<PAGE> 129

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------- PERIOD ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value per share, beginning of
period................................... $ 15.15 $14.84 $15.00
------- ------ ------
Income from Investment Operations:
Net investment income.................... 0.52 0.48 0.03
Net realized and unrealized gain (loss)
on securities.......................... 2.86 0.24 (0.19)
------- ------ ------
Total gain (loss) from investment
operations............................. 3.38 0.72 (0.16)
Less Dividends and Distributions:
Dividends to shareholders from net
investment income...................... (0.53) (0.41) --
Distributions to shareholders from net
realized gains on securities........... (0.48)
------- ------ ------
Total dividends and distributions........ (1.01) (0.41) --
------- ------ ------
Net change in net asset value.............. 2.37 0.31 (0.16)
------- ------ ------
Net asset value per share, end of period... $ 17.52 $15.15 $14.84
======= ====== ======
Total Return++............................. 22.80% 5.03% (1.07)%
Ratios/Supplemental Data:
Net assets, end of period (000).......... $ 22,355 $5,694 $ 666
Ratio of expenses to average net
assets**............................... 0.62% 0.00% 0.00%+
Ratio of net investment income to average
net assets**........................... 3.49% 4.25% 4.20%+

<FN>
- ---------------

* For the period January 18, 1994 (commencement of operations) through February
28, 1994.

** Reflects the Fund's proportionate share of the 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 2.30%, 7.89% and 83.95% (annualized) for the periods ended February
29, 1996, February 28, 1995, and February 28, 1994, respectively.

+ Annualized.

++ The total returns listed are not annualized for the period ending February
28, 1994 and do not include the effect of the maximum 4.50% sales charge.
</TABLE>

See Notes to Financial Statements.

19
<PAGE> 130

PACIFIC HORIZON ASSET ALLOCATION FUND
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Pacific Horizon Asset Allocation Fund (one of the portfolios constituting
Pacific Horizon Funds, Inc., hereafter referred to as the "Funds") at February
29, 1996, the results of its operations for the year then ended, and the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

- --------------------------------------------------------------------------------
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
--------------------------------------------------
For the year ended February 29, 1996, the Fund paid to shareholders
$0.3345 per share from long term capital gains.
- --------------------------------------------------------------------------------

20
<PAGE> 131

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE -- 0.9%
Boeing Co. ......................................................... 19,000 $ 1,541,375
------------
AIRLINES & FREIGHT -- 0.2%
AMR Corp. .......................................................... 4,500 394,875
------------
ALUMINIUM/STEEL -- 0.2%
Worthington Industry Inc. .......................................... 20,000 430,000
------------
AUTOMOTIVE -- 1.0%
Echlin, Inc. ....................................................... 12,300 416,663
General Motors Corp. ............................................... 25,800 1,322,250
------------
1,738,913
------------
BANKS -- 3.3%
Chase Manhattan Corp. .............................................. 10,000 745,000
CitiCorp............................................................ 32,400 2,527,200
First Interstate BanCorp............................................ 6,800 1,110,950
Fleet Financial Group Inc. ......................................... 41,000 1,686,125
------------
6,069,275
------------
BUSINESS EQUIPMENT/SERVICES -- 1.3%
Cisco Systems....................................................... 24,600 1,168,500
Hewlett Packard Co. ................................................ 12,000 1,209,000
------------
2,377,500
------------
CHEMICALS -- 1.7%
Corning, Inc. ...................................................... 13,400 435,500
Dow Chemical Co. ................................................... 4,000 321,000
E.I. Du Pont de Nemours & Co. ...................................... 9,700 742,050
Monsanto Corp. ..................................................... 6,300 848,138
Sigma Adrich Corp. ................................................. 11,900 681,275
------------
3,027,963
------------
CONSUMER CYCLICAL -- 0.5%
Armstrong World Industries.......................................... 15,200 891,100
------------
CONSUMER STAPLES -- 5.6%
Coca-Cola Co. ...................................................... 23,400 1,889,550
Conagra Inc. ....................................................... 19,600 825,650
Pepsico Inc. ....................................................... 18,700 1,182,775
Philip Morris Cos, Inc. ............................................ 17,700 1,752,300
Procter & Gamble Co. ............................................... 17,000 1,394,000
Whitman Corp. ...................................................... 27,600 641,700
Ralston Purina Co. ................................................. 7,800 522,600
Sysco Corp. ........................................................ 27,000 887,625
Anheuser Busch Companies Inc. ...................................... 14,900 1,003,888
------------
10,100,088
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
21
<PAGE> 132

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
COSMETICS & HOUSEHOLD PRODUCTS -- 1.2%
Colgate-Palmolive Co................................................ 4,600 $ 359,950
Gillette Co. ....................................................... 14,800 801,050
Johnson & Johnson................................................... 4,000 374,000
Newell Co. ......................................................... 23,000 638,250
------------
2,173,250
------------
DIVERSIFIED MANUFACTURING -- 4.3%
Alco Standard Corp. ................................................ 53,000 2,510,875
General Electric Co. ............................................... 49,000 3,699,500
Illinois Tool Works, Inc. .......................................... 23,000 1,515,125
------------
7,725,500
------------
DRUGS BIOTECHNOLOGY -- 3.6%
American Home Products Corp. ....................................... 10,500 1,034,250
Amgen, Inc. ........................................................ 10,000 597,500
Bristol-Meyers...................................................... 15,800 1,344,975
Lilly (Eli), and Co. ............................................... 19,800 1,197,900
Medtronic Inc. ..................................................... 8,100 464,738
Pfizer Inc. ........................................................ 16,600 1,093,525
Schering Plough Corp. .............................................. 10,400 583,700
Warner Lambert Co. ................................................. 2,700 266,962
------------
6,583,550
------------
DRUG & HOSPITAL SUPPLIES -- 0.5%
Baxter International, Inc. ......................................... 21,200 969,900
------------
ELECTRICAL & OTHER ELEC. EQUIPMENT -- 0.7%
Emerson Electric Co. ............................................... 17,600 1,370,600
------------
ELECTRIC UTILITIES -- 1.1%
Central & Southwest Corp. .......................................... 30,500 846,375
Duke Power Co. ..................................................... 14,200 694,025
Northern STS PWR Minnesota.......................................... 10,300 507,275
------------
2,047,675
------------
ELECTRONIC COMPUTERS -- 1.9%
Amp, Inc. .......................................................... 19,500 831,188
Intel Corp. ........................................................ 36,000 2,117,250
Motorola, Inc. ..................................................... 10,700 580,475
------------
3,528,913
------------
FINANCE SERVICES -- 3.1%
American Express.................................................... 45,000 2,070,000
Dun & Bradstreet Corp. ............................................. 3,300 208,725
Household International Inc. ....................................... 33,000 2,219,250
Dean Witter......................................................... 20,200 1,085,750
------------
5,583,725
------------
FOREST PRODUCTS -- 0.2%
Wayerhaeuser Co. ................................................... 9,500 402,563
------------
GAS UTILITIES -- 0.7%
Pacific Enterprises, Inc. .......................................... 36,200 968,350
Eastern Enterprises................................................. 11,000 389,125
------------
1,357,475
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
22
<PAGE> 133

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
HEALTH CARE -- 1.6%
Abbot Laboratories.................................................. 27,000 $ 1,127,250
Merck & Co., Inc. .................................................. 18,200 1,205,750
US Healthcare, Inc. ................................................ 10,000 487,500
------------
2,820,500
------------
INDUSTRIAL INORGANIC CHEMICALS -- 0.4%
Silicon Graphics.................................................... 29,700 742,500
------------
LEISURE -- 0.7%
Walt Disney Co. .................................................... 11,300 740,150
Hilton Hotels Corp. ................................................ 3,900 365,625
Mattel, Inc. ....................................................... 5,600 186,200
------------
1,291,975
------------
LIFE INSURANCE -- 0.4%
Chubb Corp. ........................................................ 6,900 670,163
------------
MACHINE EQUIPMENT -- 0.6%
Deere & Co. ........................................................ 26,500 1,036,813
------------
MEDIA -- 1.1%
Capital Cities/ABC, Inc. ........................................... 4,000 507,000
Gannett, Inc. ...................................................... 4,100 278,800
McGraw Hill, Inc. .................................................. 4,700 410,663
Time Warner, Inc. .................................................. 9,600 410,400
Tribune Co. New..................................................... 6,300 420,525
------------
2,027,388
------------
MINING -- 0.3%
Newmont Mining Corp. ............................................... 9,500 540,313
------------
MULTI INDUSTRY -- 1.6%
TRW Inc. ........................................................... 17,000 1,472,625
Tyco Labs Inc. ..................................................... 37,000 1,336,625
------------
2,809,250
------------
MULTI INSURANCE -- 1.7%
American International Group........................................ 12,750 1,231,969
General Re Corp. ................................................... 5,500 791,312
Providian Corp. .................................................... 21,800 1,008,250
------------
3,031,531
------------
OIL -- DOMESTIC & CRUDE -- 4.2%
Amoco Corp. ........................................................ 8,900 618,550
Coastal Corp. ...................................................... 27,300 1,003,275
Exxon Corp. ........................................................ 24,500 1,947,750
Texaco Inc. ........................................................ 9,000 717,750
USX Marathon Group.................................................. 41,800 773,300
Mobil Corp. ........................................................ 9,200 1,008,550
Halliburton Co. .................................................... 17,500 960,313
Schlumberger Ltd. .................................................. 8,900 648,588
------------
7,678,076
------------
PAPER & ALLIED PRODUCTS -- 0.4%
Federal Paper Board Co., Inc. ...................................... 4,800 256,200
Mead Corp. ......................................................... 9,000 450,000
------------
706,200
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
23
<PAGE> 134

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.3%
Eastman Kodak Co. .................................................. 6,900 $ 493,350
------------

RAILROADS -- 0.7%
Union Pacific Corp. ................................................ 9,600 633,600
Burlington Northern Santa Fe C...................................... 8,400 672,000
------------
1,305,600
------------

RESTAURANTS -- 0.4%
McDonald's Corp. ................................................... 13,150 657,500
------------

RETAIL -- 2.8%
Home Depot Inc. .................................................... 24,000 1,038,000
Nordstrom, Inc. .................................................... 14,600 658,825
Price/Costco Inc. .................................................. 49,500 853,875
Wal Mart Stores Inc. ............................................... 64,100 1,362,125
May Dept. Stores Co. ............................................... 24,000 1,119,000
------------
5,031,825
------------

SOFTWARE SERVICES -- 1.7%
Automatic Data Processing, Inc. .................................... 16,800 651,000
Microsoft Corp. .................................................... 24,000 2,368,500
------------
3,019,500
------------
TECHNOLOGY -- 1.5%
International Business Machines..................................... 16,000 1,962,000
National Semiconductor Corp. ....................................... 44,700 698,440
------------
2,660,440
------------
TELEPHONE -- 3.4%
AT&T................................................................ 32,800 2,086,900
Bellsouth Corp. .................................................... 17,200 685,850
GTE Corp. .......................................................... 29,500 1,264,813
MCI Communications Corp. ........................................... 24,500 716,625
SBC Communications Corp. ........................................... 21,700 1,190,787
Tele-Communications, Inc. .......................................... 8,300 174,300
------------
6,119,275
------------
TIRE AND RUBBER -- 0.1%
Cooper Tire and Rubber Co........................................... 11,100 281,660
------------
Total Common Stocks -- 55.9%
(cost $84,556,256).................................................. 101,238,092
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
U.S. TREASURY BONDS -- 6.5%
U.S. Treasury Bond............................. 10.38% 11/15/12 $ 8,800 $ 11,669,855
------------
U.S. TREASURY NOTES -- 8.4%
U.S. Treasury Note............................. 5.75% 8/15/03 6,400 6,300,671
U.S. Treasury Note............................. 7.88% 11/15/04 8,000 8,930,478
------------
15,231,149
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS -- 14.9%
(cost $27,291,693)............................. 26,901,004
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
24
<PAGE> 135

<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.0%
Federal Home Loan Mortgage Corporation
Pool #G10304................................. 6.50% 4/01/09 $ 946 $ 937,478
Federal Home Loan Mortgage Corporation
Pool #E60891................................. 6.50% 7/01/10 3,343 3,311,369
Federal Home Loan Mortgage Corporation
Pool #297505................................. 8.00% 6/01/17 17 17,148
Federal Home Loan Mortgage Corporation
Pool #53301.................................. 10.50% 4/01/19 35 38,110
Federal Home Loan Mortgage Corporation
Pool #544066................................. 8.00% 12/01/19 17 16,880
FNCI 6.5%TBA................................... 6.50% 3/15/11 5,000 4,950,000
FGLMC Pool #D67963............................. 6.50% 1/01/26 9,100 8,787,188
Government National Mortgage Association
Pool #146301................................. 10.00% 2/15/16 98 108,237
------------
Total U.S. Government Agency Obligations
(cost $18,454,981)............................. 18,166,410
------------
TAXABLE MUNICIPAL BONDS -- 0.5%
ALASKA --
Alaska State, Housing Finance Authority,
Series G..................................... 10.55% 1/15/18 115 113,419
------------
ILLINOIS --
Cook County, General Obligation Bond........... 5.00% 11/15/23 800 722,000
------------
Total Taxable Municipal Bonds
(cost $836,299)................................ 835,419
------------
CORPORATE OBLIGATIONS -- 9.0%
CORPORATE BONDS -- 1.9%
Hertz Corp. ................................... 6.00% 1/15/03 2,500 2,421,875
Lehman Brothers................................ 5.75% 11/15/98 1,000 981,250
------------
3,403,125
------------
MEDIUM TERM NOTES -- 7.1%
Chrysler Finance Corp. ........................ 5.48% 2/23/99 2,500 2,468,750
Morgan Stanley Group........................... 5.63% 3/01/99 1,500 1,483,125
Ford Motor Credit.............................. 8.38% 1/15/00 3,000 3,217,500
International Lease Finance.................... 5.71% 2/01/00 1,600 1,570,000
Province of Quebec............................. 7.98% 4/01/99 3,000 3,161,250
Philip Morris.................................. 8.75% 3/12/98 1,000 1,055,000
------------
12,955,625
------------
Total Corporate Obligations
(cost $16,452,588)............................. 16,358,750
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.4%
Discover Credit Card Trust..................... 7.85% 11/20/98 3,000 3,148,200
Prime Credit Card Master Trust................. 7.05% 12/15/97 3,000 3,071,089
NationsBank Credit Card Master................. 6.45% 4/15/03 3,500 3,563,760
Merrill Lynch & Co. ........................... 6.85% 4/15/12 8 7,734
------------
Total Collateralized Mortgage Obligations
(cost $9,733,978).............................. 9,790,783
------------
</TABLE>

- ---------------
See Notes to Financial Statements.
25
<PAGE> 136

<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ------------------------------------------------ ----- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- (CONTINUED)
COMMERCIAL PAPER DISCOUNT -- 3.9%
Brown Forman................................... 5.50% 3/01/96 $ 3,500 $ 3,500,000
Merrill Lynch.................................. 5.47% 3/01/96 3,500 3,500,000
------------
7,000,000
------------
TOTAL INVESTMENTS -- 99.6%
(COST $164,325,795)............................ 180,290,458
Other Assets In Excess Of Liabilities -- 0.4%... 763,956
------------
NET ASSETS -- 100%.............................. $181,054,414
============
</TABLE>

- ---------------
See Notes to Financial Statements.
26
<PAGE> 137

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities at value (cost $164,325,795).............. $180,290,458
Cash................................................................ 66,207
Receivable for investment securities sold........................... 5,307,998
Contribution receivable............................................. 262,293
Dividends receivable................................................ 243,397
Interest receivable................................................. 870,288
Deferred organization costs and prepaid expenses.................... 41,137
------------
Total assets.......................................................... 187,081,778
------------
LIABILITIES:
Withdrawal payable.................................................. 200,358
Payable for investment securities purchased......................... 5,731,750
Advisor fees payable................................................ 37,278
Administration fees payable......................................... 3,384
Accrued accounting fees............................................. 15,596
Accrued audit fees.................................................. 16,095
Accrued custody fees................................................ 5,303
Accrued legal fees.................................................. 6,868
Other accrued expenses.............................................. 10,732
------------
Total liabilities..................................................... 6,027,364
------------
NET ASSETS............................................................ $181,054,414
============
</TABLE>

- ---------------
See Notes to Financial Statements.
27
<PAGE> 138

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $ 4,919,733
Dividends............................................. 1,936,890
-----------
6,856,623
-----------
EXPENSES:
Advisory fees......................................... 913,660
Administration fees................................... 83,060
Fund accounting fees and expenses..................... 122,609
Custodian fees and expenses........................... 30,446
Audit fees............................................ 22,305
Legal fees............................................ 17,976
Amortization of organization costs.................... 13,692
Insurance expense..................................... 3,637
Trustees fees......................................... 3,500
Other operating expenses.............................. 5,835
-----------
1,216,720
Less: Fee waivers and expense reimbursements.......... (785,750) 430,970
----------- -----------
Net Investment Income................................... 6,425,653
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on securities transactions.......... 19,223,012
Net change in unrealized appreciation on
investments......................................... 8,662,241
-----------
Net Gain on Investments................................. 27,885,253
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $34,310,906
===========
</TABLE>

- ---------------
See Notes to Financial Statements.
28
<PAGE> 139

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
---------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................. $ 6,425,653 $ 6,185,598
Net realized gain (loss) on securities transactions.... 19,223,012 (4,776,038)
Net change in unrealized appreciation/depreciation on
investments.......................................... 8,662,241 5,934,051
------------ ------------
Net increase in net assets resulting from operations... 34,310,906 7,343,611
------------ ------------
Trust Share Transactions:
Contributions.......................................... 31,372,458 18,683,561
Withdrawals............................................ (35,499,213) (32,967,230)
------------ ------------
Net decrease in net assets resulting from Trust share
transactions......................................... (4,126,755) (14,283,669)
------------ ------------
Total Increase (Decrease)................................ 30,184,151 (6,940,058)
NET ASSETS:
Beginning of year...................................... 150,870,263 157,810,321
------------ ------------
End of year............................................ $181,054,414 $150,870,263
============ ============
</TABLE>

- ---------------
See Notes to Financial Statements.
29
<PAGE> 140

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Master Investment Trust, Series I (the "Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "Act")
as an open-end management investment company. At February 29, 1996, the Trust
consisted of four portfolios. The accompanying financial statements and notes
are those of the Asset Allocation Portfolio (the "Portfolio") only.

The investment objective of the Portfolio is to obtain long term growth from
capital appreciation and dividend and interest income. The Portfolio seeks to
achieve its objective by actively allocating investments among the three major
asset categories: bonds, equity securities and cash equivalents.

Bank of America National Trust and Savings Association ("Bank of America"),
a wholly owned subsidiary of BankAmerica Corporation, serves as the Portfolio's
investment adviser.

Concord Holding Corporation ("Concord") serves as the Portfolio's
administrator through BISYS Fund Services (Ireland) Ltd., a wholly owned
subsidiary of Concord. Effective March 29, 1995, Concord became a wholly owned
subsidiary of The BISYS Group, Inc. ("BISYS").

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

A) SECURITY VALUATIONS:

30
<PAGE> 141

B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

C) EXPENSES:

D) FEDERAL INCOME TAXES:

The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on their share
of the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio will be managed in such a way that an investor will be able to satisfy
the requirements of the Internal Revenue Code applicable to regulated investment
companies.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Portfolio has an Advisory Agreement with Bank of America and an
Administration Agreement with Concord.

As Adviser, Bank of America is responsible for managing the investment of
the assets of the Portfolio in conformity with the stated objectives and
policies of the Portfolio. For its services, Bank of America is entitled to a
fee, accrued daily and paid monthly, at an annual rate of 0.55% of the average
daily net assets of the Portfolio. For the year ended February 29, 1996, Bank of
America waived $720,259 in fees as Adviser of the Portfolio.

For services provided to all four of the portfolios constituting the Trust,
each Trustee receives an annual fee of $1,500 and a meeting fee of $500. For the
year ended February 29, 1996, the Portfolio incurred legal expenses of $17,976,
which were earned by a law firm, a partner of which serves as Secretary of the
Trust. Certain officers of the Trust are "affiliated persons" (as defined in the
Act) of BISYS.

NOTE 4 -- PURCHASES AND SALES OF SECURITIES

The following table summarizes the securities transactions effected by the
Port-

31
<PAGE> 142

folio, excluding short-term securities, for the year ended February 29, 1996.

<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government.......... $85,887,588 $ 85,359,727
Other.................... 161,276,120 160,698,929
----------- -----------
$247,163,708 $246,058,656
=========== ===========
</TABLE>

At February 29, 1996, the cost of the securities of the Portfolio for
federal income tax purposes was substantially the same as for financial
reporting purposes. Accordingly, Net unrealized appreciation of investments
amounted to $15,964,735, consisting of gross unrealized appreciation of
$18,488,396 and gross unrealized depreciation of $2,523,661.

NOTE 5 -- CONCENTRATION OF CREDIT RISK

The Portfolio had the following concentrations by industry sector at
February 29, 1996 (as a percentage of total investments):

<TABLE>
<S> <C>
U.S.Treasury Obligations........... 15.0%
U.S. Govt. Agency Obligations...... 10.1%
Taxable Municipal Bonds............ 0.5%
Medium Term Notes.................. 7.2%
Corporate Bonds.................... 1.9%
Collateralized Mortgage
Obligations....................... 5.4%
Commercial Paper Discount.......... 3.9%
Aerospace.......................... 0.9%
Airlines & Freight................. 0.2%
Aluminium/Steel.................... 0.2%
Automotive......................... 1.0%
Banks.............................. 3.4%
Business Equipment/Services........ 1.3%
Chemicals.......................... 1.7%
Consumer Cyclical.................. 0.5%
Consumer Staples................... 5.6%
Cosmetics & Household Products..... 1.2%
Diversified Manufacturing.......... 4.3%
Drugs & Biotechnology.............. 3.6%
Drugs & Hospital................... 0.5%
Electrical & Other Electrical
Equipment......................... 0.8%
Electric Utilities................. 1.1%
Electronic Computers............... 1.9%
Finance Services................... 3.1%
Forest Products.................... 0.2%
Gas Utilities...................... 0.7%
Health Care........................ 1.6%
Industrial Inorganic Chemicals..... 0.4%
Leisure............................ 0.7%
Life Insurance..................... 0.4%
Machine Equipment.................. 0.6%
Media.............................. 1.1%
Mining............................. 0.3%
Multi Industry..................... 1.6%
Multi Insurance.................... 1.7%
Oil -- Domestic & Crude............ 4.2%
Paper & Allied Products............ 0.4%
Photographic Equipment &
Supplies.......................... 0.3%
Railroads.......................... 1.3%
Restaurants........................ 0.4%
Retail............................. 2.2%
Software Services.................. 1.7%
Technology......................... 1.5%
Telephone.......................... 3.4%
Tire & Rubber...................... 0.1%
-------
100.0%
========
</TABLE>

32
<PAGE> 143

MASTER INVESTMENT TRUST, SERIES I --
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------

Supplementary Data
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEAR PERIOD
YEAR ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994*
------------ ------------ ------------
<S> <C> <C> <C>
Ratio of expenses to average net
assets**................................. 0.26% 0.17% 0.24%***
Ratio of net investment income to average
net assets**............................. 3.87% 4.01% 3.35%***
Portfolio Turnover......................... 157% 142% 67%

<FN>
- ---------------

* For the period December 6, 1993 (commencement of operations) through
February 28, 1994.

** Net of fee waivers which 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 0.47%, 0.60%, and 0.03% (annualized) for the periods
ended February 29, 1996, February 28, 1995, and February 28, 1994,
respectively.

*** Annualized.
</TABLE>

See Notes to Financial Statements.
33
<PAGE> 144

MASTER INVESTMENT TRUST, SERIES I
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Trustees
and Investors of
Master Investment Trust, Series I

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Master Investment Trust, Series I -- Asset
Allocation Portfolio (the "Portfolio") at February 29, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and its supplementary data for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 29, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations were not received, provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 25, 1996

34
<PAGE> 145

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

PACIFIC HORIZON FUNDS
1230 Columbia Street, Suite 500
San Diego, CA 92101

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

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

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

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

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

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

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

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

PACIFIC HORIZON FUNDS

Money Market Funds
/ / Prime Fund / / Tax-Exempt Money Fund
/ / Treasury Fund / / California Tax-Exempt Money Market Fund
/ / Government Fund
/ / Treasury Only Fund
</TABLE>

Additional Comments:

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

- NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
<PAGE> 146

[Pacific Horizon Funds Logo]

Concord Financial Group, Inc., Distributor

COPAALL96A
<PAGE> 147
P
A
C PACIFIC HORIZON GROWTH & INCOME FUNDS
I
F ANNUAL REPORT
I
C February 29, 1996

H
O
R
I Capital Income Fund
Z
O
N

G Investing For All
R The Times Of Your Life
O
W
T
H

I
N
C
O
M
E

F
U
N
D
S NOT FDIC INSURED
<PAGE> 148

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

ADMINISTRATOR FUND COUNSEL
Concord Holding Corporation Drinker Biddle & Reath
3435 Stelzer Road 1345 Chestnut Street
Columbus, OH 43219 Philadelphia, PA 19107

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

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

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

<TABLE>
<S> <C>
PACIFIC HORIZON FUND FACTS 2-3

UNDERSTANDING YOUR SHAREHOLDER
REPORT 4-6

ECONOMIC REVIEW FROM THE
INVESTMENT ADVISER 7

INTERVIEW WITH YOUR
INVESTMENT MANAGER 8-12

PACIFIC HORIZON CAPITAL
INCOME FUND

Portfolio of Investments 13-16

Statement of Assets
and Liabilities 17

Statement of Operations 18

Statements of Changes
in Net Assets 19

Notes to Financial Statements 20-24

Financial Highlights 25

Report of Independent
Accountants 26
</TABLE>
<PAGE> 150

PACIFIC HORIZON FUND FACTS

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

- California Tax-Exempt Money Market High Level of Federal and California
Tax-Free Current Income Plus Principal
Stability
- ------------------------------------------------------------------------------------
</TABLE>
* Certain investors may be subject to the federal alternative minimum tax and to
certain state and local taxes.

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

2
<PAGE> 151

With the help of an investment professional, you can develop a strategy tailored
to meet your goals. To receive any of the Funds' prospectuses, which include
more complete information such as charges and expenses, call your investment
specialist or the Pacific Horizon Funds. Read the prospectus carefully before
investing or sending money.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PORTFOLIO CONSISTS PRIMARILY OF ... APPROPRIATE FOR INVESTORS WHO SEEK
- -------------------------------------------------------------------------------------------------
<S> <C>
Small Capitalization Stocks Higher-than-average long-term growth potential with
higher-than-average risk.
................................................................................................
Blue Chip Stocks Long-term growth potential from investments in the
stocks of well-established companies.
................................................................................................
Convertible Bonds and Convertible Combined potential for current income and capital
Preferred Stocks appreciation.
................................................................................................
Stocks, Bonds and Cash Equivalents Long-term growth potential and current income from
stocks and bonds.
................................................................................................
Investment-Grade Corporate Debt High monthly income potential with reasonable
investment risk.
................................................................................................
Investment-Grade Corporate and U.S. Regular monthly income from a diversified portfolio
Government Securities of investment-grade securities.
................................................................................................
GNMAs and Other U.S. Government High monthly income potential and low credit risk.
Securities
................................................................................................
Investment-Grade Municipal Debt Monthly tax-free income.
Securities
................................................................................................
Investment-Grade California High monthly double-tax-free income.
Municipal Securities
................................................................................................
High-Quality Corporate and/or U.S. A flexible, convenient way to manage or accumulate
Government Short-Term Obligations cash while waiting for other investment
opportunities.
................................................................................................
Short-Term Municipal Obligations A tax-free way to manage or accumulate cash while
waiting for other investment opportunities.

3
<PAGE> 152

UNDERSTANDING YOUR SHAREHOLDER REPORT

This guide will help you extract the information from
the report.

The TABLE OF CONTENTS helps
you locate the information you
want.

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

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

Because a picture or chart can
help clarify the text, the
investment manager may have
illustrated the most important
features of the Fund. The
illustra-
tions may represent the portfolio composition, the
largest holdings or a simplification of the investment
manager's investment style.

In annual reports, mutual funds, which are not "money
market" funds, are required by the Securities and
Exchange Commission (SEC) to provide shareholders with
[GRAPHIC] a comparison of a hypothetical $10,000 investment in
the Fund to a benchmark of the broader market. The
performance of the benchmark index depicts the
aggregate performance of investments similar to those
in the Fund for the same time period. While the
benchmark index provides a general representation of
the market, there are two
reasons
why
it should be used only as a
guide. First, the Fund, in its
prospectus, must clearly define
which investments can be made by
the Fund. The index does not [GRAPHIC]
necessarily have the same
limitations. Second, the index
does not reflect any expenses
that accompany a real investment,
such as

4
<PAGE> 153

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

TYPE OF SECURITY

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

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

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

[GRAPHIC] SUMMARY OF ALL AMOUNTS OWED TO OUTSIDE PARTIES
BY THE FUND

NET RESULTS OF ASSETS LESS LIABILITIES

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

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

5
<PAGE> 154

ANY INCOME EARNED FROM THE FUND'S INVESTMENTS

NET CHANGE IN NET ASSETS DUE TO FUND
OPERATIONS

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

OPERATIONS: SEE STATEMENT OF OPERATIONS

DIVIDENDS TO SHAREHOLDERS: TOTAL INCOME
DIVIDENDS PAID TO SHAREHOLDERS DURING THE
PERIODS
[GRAPHIC]
DISTRIBUTIONS TO SHAREHOLDERS: TOTAL REALIZED
GAINS DISTRIBUTED TO SHAREHOLDERS DURING THE
PERIODS

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

6
<PAGE> 155

ECONOMIC REVIEW
FROM THE INVESTMENT ADVISER

FUNDAMENTAL ECONOMIC
STRENGTHS

ASSET ALLOCATION KEY
TO PERFORMANCE

LOOKING AHEAD

7
<PAGE> 156

PACIFIC HORIZON
CAPITAL INCOME FUND

[PHOTO]

ED CASSENS, CFA
Portfolio Manager
B of A Capital Management, Inc., a wholly owned subsidiary of Bank of America.

GOAL:

The Pacific Horizon Capital Income Fund seeks total investment return through a
combination of current income and capital appreciation consistent with prudent
risk.

INVESTMENTS:

The Fund invests primarily in convertible bonds and convertible preferred stocks
of domestic issuers.

APPROPRIATE FOR:

Investors seeking a competitive return over the long term comprised of current
income and capital appreciation.

INCEPTION:

September 25, 1987

SIZE OF FUND AS OF
FEBRUARY 29, 1996:

Over $246 million

Q
HOW DID CONVERTIBLE SECURITIES FARE DURING THE PAST 12 MONTHS?

A
The period provided a very favorable environment for convertible bonds and
convertible preferred stocks, which are the Fund's primary holdings.
Convertibles offer a unique combination of attributes. Typically, they pay
higher yields than
common stocks; thus, like other income-
oriented investments, they benefited from falling interest rates during the past
12 months. In addition, convertibles typically share in gains of their issuers'
common stocks to some extent, so the surge in stock prices also was good news
for most convertible investors.

Q
HOW DID THE FUND FARE IN THAT ENVIRONMENT?

A
Very well, thanks partly to some moves we made in the portfolio. For
example, early in the period we reduced our holdings of convertibles issued by
companies in the basic industry and capital goods sectors. We figured that those
sectors would suffer as the economy's growth rate slowed, and that is what
happened. As a result, the Fund had a total return of 25.96% (without the sales
charge) for the 12 months ended February 29, 1996, compared to 25.91% for its
new benchmark, the First Boston Convertible Index.+

Q
WHERE DID YOU INVEST THAT
MONEY?

A
We invested heavily in several areas, including health care and financial
services -- two industries that are experiencing consolidation in the form of
mergers and other deals. Since many health-care companies don't issue
convertibles, we bought common stock of firms such as Pharmacia & Upjohn, Inc.,
a company that was formed through the merger of the two predecessor companies,
(1.36% of net

8
<PAGE> 157

assets as of February 29, 1996), Schering-Plough (1.07%) and Warner-Lambert
(1.04%). The other two firms are potential merger candidates as well. Meanwhile,
such companies can provide stable earnings growth in a slow economy, which
should attract investors.

Among financial service companies, we owned shares of First Interstate Bank,
(1.66%) which was acquired by Wells Fargo after the Fund's fiscal year end. We
also held convertibles during the period issued by First Chicago (0.74%), which
combined with National Bank of Detroit.++

Q
DID YOU HOLD TECHNOLOGY
CONVERTIBLES?

A
We cut back the technology sector around the middle of 1995 because we felt
that the economic slowdown would hurt those firms' growth rates. Our action was
well-timed. The technology sector stumbled soon after we made the move.

Q
WHAT IS YOUR STRATEGY GOING FORWARD?

A
Many older convertibles have been called by their issuers. As a result, lots
of money is chasing a smaller number of convertibles and driving their prices
higher. That said, the Fund will continue to focus on finding good values among
convertibles of companies that have solid earnings prospects. We'll also look to
invest the Fund's assets in securities issued by firms that might benefit from
some corporate action such as a merger or restructuring.

- ------------
+ Fund performance with the 4.50% maximum sales charge was 20.29% for the
period.

++ The composition of the Fund's holdings is subject to change.

9
<PAGE> 158

PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 29, 1996)

GROWTH OF A $10,000 INVESTMENT
(HYPOTHETICAL -- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.)

[GRAPHIC]

<TABLE>
<CAPTION>
LIPPER CON-
VERTIBLE SECU-
MEASUREMENT PERIOD RITIES FUNDS
(FISCAL YEAR COVERED) FUND AVERAGE S&P 500 CS FIRST BOSTON
<S> <C> <C> <C> <C>
9/30/87 9551 10000 10000 10000
10/31/87 8244 8154 7853 8319
11/30/87 7964 7881 7207 8052
12/31/87 8389 8232 7754 8462
1/31/88 8612 8437 8092 8697
2/29/88 8988 8795 8454 9097
3/31/88 9076 8817 8196 9066
4/30/88 9168 8906 8299 9254
5/31/88 9076 8844 8352 9162
6/30/88 9502 9209 8738 9515
7/31/88 9471 9109 8717 9416
8/31/88 9315 8956 8408 9249
9/30/88 9550 9120 8768 9416
10/31/88 9550 9223 9022 9535
11/30/88 9539 9085 8879 9381
12/31/88 9669 9228 9037 9599
1/31/89 10122 9580 9707 10030
2/28/89 10219 9575 9455 10028
3/31/89 10308 9654 9681 10158
4/30/89 10787 9978 10194 10499
5/31/89 11191 10197 10582 10712
6/30/89 11517 10210 10528 10634
7/31/89 11761 10556 11487 10939
8/31/89 12048 10808 11696 11180
9/30/89 12197 10787 11652 11083
10/31/89 11940 10487 11392 10733
11/30/89 12074 10592 11613 10907
12/31/89 12368 10672 11894 10919
1/31/90 11926 10254 11111 10485
2/28/90 12224 10364 11240 10624
3/31/90 12518 10537 11546 10787
4/30/90 12155 10321 11270 10546
5/31/90 13220 10876 12338 11058
6/30/90 13276 10921 12264 11045
7/31/90 13123 10833 12235 10946
8/31/90 12233 10198 11120 10316
9/30/90 11646 9726 10587 9866
10/31/90 11115 9407 10551 9496
11/30/90 11465 9845 11218 9960
12/31/90 11836 10106 11531 10170
1/31/91 12533 10550 12033 10626
2/28/91 13468 11151 12893 11261
3/31/91 13917 11410 13205 11536
4/30/91 14198 11553 13237 11653
5/31/91 14880 11921 13807 11999
6/30/91 14552 11585 13175 11664
7/31/91 14985 11971 13789 12108
8/31/91 15296 12366 14116 12559
9/30/91 15463 12420 13880 12535
10/31/91 15750 12679 14066 12716
11/30/91 15298 12373 13499 12411
12/31/91 16362 13237 15044 13132
1/31/92 16701 13547 14764 13511
2/29/92 16999 13835 14956 13856
3/31/92 16736 13670 14664 13756
4/30/92 16793 13671 15095 13922
5/31/92 17166 13926 15169 14165
6/30/92 17121 13761 14943 14099
7/31/92 17848 14193 15554 14451
8/31/92 17657 14075 15235 14359
9/30/92 18159 14381 15415 14647
10/31/92 18607 14590 15468 14682
11/30/92 19188 15064 15995 15106
12/31/92 19857 15393 16192 15442
1/31/93 20611 15812 16328 15923
2/28/93 20503 15731 16550 15977
3/31/93 21193 16305 16899 16572
4/30/93 21255 16207 16490 16568
5/31/93 21891 16596 16930 16858
6/30/93 22271 16768 16980 17019
7/31/93 22427 16892 16912 17194
8/31/93 23114 17412 17553 17665
9/30/93 23221 17592 17417 17865
10/31/93 23899 17928 17778 18286
11/30/93 23750 17752 17609 18010
12/31/93 24367 18053 17822 18307
1/31/94 25371 18560 18428 18833
2/28/94 24983 18407 17927 18533
3/31/94 23726 17719 17145 17777
4/30/94 23383 17454 17367 17454
5/31/94 23268 17428 17653 17492
6/30/94 23006 17275 17216 17294
7/31/94 23551 17588 17785 17782
8/31/94 24261 18101 18509 18132
9/30/94 24089 17951 18063 17811
10/31/94 23905 17929 18476 17964
11/30/94 23115 17403 17798 17312
12/31/94 22941 17347 18057 17444
1/31/95 23010 17489 18527 17421
2/28/95 23580 17904 19245 17991
3/31/95 24123 18356 19815 18466
4/30/95 24700 18716 20391 18885
5/31/95 25417 19143 21197 19442
6/30/95 25898 19607 21695 20150
7/31/95 26676 20229 22417 20865
8/31/95 26923 20400 22478 21084
9/30/95 27467 20745 23420 21398
10/31/95 27146 20401 23338 20742
11/30/95 28110 21047 24365 21463
12/31/95 28472 21272 24815 21581
1/31/96 28996 21662 25669 22058
2/29/96 29702 22026 25904 22652
</TABLE>

HOW PERFORMANCE COMPARES

With this annual report, we are changing the Fund's benchmark from the S&P 500
Index to the CS First Boston Index, which is widely used as a broad measure of
the performance of convertible securities. As such, we believe it is a more
appropriate benchmark for this Fund. In order to complete the transition to the
new benchmark, we are providing a hypothetical comparison of the Fund's
performance since September 30, 1987 with both its former benchmark and its new
benchmark, the CS First Boston Index. The hypothetical investments in the CS
First Boston Index and the S&P 500 Index do not reflect any sales or management
fees that would be incurred if an investor were to actually purchase individual
securities or mutual funds, while the performance of the Fund reflects all
expenses and management fees and the effect of the maximum sales charge.

<TABLE>
<CAPTION>
- -------------------------------
AVERAGE ANNUAL RETURN
- -------------------------------
<S> <C>
1 year: 20.29%
..............................
5 years: 16.04%
..............................
Since inception
(9/25/87): 13.80%
- ------------------------------
</TABLE>

10
<PAGE> 159

The Fund fared relatively well compared to other convertible security funds. The
average of convertible security funds as tracked by Lipper Analytical Services,
Inc. measures the performance of other funds with investment objectives and
policies similar to those of the Pacific Horizon Capital Income Fund. An initial
$10,000 investment in the Fund made on September 30, 1987 would now be worth
$29,702, while the same investment made in the Lipper Convertible Securities
Funds Average would be worth only $22,026.

SEE INVESTMENT MANAGER INTERVIEW FOR FACTORS AFFECTING FUND PERFORMANCE.

Investment return and principal value are historical and will vary with market
conditions, so an investor's shares, when redeemed, may be worth more or less
than their original cost.

Return figures for the fund include change in share price, reinvestment of
dividends and capital gains distributions, if any, and the effect of the maximum
4.50% sales charge.

S&P 500 is a registered trademark of Standard & Poor's Corporation. Lipper
Analytical Services, Inc. is an independent mutual fund-monitoring organization.

Neither the S&P 500, Lipper Convertible Securities Funds Average, nor the CS
First Boston Index may be invested in directly.

11
<PAGE> 160

PACIFIC HORIZON
CAPITAL INCOME FUND
(AS OF FEBRUARY 29, 1996)

BALANCE

Two Advantages
The Pacific Horizon Capital Income
Fund provides investors with the
opportunity to receive regular
quarterly income while participating
in the upside potential of the
underlying equity securities.
Historically, holders of convertible
[GRAPHIC] securities have enjoyed about 70
percent of the appreciation of
stocks.* Investors seeking growth
and income will appreciate the
opportunities to invest in the
Pacific Horizon Capital Income Fund.
Of course, past performance is not
reflective of future results.

*Source: Investment Advisor, March
1993.

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

DIVERSITY
Positioned for Income and Growth

PORTFOLIO COMPOSITION
(PERCENT OF NET ASSETS)

[GRAPHIC]

<TABLE>
<S> <C>
CONVERTIBLE BONDS 44.9
CONVERTIBLE PREFERRED STOCKS 31.4
COMMON STOCKS 20.5
GOVERNMENT SECURITIES 1.0
CASH & CASH EQUIVALENTS 2.2
</TABLE>

The Pacific Horizon Capital Income Fund is professionally managed and maintains
at least a 65 percent position in convertible securities. In order to maximize
performance, the Fund also invests in common and preferred stocks, cash and cash
equivalents that the adviser believes to be of high quality.

TOP TEN HOLDINGS AS OF
FEBRUARY 29, 1996*
<TABLE>
<CAPTION>
- --------------------------------------------------------
PERCENT OF
NET ASSETS
<S> <C>
- --------------------------------------------------------
Career Horizons, Inc. 144a, 7.00%, 11/1/02 1.79%
......................................................
Cooper Ind., Inc., 7.05%, 1/1/15 1.72%
......................................................
First Interstate Bancorp 1.65%
......................................................
Freeport McMoran Co. Gold, $1.25 1.48%
......................................................
AT&T 1.42%
......................................................
Pharmacia & Upjohn Inc. 1.36%
......................................................
Unocal Corp. Cvt Pfd., $350, 144a 1.34%
......................................................
Conner Peripherals, 6.75%, 3/1/01 1.34%
......................................................
Noble Affiliates, Inc., 4.25%, 11/1/03 1.32%
......................................................
Danka Business Systems, 6.75%, 4/1/02 1.32%
- ----------------------------------------
TOTAL 14.74%
- ----------------------------------------
<FN>
* The composition of the Fund's holdings is subject to change.
</TABLE>

12
<PAGE> 161

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Portfolio of Investments
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- --------------------------------------------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS -- 44.9%
BASICS -- 1.5%
Agnico Eagle Mines, Ltd. ................... 3.50% 1/27/04 $ 2,000 $ 2,052,500
Inco, Ltd. ................................. 5.75% 7/01/04 1,200 1,528,500
-------------
3,581,000
-------------
CAPITAL GOODS -- 9.9%
Air & Water Technologies Corp. ............. 8.00% 5/15/15 1,500 1,325,625
Career Horizons, Inc. 144a.................. 7.00% 11/01/02 2,950 4,428,688
Cooper Industries, Inc. .................... 7.05% 1/01/15 4,086 4,254,547
General Signal Corp. ....................... 5.75% 6/01/02 1,450 1,508,000
Hanson America 144a......................... 2.39% 3/01/01 2,500 2,031,250
Horsham Corp. .............................. 3.00% 1/29/21 2,500 2,618,750
Laidlaw/Careline............................ 8.00% 5/01/01 2,500 2,762,500
Olsten Corp. ............................... 4.88% 5/15/03 1,800 2,358,000
U.S. Filter 144a............................ 6.00% 9/15/05 2,600 3,172,000
-------------
24,459,360
-------------
COMPUTERS -- 2.7%
3Com Corp. 144a............................. 10.25% 11/01/01 1,600 2,620,000
Conner Peripherals.......................... 6.75% 3/01/01 3,000 3,300,000
Safeguard 144a.............................. 6.00% 2/01/06 680 713,150
-------------
6,633,150
-------------
CONSUMER CYCLICALS -- 6.3%
Baby Superstore............................. 4.88% 10/01/00 2,900 2,827,500
HFS, Inc. .................................. 4.75% 3/01/03 350 365,750
Magna International......................... 5.00% 10/15/02 2,800 2,786,000
Medusa Corp. ............................... 6.00% 11/15/03 1,500 1,560,000
Pier 1 Imports, Inc. ....................... 6.88% 4/01/02 1,000 1,175,000
Price Co. .................................. 5.50% 2/28/12 2,300 2,277,000
Schuler Homes, Inc. ........................ 6.50% 1/15/03 1,500 1,230,000
Starbucks Coffee Corp. ..................... 4.25% 11/01/02 2,700 2,565,000
Time Warner, Inc. Z.C.B. ................... 0.00% 12/17/12 2,000 710,000
-------------
15,496,250
-------------
CONSUMER STAPLES -- 3.7%
Grand Metropolitan, PLC 144a................ 6.50% 1/31/00 2,400 2,709,000
McKesson Corp. ............................. 4.50% 3/01/04 2,500 2,315,625
Roche Holdings, Z.C.B. LYON 144a............ 0.00% 4/20/10 3,000 1,327,500
Sandoz 144a................................. 2.00% 10/06/02 3,000 2,880,000
-------------
9,232,125
-------------
ENERGY -- 3.7%
Chevron..................................... 4.75% 10/01/03 2,700 2,801,250
Noble Affiliates, Inc. ..................... 4.25% 11/01/03 3,250 3,266,250
Pride Pete Services......................... 6.25% 2/15/06 2,750 3,038,750
-------------
9,106,250
-------------
FINANCE -- 2.4%
ADT, Z.C.B. LYON............................ 0.00% 7/06/10 3,000 1,432,500
Fifth Third Bancorp......................... 4.25% 1/15/98 2,105 2,589,150
USF&G Corp. Z.C.B. ......................... 0.00% 3/03/09 3,500 2,003,750
-------------
6,025,400
-------------
</TABLE>

- ---------------
See Notes to Financial Statements.
13
<PAGE> 162
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- --------------------------------------------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C>
INSURANCE -- 1.8%
American Travelers Corp. ................... 6.50% 10/01/05 $ 1,750 $ 2,471,875
Fidelity National Z.C.B. LYON............... 0.00% 2/15/09 4,500 2,047,500
-------------
4,519,375
-------------
MANUFACTURING - ELECTRICAL -- 3.0%
Dovatron International Inc. 144a............ 6.00% 10/15/02 2,400 2,604,000
National Semi-Conductor 144a................ 6.50% 10/01/02 2,350 2,185,500
Park Electrochemical........................ 5.50% 3/01/06 1,000 990,000
VLSI Technologies........................... 8.25% 10/01/05 1,750 1,601,250
-------------
7,380,750
-------------
MEDICAL SERVICES & SUPPLIES -- 3.8%
Nabi 144a................................... 6.50% 2/01/03 1,000 1,080,000
PHP Health 144a............................. 6.50% 12/15/02 1,500 1,845,000
Phycor...................................... 4.50% 2/15/03 1,500 1,515,000
Tenet Healthcare............................ 6.00% 12/01/05 1,800 2,072,250
Theratx, Inc. .............................. 8.00% 2/01/02 3,000 2,745,000
-------------
9,257,250
-------------
TECHNOLOGY -- 3.3%
Danka Business Systems...................... 6.75% 4/01/02 2,000 3,262,500
First Financial Management Corp. ........... 5.00% 12/15/99 1,800 3,010,500
Motorola, Inc. Z.C.B. LYON.................. 0.00% 9/27/13 2,500 1,856,250
-------------
8,129,250
-------------
TRANSPORTATION -- 2.0%
Alaska Air Group............................ 6.50% 6/15/05 2,300 2,754,250
AMR Corp. .................................. 6.13% 11/01/24 2,000 2,270,000
-------------
5,024,250
-------------
UTILITIES -- 0.8%
Telekom Malaysia Berhad 144a................ 4.00% 10/03/04 2,000 2,080,000
-------------
Total Convertible Bonds
(cost $101,165,687)......................... 110,924,410
-------------

<CAPTION>
SHARES
----------
<S> <C> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS -- 31.4%
BASICS -- 4.5%
Amax Gold, $3.50............................ 40,000 2,420,000
Cypress Amax Minerals, Series A, $4.00...... 19,950 1,157,100
Freeport McMoran Co. Gold, $1.25............ 125,000 3,656,250
James River Corp., $1.55.................... 80,000 2,080,000
USX Corp., $3.25............................ 34,000 1,657,500
-------------
10,970,850
-------------
CAPITAL GOODS -- 3.2%
Alco Standard, $5.04........................ 26,700 2,406,338
Corning Delaware, $3.00..................... 42,000 2,231,250
Elsag Baily, $2.75* 144a.................... 20,000 892,500
Federal-Mogul, $3.875 144a.................. 40,000 2,370,000
-------------
7,900,088
-------------
COMPUTERS -- 0.1%
Wang Labs, $3.25* 144a...................... 5,000 266,250
-------------
CONSUMER CYCLICALS -- 1.3%
Bally Entertainment PRIDE $.89.............. 200,000 3,150,000
-------------
</TABLE>

- ---------------
See Notes to Financial Statements.
14
<PAGE> 163

<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
CONSUMER STAPLES -- 0.9%
AJL Trust PEPS, $1.44....................... 110,000 $ 2,255,000
-------------
ENERGY -- 4.9%
Ashland Oil, Inc., $3.125................... 45,000 2,784,375
Chieftain International, $1.8125............ 25,000 650,000
Occidental Petroleum Corp., $3.00........... 40,000 2,470,000
Reading & Bates, $1.625..................... 50,000 2,825,000
Unocal Corp., $3.50 144a.................... 60,000 3,315,000
-------------
12,044,375
-------------
FINANCE -- 12.7%
Ahmanson (H.F.) and Co., Series D, $3.00.... 46,300 2,558,075
Allstate Corp., $2.30....................... 62,000 2,557,500
American General Delaware, $3.00............ 30,000 1,665,000
Barnett Banks, Inc., Series A, $4.50........ 20,000 2,370,000
First Chicago NBD Corp., $2.88.............. 25,000 1,825,000
Great Western Financial, $4.375............. 35,000 2,073,750
Integon Corp., $3.875....................... 40,000 2,360,000
National Health Investors, $2.125........... 62,000 1,836,750
Penncorp Financial Group, Inc., $3.375...... 40,000 3,160,000
Rochester Community Savings Bank, $1.75..... 63,000 2,338,875
Sovereign Bankcorp, Inc., $3.125............ 45,000 2,790,000
St. Paul Capital, $3.00..................... 40,000 2,350,000
SunAmerica, $3.10........................... 16,000 1,156,000
Washington Mutual Inc., $6.00............... 20,000 2,400,000
-------------
31,440,950
-------------
TRANSPORTATION -- 1.0%
Delta Air Lines, $3.50...................... 40,000 2,465,000
-------------
UTILITIES -- 2.8%
Citizens Utility, $2.50..................... 50,000 2,456,250
Philippine Long Distance Telephone, Series
III, $3.50................................ 35,000 1,977,500
Sprint Corp. DEC, $2.6292................... 64,000 2,536,000
-------------
6,969,750
-------------
Total Convertible Preferred Stocks
(cost $68,279,321).......................... 77,462,263
-------------
COMMON STOCKS -- 20.5%
CONSUMER CYCLICALS -- 2.1%
General Motors.............................. 49,273 2,814,720
J.C. Penney Co., Inc. ...................... 50,000 2,375,000
-------------
5,189,720
-------------
CONSUMER STAPLES -- 5.2%
Avon Products, Inc. ........................ 25,000 2,009,375
Colgate-Palmolive Co. ...................... 30,000 2,347,500
Pharmacia & Upjohn, Inc. ................... 80,000 3,350,000
Schering-Plough............................. 47,000 2,637,875
Warner-Lambert.............................. 26,000 2,570,750
-------------
12,915,500
-------------
ENERGY -- 1.6%
Atlantic Richfield.......................... 20,000 2,190,000
Tosco Corp. ................................ 41,249 1,840,737
-------------
4,030,737
-------------
</TABLE>

- ---------------
See Notes to Financial Statements.
15
<PAGE> 164
<TABLE>
<CAPTION>
VALUE
DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
FINANCE -- 1.7%
First Interstate Bancorp.................... 25,000 $ 4,084,375
-------------
HEALTH CARE -- 2.3%
American Home Products Corp.*............... 29,000 2,856,500
Bristol Myers Squibb Co. ................... 32,000 2,724,000
-------------
5,580,500
-------------
PUBLISHING -- 1.0%
Dun & Bradstreet............................ 40,000 2,530,000
-------------
TECHNOLOGY -- 1.0%
International Business Machines............. 20,000 2,452,500
-------------
UTILITIES -- 5.6%
AT&T........................................ 55,000 3,499,375
Duke Power Co. ............................. 57,000 2,785,875
Northern States Power....................... 50,000 2,462,500
PacifiCorp.................................. 115,000 2,386,250
Southern Co. ............................... 110,000 2,626,250
-------------
13,760,250
-------------
Total Common Stocks
(cost $39,363,370).......................... 50,543,582
-------------

<CAPTION>
PRINCIPAL
MATURITY AMOUNT
RATE DATE (000)
------ -------- ----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 1.0%
U.S. Treasury Note
(cost $2,416,923)......................... 6.38% 1/15/99 $ 2,500 2,553,902
-------------
TOTAL INVESTMENTS
(COST $211,225,301) (A) -- 97.8%............ 241,484,157
Other assets in excess of
liabilities -- 2.2%......................... 5,261,642
-------------
NET ASSETS -- 100.0%......................... $ 246,745,799
=============
</TABLE>

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

Percentages indicated are based on net assets of $246,745,799.

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

<TABLE>
<S> <C>
Unrealized appreciation................................... $32,918,583
Unrealized depreciation................................... (2,659,727)
-----------
Net unrealized appreciation............................... $30,258,856
===========
</TABLE>

* Non-income producing security

144a -- Security which is restricted as to resale to institutional investors

DEC -- Debt Exchangeable For Common Stock

LYON -- Liquid Yield Option Note

PEPS -- Premium Exchangeable For Common Stock

PRIDE -- Preferred Redeemable Increased Dividend Equity

Z.C.B. -- Zero Coupon Bond

See Notes to Financial Statements.
16
<PAGE> 165

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Statement of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $211,225,301)............ $241,484,157
Cash............................................................... 3,246,618
Receivable for Portfolio shares sold............................... 402,064
Interest receivable................................................ 1,462,582
Receivable for investment securities sold.......................... 571,150
Dividends receivable............................................... 477,117
Prepaid expenses................................................... 110,628
------------
Total assets......................................................... 247,754,316
------------
LIABILITIES:
Payable for Portfolio shares redeemed.............................. 456,359
Payable for investment securities purchased........................ 290,759
Advisory fees payable.............................................. 87,781
Administration fees payable........................................ 39,036
Shareholder service fees payable................................... 48,795
Dividends payable.................................................. 5,791
Other accrued expenses............................................. 79,996
------------
Total liabilities.................................................... 1,008,517
------------
NET ASSETS........................................................... $246,745,799
============
Shares Outstanding ($0.001 par value, 250 million shares
authorized)........................................................ 15,027,480
============
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value and redemption price per share..................... $16.42
Sales charge -- 4.50% of public offering price..................... 0.77
-----
Maximum Offering Price............................................. $17.19
=====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par..................................... $ 15,027
Additional paid-in capital......................................... 218,544,278
Accumulated net realized losses on investment transactions......... (3,462,130)
Net unrealized appreciation of investments......................... 30,258,856
Accumulated undistributed net investment income.................... 1,389,768
------------
NET ASSETS, FEBRUARY 29, 1996........................................ $246,745,799
============
</TABLE>

- ---------------
See Notes to Financial Statements.
17
<PAGE> 166

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Statement of Operations
For the year ended February 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest.............................................. $ 6,507,359
Dividends............................................. 5,155,980
------------
11,663,339
EXPENSES:
Advisory fees......................................... $ 992,349
Administration fees................................... 441,044
Shareholder service fees.............................. 551,305
Transfer agent fees and expenses...................... 483,034
Custodian fees and expenses........................... 85,324
Audit fees............................................ 34,344
Reports to shareholders............................... 73,078
Legal fees............................................ 50,936
Directors' fees....................................... 10,810
Insurance expense..................................... 8,865
Membership fees....................................... 5,420
Registration fees..................................... 44,473
Other expenses........................................ 6,710
----------
2,787,692
Less: Expenses paid by third parties.................... (69,758) 2,717,934
---------- ------------
Net Investment Income................................... 8,945,405
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gains on securities transactions......... 2,680,964
Net change in unrealized appreciation of
investments......................................... 38,907,177
------------
Net Gain on Investments................................. 41,588,141
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................................... $ 50,533,546
============
</TABLE>

- ---------------
See Notes to Financial Statements.
18
<PAGE> 167

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income................................ $ 8,945,405 $ 9,282,020
Net realized gains (losses) on securities
transactions....................................... 2,680,964 (6,025,293)
Net change in unrealized appreciation (depreciation)
of investments..................................... 38,907,177 (15,119,567)
------------ ------------
Net increase (decrease) in net assets resulting from
operations......................................... 50,533,546 (11,862,840)
------------ ------------
Dividends and Distributions:
Dividends to shareholders from net investment
income............................................. (10,020,414) (7,906,479)
Distributions to shareholders from net realized
gains.............................................. -- (5,349,179)
------------ ------------
Total dividends and distributions...................... (10,020,414) (13,255,658)
------------ ------------
Portfolio Share Transactions:
Net proceeds from shares subscribed.................. 264,083,620 74,282,303
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions........ 9,525,718 12,786,217
Cost of shares redeemed.............................. (265,627,625) (55,189,971)
------------ ------------
Net increase in net assets from Portfolio share
transactions....................................... 7,981,713 31,878,549
------------ ------------
Total Increase......................................... 48,494,845 6,760,051
NET ASSETS:
Beginning of year.................................... 198,250,954 191,490,903
------------ ------------
End of year (including undistributed net income of
$1,389,768 and $2,464,777)......................... $246,745,799 $198,250,954
============ ============
</TABLE>

- ---------------
See Notes to Financial Statements.
19
<PAGE> 168

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Notes to Financial Statements
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Pacific Horizon Funds, Inc. (the "Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At February 29, 1996, the Fund
operated as a series company comprising fifteen portfolios. The accompanying
financial statements and notes are those of the Pacific Horizon Capital Income
Fund (the "Portfolio") only. The Portfolio seeks to provide investors with a
total investment return, comprised of current income and capital appreciation,
consistent with prudent investment risk. The Portfolio does so by investing in a
diversified portfolio consisting principally of convertible bonds and
convertible preferred stocks of domestic issuers.

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

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

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

A) PORTFOLIO VALUATIONS:

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

20
<PAGE> 169

B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME:

Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Interest income, including amortization of premiums and accretion of
discounts, is accrued daily. Dividend income is recognized on the ex-dividend
date.

C) DIVIDENDS AND DISTRIBUTIONS:

The Portfolio's net investment income is declared as a dividend, quarterly,
to shareholders of record at the close of business day on record date. Net
realized gains on portfolio securities, if any, will be distributed at least
annually. However, to the extent that net realized gains of the Portfolio can be
offset by capital loss carryovers of the Portfolio, such gains will not be
distributed. Dividends and distributions are recorded on the ex-dividend date.

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

D) FEDERAL INCOME TAXES:

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

At February 29, 1996, the portfolio had capital loss carryovers of
approximately $2,300,000 and $600,000, respectively, which will expire in fiscal
2003 and 2004, respectively. To the extent provided by regulations in the Code,
these capital loss carryovers will be used to offset future net realized gains
on security transactions. As such, it is probable that the gains so offset will
not be distributed to shareholders. Capital losses incurred after October 31,
1995 and within the fiscal year are deemed to arise on the first business day of
the following fiscal year. The Portfolio incurred and elected to defer such
losses of approximately $500,000.

E) OTHER:

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

21
<PAGE> 170

The Portfolio maintains a cash balance with its custodian and receives a
reduction of its custody fees and expenses for the amount of interest earned on
such uninvested cash balances. For financial reporting purposes for the year
ended February 29, 1996, custodian fees and expenses and expenses paid by third
parties were increased by $69,758. There was no effect on net investment income.
The Portfolio could have invested such cash amounts in an income producing asset
if it had not agreed to a reduction of fees or expenses under the expense offset
arrangement with its custodian.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

The Portfolio has an Investment Advisory Agreement with Bank of America, an
Administration Agreement with Concord and a Distribution Agreement with the
Distributor. Pursuant to the terms of the Investment Advisory Agreement, Bank of
America is entitled to a fee from the Portfolio, which is accrued daily and
payable monthly, at an annual rate of 0.45% of the Portfolio's average net
assets. Pursuant to the terms of the Administration Agreement, Concord is
entitled to a fee which is accrued daily and payable monthly, at an annual rate
of 0.20% of the Portfolio's average net assets.

The Investment Advisory and Administration Agreements provide that if, in
any fiscal year, the operating expenses of the Portfolio (generally excluding
interest, taxes, brokerage commissions and extraordinary expenses) exceed the
most restrictive expense limitation of any state having jurisdiction over the
Portfolio, then Bank of America and Concord will reimburse the Portfolio for any
such excess expenses. At February 29, 1996, the most restrictive expense
limitation is believed to limit expenses to 2.5% of the first $30 million of the
Portfolio's average daily net assets, plus 2.0% of the next $70 million of such
assets, plus 1.5% of such assets in excess of $100 million. These agreements
provide that such reimbursements will be estimated and paid on a monthly basis.
No reimbursement was required for the year ended February 29, 1996.

For the year ended February 29, 1996, the Distributor advised the Portfolio
that it retained $202,102 from commissions earned on sales of the Portfolio's
shares. For the same period, Bank of America and its affiliates advised the
Portfolio that they retained $1,493,113 from commissions earned on sales of the
Portfolio's shares.

The Portfolio has a Shareholder Services Plan (the "Plan") under which the
Portfolio pays for shareholder servicing expenses related to shares of the
Portfolio. Under the Plan, payments by the Portfolio for shareholder servicing
expenses may not exceed 0.25% (annualized) of the Portfolio's average daily net
assets. For the year ended February 29, 1996, the Portfolio incurred charges of
$551,305 pursuant to the Plan. The Portfolio was advised that of this amount,
the Distributor retained $64,707 and affiliates of Bank of America retained
$483,153. The Plan provides that if, in any month, the fees paid to the
Distributor are less than the costs incurred by the Distributor, the excess
costs will be included in future computa-

22
<PAGE> 171

tions of the fee, provided that any excess cost will not be carried forward
beyond the end of the fiscal year in which such excess costs were incurred.

Effective December 11, 1995, BISYS Fund Services, Inc., also a wholly owned
subsidiary of BISYS, serves the Fund as transfer agent and dividend disbursing
agent. In this capacity, BISYS Fund Services, Inc. earned $109,656 for the
period from December 11, 1995 through February 29, 1996. Prior to December 11,
1995, an unrelated party provided these services.

For the year ended February 29, 1996, the Portfolio incurred legal charges
totaling $50,936 which were earned by a law firm, a partner which serves as
Secretary of the Fund. Certain officers of the Fund are "affiliated persons" (as
defined in the Act) of BISYS.

NOTE 4 -- DIRECTORS' COMPENSATION

Each Director of the Fund is entitled to an annual retainer of $25,000 plus
$1,000 for each day the director participates in all or part of a Board or
Committee meeting, and the Chairman of each Committee receives an annual
retainer of $1,000 for services as Chairman of the Committee. In addition, the
Fund's President is entitled to an annual salary of $20,000 for services as
President. The former President and Chairman of the Fund receives an additional
$40,000 per year through February 28, 1997 in consideration for his years of
service. Total charges for directors' fees incurred for the year ended February
29, 1996 by the Portfolio were $10,810.

The Board has also established a retirement plan (the "Retirement Plan") for
the Directors. The Retirement Plan provides that each Director who dies or
resigns after five years of service as a director will be entitled to receive
ten annual payments each equal to the greater of: (i) 50% of the annual
Director's retainer that was payable during the year of that director's death or
resignation, or (ii) 50% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. A Director who dies or
resigns after nine years of service as a director will be entitled to receive
ten annual payments equal to the greater of: (i) 100% of the annual Director's
retainer that was payable during the year of that Director's death or
resignation, or (ii) 100% of the annual Director's retainer then in effect for
Directors of the Fund during the year of such payment. In addition, the amount
payable each year to a Director who dies or resigns shall be increased by $1,000
for each year of service that the Director served as Chairman of the Board. Each
Director may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum payment or ten annual installments. A
Director's years of service for the purpose of calculating the payments
described above shall be based upon service as a Director or Chairman after
February 28, 1994. Aggregate costs to the Portfolio pursuant to the Retirement
Plan amounted to $1,821 for the year ended February 29, 1996.

23
<PAGE> 172

NOTE 5 -- PURCHASES AND SALES OF SECURITIES

For the year ended February 29, 1996, the cost of purchases and the proceeds
from sales of Portfolio securities (excluding short-term investments) amounted
to $143,533,203 and $124,630,058, respectively.

NOTE 6 -- CAPITAL SHARE TRANSACTIONS

At February 29, 1996, there were 200 billion shares of the Fund's $0.001 par
value capital stock authorized, of which 250 million shares were classified as
Class F Common Stock (Capital Income Fund).

Transactions in shares of the Portfolio are summarized below (000 omitted):

<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold.......... 18,026 5,120
Shares issued in
reinvestment of
distributions....... 639 920
Shares redeemed...... (18,167) (3,927)
------ ------
Net increase........ 498 2,113
====== ======
</TABLE>

NOTE 7 -- CONCENTRATION OF
CREDIT RISK

The Portfolio invests a substantial portion of its assets in a diversified
portfolio of convertible debt obligations. The Portfolio's investments at
February 29, 1996 are presented by asset class and sub-classified by industry,
in the Portfolio of Investments. The issuers' abilities to meet their
obligations may be affected by economic or regional developments in those
industries or in individual geographic areas, states or regions.

24
<PAGE> 173

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Financial Highlights+
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------
FEBRUARY FEBRUARY
29, 28,
1996 1995
-------- --------
<S> <C> <C>
Net asset value per share, beginning
of year............................ $ 13.65 $ 15.42
-------- --------
Income from Investment Operations:
Net investment income.............. 0.62 0.57
Net realized and unrealized gains
(losses) on securities........... 2.84 (1.43)
-------- --------
Total income (loss) from
investment operations.......... 3.46 (0.86)
-------- --------
Less Dividends and Distributions:
Dividends from net investment
income........................... (0.69) (0.54)
Distributions from net realized
gains............................ -- (0.37)
-------- --------
Total dividends and distributions... (0.69) (0.91)
-------- --------
Net change in net asset value per
share.............................. 2.77 (1.77)
-------- --------
Net asset value per share,
end of year........................ $ 16.42 $ 13.65
======== ========
Total return (excludes sales
charge)............................ 25.96% (5.61)%
Ratios/Supplemental Data:
Net assets, end of year (000)...... $246,746 $198,251
Ratio of expenses to average net
assets (with fee waivers and/or
reimbursements).................. 1.23% 0.97%
Ratio of net investment income to
average net assets (with fee
waivers and/or reimbursements)... 4.05% 4.48%
Ratio of expenses to average net
assets (without fee waivers
and/or reimbursements)*.......... 1.26%** 1.14%
Ratio of net investment income
(loss) to average net assets
(without fee waivers and/or
reimbursements)*................. (a) 4.31%
Portfolio turnover rate............. 57% 94%

FEBRUARY FEBRUARY FEBRUARY
28, 28, 29,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net asset value per share, beginning
of year............................ $ 13.32 $ 12.01 $ 10.23
-------- -------- --------
Income from Investment Operations:
Net investment income.............. 0.50 0.56 0.53
Net realized and unrealized gains
(losses) on securities........... 2.36 1.79 2.06
-------- -------- --------
Total income (loss) from
investment operations.......... 2.86 2.35 2.59
-------- -------- --------
Less Dividends and Distributions:
Dividends from net investment
income........................... (0.48) (0.60) (0.55)
Distributions from net realized
gains............................ (0.28) (0.44) (0.26)
-------- -------- --------
Total dividends and distributions... (0.76) (1.04) (0.81)
-------- -------- --------
Net change in net asset value per
share.............................. 2.10 1.31 1.78
-------- -------- --------
Net asset value per share,
end of year........................ $ 15.42 $ 13.32 $ 12.01
======== ======== ========
Total return (excludes sales
charge)............................ 21.85% 20.62% 26.21 %
Ratios/Supplemental Data:
Net assets, end of year (000)...... $191,491 $19,613 $ 6,032
Ratio of expenses to average net
assets (with fee waivers and/or
reimbursements).................. 0.46% 0.07% 0.00 %
Ratio of net investment income to
average net assets (with fee
waivers and/or reimbursements)... 4.19% 5.00% 5.63 %
Ratio of expenses to average net
assets (without fee waivers
and/or reimbursements)*.......... 1.20% 3.34% 6.23 %
Ratio of net investment income
(loss) to average net assets
(without fee waivers and/or
reimbursements)*................. 3.45% 1.73% (0.60)%
Portfolio turnover rate............. 103% 216% 278 %

<FN>
- ---------------

(a) There were no fee waivers or expense reimbursements during the period.

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

** During the year ended February 29, 1996 the Portfolio received credits from
its custodian for interest earned on uninvested cash balances which were
used to offset custodian fees and expenses. If such credits had not
occurred, the expense ratio would have been as indicated. The ratio of net
investment income was not affected.

+ Security Pacific National Bank served as Investment Adviser through April
21, 1992. Bank of America National Trust and Savings Association served as
Investment Adviser commencing April 22, 1992.
</TABLE>

See Notes to Financial Statements.
25
<PAGE> 174

PACIFIC HORIZON CAPITAL INCOME FUND
- --------------------------------------------------------------------------------

Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors
and Shareholders of
Pacific Horizon Funds, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pacific Horizon Capital Income
Fund (one of the portfolios constituting Pacific Horizon Funds, Inc., hereafter
referred to as the "Funds") at February 29, 1996, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 29, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
April 22, 1996
- --------------------------------------------------------------------------------
TAX STATUS OF DIVIDENDS (UNAUDITED)
-----------------------------------
Pacific Horizon Funds, Inc. -- Capital Income Fund has determined that all
dividends paid during the year ended February 29, 1996 were paid from net
investment income and are subject to federal income tax.
- --------------------------------------------------------------------------------

See Notes to Financial Statements.
26
<PAGE> 175